Microsoft Buys Skype for $8.5 Billion

And it’s done. All that’s left now is for Microsoft to wipe that tarty, shopping-mall-beauty-shop layer of gloss off of Skype’s logo and for pundits to wonder just why the hell this deal makes sense.

Conventionally, there are three reasons for Very Big Tech Company A to buy Tech Company B:

  1. Company B is profitable and underpriced. And if this company is profitable, they’re probably not going to agree to a sale unless the offered price is crazy-stupid insane, or the CEO of Company “B” has a daughter who’s demanded that her Sweet 16 party be held aboard the International Space Station.

    Skype is not profitable. It’s really more like a moderately good post-impressionist painting than a company: it only makes money for people when it changes hands. First for its original panel of venture capitalists, and now for eBay and the investment group that it sold 65% of Skype to in 2009. To be honest, they weren’t exactly a money hole — they were close to break-even last year — but clearly, Microsoft wasn’t looking to hook up The Skype Firehose Of Profitability to their money silos.

    (As to the other possibility: the ISS can’t hold enough teenage girls to form an effective clique. And really, what’s the point of spending five days orbiting the earth unless, for the whole rest of the school year, all but a dozen girls are frumping “EVERY-body was at Dylanne’s party except for me!!!“)

  2. The acquisition allows Company A to “level up” instantly without having to spend years engaged in a long, expensive and uncertain dungeon crawl

    . Best recent example: HP’s purchase of Palm. They realized that they wouldn’t remain a top-tier maker of computers if they didn’t have a strong mobile portfolio. Palm had a great mobile OS, interesting hardware, and a workable developer program in place. So HP wrote a big check and presto: they’re now in the phone and tablet business.

    The alternative would have been to start designing Android tablets and phones, which wouldn’t have given them “a phone and tablet business.” Ask Motorola or LG or any of the other Android makers if they feel like they’re running their own businesses. They spent a year wondering when Google was going to release Android 3.0. They finally had to stop waiting and commit to a lunch date with an incomplete OS.

    They’ll think about all of the features that their devices were supposed to have on launch day but which had to be deferred until Google releases the “really, totally, final, finished, we swear” edition of Android 3.0 and then they’ll say “No comment” in a tone of voice that makes you reconsider your impulse to ask a followup.)

    Serious players Own Technology. They don’t Have Partners…particularly not ones that they can’t push around. Hence the big check.

    It’s hard to imagine a conversation inside Microsoft that ended with someone saying “You know what would make everything perfect around here? A multi-billion-dollar videoconferencing unit.” That’s the sort of question that more properly ends with “…a movie theater-style popcorn machine in the breakroom.” So I tend to dismiss this one.

  3. Company “B” has such lovely parts. The company itself sucks, but it has a hell of a great team of engineers, or it owns some really important patents, or has a product that Company “A” is tired of trying to compete with.

    Here we go. Microsoft makes operating systems, business software, and consumer hardware and Skype helps them out in all three of their businesses. Now, Windows can offer its developers a videoconferencing toolkit for enhancing pretty much anything they’ve got going; Microsoft Office now has fundamental tools for business conferencing and online collaboration, and the Xbox becomes a phone network.

    There’s also a hell of a lot of value in simply owning one of the world’s largest social-media networks. Skype users who are both (a) smart and (b) paranoid will now re-read their Skype terms-of-service agreement more carefully: Microsoft just bought a fairly comprehensive database of who knows whom all over the world.

    (I wouldn’t worry too much. Microsoft, unlike Google and Facebook, has yet to figure out how to monetize evil. It’s almost adorable.)

It’ll be Skype-as-usual for the service’s existing users. I use Skype in a mission-critical fashion once or twice a week. For me, “business as usual” means I’ll continue to begin each session with the opening prayer “****in’ Skype!!!” until it settles down and starts working properly. I’m certain that the service will continue as its own brand and its own identity.

But it’s interesting to see what Microsoft will do with Skype over the next couple of years. I expect to see new features for Xbox and Office pretty quickly. Anything else that happens — or, more significantly, doesn’t — will be a peek into Microsoft’s management style and their ability to steer their own ship. The company has had a rather distressing track record of late, making big announcements and demonstrating interesting new concepts and products that just sort of lose steam and fade into the rearview mirrors.

That’s the problem with a high-profile acquisition. Over the past five years, Apple and Amazon have been the biggest “this changes everything”-scale tech innovators. Both companies are smart enough not to take the wraps off of something until it’s D-O-N-E. Not “an impressive concept video,” not “a functional engineering sample,” not even just “Available for sale.” By the time these “A” companies add items to their online stores, they’ve got the product, they’ve got the infrastructure that gives it a purpose beyond its function, and almost just as importantly they’ve got their story straight and can explain to everybody exactly why this thing needed to exist.

Microsoft now owns a solid, established, slightly-profitable video conferencing service. If, by this time next year, all they have is, um, a solid, established, slightly-profitable video conferencing service, then that can only be seen as a mission failure.

Microsoft doesn’t have to make back the purchase price. They have to make something of Skype, not from Skype. If they fail to grow as a company, I’m going to conclude that Microsoft has officially and deliberately taken themselves off the list of “A”-list innovators.