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back to article Microsoft Skype: How the VCs won and Ballmer overpaid

A trio of Silicon Valley venture capitalists have made out handsomely from Microsoft's $8.5bn purchase of Web 2.0 carrier Skype. The money men have earned themselves $6.6bn in cash selling the unwanted web-telco company that they bought a $1.9bn stake in from eBay, while dodging the pain, paperwork, and inevitable disappointment …

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Stop

Oh Dear

Now how long before Skype starts to not support the 'other' operating systems, and turns into yet another ad bloated miccyshaft joke worth $5.95. Now whats second best because they won't be there for long.

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FAIL

How very profound...

Never heard "miccyshaft" before though.

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ha

Like Apple who fully support FaceTime on Android right? Or how well they make crappy iTunes work on Windows? lol What about their famous office package? lol

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pretty obvious, really

Skype on winpho7, no longer on android or any other platform, plus lawsuits against similar replacement applications springing up for that need. Ballmer is hoping to co-opt Skypes userbase into becoming WinPho7 users or they lose skype. right now he's probably giggling and rubbing himself, rocking back and forth muttering about how apple and android will lose market share, lose market share, oh yes, precious precious windows.

the stock market doesn't lie. he really needs this acquisition to work; board of directors/investors wont tolerate another aQuantive, though frankly I wish someone would push ballmer down a flight of stairs along with whatever retarded gremlin at microsoft insists on making a new failing search engine every 2 years, so that MS could maybe get back to authoring new projects* rather than buying out other peoples and playing happy-go-copyright-troll in courts.

*its been so long I dont remember the last innovation actually pioneered by MS. anyone?

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Coat

Clearly

This is clearly MS attempting to attract users by offering something akin to FaceTime (how well FaceTime actually works is beside the point...). They'll likely keep support for alternative platforms (likely since it's already there), but I could see them being lax on emerging platforms (MeeGo or some other). But Ballmer did get one thing right, it's about market penetration. The more platforms he continues to support, the more users he'll have, and the more people will want to have Skype to talk to them "for free." I'm just hoping his adverts don't become intrusive. A side bar of ads is tolerable. The popup-in-front-of-video that YouTube does deserves to be shot in the head. (I suggest a sidebar since most screens are the usual 16:9 nowadays, making vertical real-estate fairly valuable)

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Alert

Oh, that's EASY!

*its been so long I dont remember the last innovation actually pioneered by MS. anyone?

<crickets />

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<crickets />

What's that? Nonstandard HTML tags?

Oh I see what you did there.

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Video calling is stupid to begin with...

Nobody has been able to make a good go of this... ever. Everybody I've ever seen try things like this thinks it is "neat", but not so neat that you want to go out of your way to use it. Beyond occasionally bringing it up to let grandma see the grandkids, I just don't see the big point.

What does video conferencing, for the consumer set, offer exactly? It is harder to set up, drains batteries of mobile devices faster, and doesn't really give you an experience that is worthwhile. Compare this to, say, IM or texting vs. email. There is a benefit of using these services because while it does the same kinds of things e-mail does, the response tends to be more immediate, and you don't have to sift through an inbox to find a conversation. texting/IM is even better than phone calls - does the same thing, but doesn't annoy other people sitting next to you in the coffee shop, for example.

But, there is "skype out" or the ability to call a phone from skype. But if you have skype on a mobile, assuming your telco doesn't block it, you most likely have a lot of minutes available to make a regular phone call, of higher quality/lower latency, etc.. Minutes are becoming cheaper and cheaper, and with rollover, etc. I have never come close to going over (nor has anybody I know).

So, that leaves IM/chat. And Microsoft has a chat client that has more people on it than Skype.

I know Ballmer is a CEO, and therefore apparently smarter than me, but I'm sorry, this deal is asinine.

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Joke

the solution is....

Provide her with more grandkids,

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Heart

Video calling is great.

I had a long distance relationship and we talked and could see each other on Skype almost every evening, for over a year, until I retired and move 600 miles to be with her. She could show me her projects she was working on, or whatever.

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Gates Horns

I'm not arguing with you (too much) but there is a market

As a family who has moved overseas, we do use it to parlez with the grandparents and family in general, but at zero cost. I generally spend about $20 a year on topping up my account for those emergency situations when I have wireless but no phone access, but thats about it. Whilst I don't want M$ to change that, I think they will at soem point.

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Apple FaceTime

The generally poor experience of video calling is why Apple insist on your having a WiFi connection in order to use FaceTime, is it not?

I should own up that I've never experienced FaceTime (although I have tried Skype video calling), but once again, this is an example of Apple calling the shots, and making sure that the User Experience is as good as it can be, but on Apple's terms.

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You are missing the point

In 1-2 years we will see LTE everywhere. Voice on it is supposed to work _ONLY_ under IMS control. Once IMS gets its foot through the door Balmer can kiss goodbye to most of potential app, store, media revenue from WinPhone because IMS moves the charging model to the operator.

On an IMS network you breath in by asking IMS if you can and pay for it, after that you breath out and pay similarly. Everything charges through IMS - media, value added services, voice, etc.

The only way Balmer, Brin and Jobs can counter that is by having their _OWN_ voice & video frameworks. Google has Google voice, Apple has Facetime. Microsoft till this day had nothing.

It now has it. It now can twist arms and negotiate with mobile companies on the subject of who will do the billing and how an LTE phone is to operate in reality.

Balmer has bought the future of the company here. Without it, it would have become the obedient operator cow supplying phones specified to operator specs and getting no revenues but from OS licensing. The number he paid is actually irrelevant. When you buy your future, money is not relevant provided that you can afford it.

