Strategic Implications of the Microsoft/Skype Deal

Table of Contents

  1. Summary
  2. Skype’s Value
  3. Where Skype Fits into Microsoft’s World
  4. Key Risks
  5. Conclusion
  6. About Dave Michels

1. Summary

By now, Microsoft’s $8.5 billion deal with Skype, announced last week, is well documented. The acquisition is the largest that Microsoft has ever made, and it has raised a lot of questions, mainly because Skype generates so little revenue and actually posted a $6.9 million loss in 2010. Furthermore, many people were reasonably caught off guard by the deal: While Skype has been for sale before, Microsoft has never been speculated as a potential buyer.

Skype was primarily owned by four groups: eBay, Silver Lake Partnership, Andreessen Horowitz and Skype’s original co-founders, Niklas Zennström and Janus Friis. The company was ripe for acquisition, as it was in preparations for an IPO in 2010. As a precursor to that, Skype filed an S1 providing detailed information about its performance and plans. By some accounts, the sales price in the Microsoft deal represents a more than threefold increase in Skype’s value within two years.

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