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Pint

I think you have a point

I found it very useful first foreign jolly ( sorry, business trip ) I made my kids were balling their eyes out before I left, two Skype calls from the hotel link on my laptop and they weren't fussed and wanted to know when I was bringing some chocolate and/or toys home from where I ended up!!

It's good for family's to keep in touch but as you say it never seems to make the leap to the corporate world. My shop a case in point, we spend shed loads on sending people to the remote sites in other countries, we run people here and there in London for one or two hour meetings, time wasted travelling and cab fares, a few simple Skype calls in the big screen conference room and we'd save a mint, no one is interested.

Almost all laptops have built cams, phones obviously do and webcams for desktops are two-a-penny, why is it not taking off more? Perhaps MS think they can turn this around, perhaps they think that there clout behind it will finally get more time in the meeting rooms of the world's businesses and given the current economic climate save company money, somehow I think not but it should be interesting to see what happens over the next 12 months now they have it.

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Heard that before

That's what the radio industry once said about TV, what makers of silent movies said about Talkies.

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Pint

That's also

what the keyboard manufacturers said about Cue Cat.

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Anonymous Coward

I sense a long game here

Firstly, Microsoft has just acquired a rather large user base. Next, it has to be able to say "You can get the best Skype experience on Windows Mobile" and deliver spectacularly well on that promise (or at least deliver spectacularly well on version 2 of the promise). And when they deliver on that promise, Nokia has to deliver sexy phones and we know they can do that. And that's just the mobile spin on the purchase. Skype's strength isn't about its technology but a user base that relies on Skype as a VOIP and messaging platform.

I sense a very traditional Microsoft long game here - the kind of values Microsoft needs to return to, and scale up to in the 21st century, if Microsoft isn't to go the way of Novel, Word Perfect, Lotus 123, Ashton Tate and so on.

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Unhappy

Re: AC 23:47

"Microsoft has just acquired a rather large user base"

Sorry, in Microsoft's world, 170 million users is extremely small beer.

Wish it were otherwise.

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Coat

re: The long Game

I see two flaws in your argument

Next, it has to be able to say "You can get the best Skype experience on Windows Mobile"

That will become(after 1yr)

"You can ONLY get Skype on Windows Mobile"

Then

Microsoft has just acquired a rather large user base

will become

Microsoft has just acquired a rather rapidly shrinking user base

Mines the one with two tin cans and some string in the pockets.

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Stop

Respectfully disagree...

I just have to disagree with the "very traditional Microsoft long game". It is a popular myth, but it is a myth. IE was an "oh crap" purchase, PowerPoint was an "oh crap" purchase, .NET was an "oh crap" response to Java, MSN was an "oh crap" response to AOL (at exactly the wrong time, as the internet was taking over traditional online services), Bing is like the umpteenth iteration of Microsoft trying to respond to Google, Zune was an "oh crap" to the iPod, WinPhone7 is an "oh crap' to the iPhone/Android, etc. Heck, even Silverlight is an "oh crap" response to Flash (again, at exactly the wrong time), and XPS is a lame attempt to take on PDF.

There is this myth that Microsoft has this long view, but the only real example anybody can point to is Windows, which only started becoming interesting when things like GEM started getting useful, and really only became successful when they did under-handed (and eventually illegal things). Remember the "Windows ain't done until Lotus won't run" rumors?

Microsoft was born on third base (chosen by IBM for the PC OS) and thought they hit a triple. When stripped of their ability to "cheat" (bundling features to eliminate competitors, hiding APIs, etc.) they've fallen down... consistently. Now they are reduced to throwing their cash reserves around hoping to hang on to "something".

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Numbers

170 million may not be a lot compared to the total number of Microsoft clients but if most Skype users aren't Microsoft users, it's an "in" to a new, untapped market place. Isn't it? That and there aren't many companies/organisations with huge user bases. After microsoft, apple, facebook, twitter, amazon, ebay and the like there's a long drop to the next level of userbases like the reg for example :P

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FAIL

deliver spectacularly well on that promise

I suppose there's a first time for everything.

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Boffin

"Microsoft has just acquired a rather large user base."

AOL also acquired a rather large userbase when it bought ICQ.

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Anonymous Coward

we're missing something

The deal is overpriced at first sight, so i get the feeling there might be more than the tip of the iceberg in this deal. maybe there are other technologies that are being acquired with this deal, maybe the cloud behind skype... what else could it be, you think?

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Badgers

BBC World Service 0130ish BST

Having had Rory Cellan-Jones repeatedly tell us that Skype has ben bought by the company whose software runs on over 90% of the world's computers - how much would you have to pay for that advertising, we now get the BBC interviewing Balmer.

Of course RCJ gets to interview his idol and we get to hear more promotion puff and Balmer is very excited, we discover.

"Tone" amusingly talks of the great opportunity "going forward", yes he's just sold it for a shedload, his only worry being that the cheque might bounce. He talks a full bingo card of business bullshit - example: "this deal supercharges Skype to the next level"

(Where's Lucy Kellaway when you need her? http://news.bbc.co.uk/1/hi/magazine/7453584.stm)

I think the most perceptive comment I've seen is here, (just £5 will do...) wondering how many people use skype because it isn't Microsoft. Could be the best thing to happen to Google talk.

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Anonymous Coward

Hmm...

How many people use Skype because it's not Microsoft?

I'd guess (outside of a few people commenting on this thread) practicall no-one has even though of using Skype because it's not MS, they use Skype becuase it's Skype and that's what their mates use. In the same way that people use Google or Facebook becuase it's what everyone else uses, people bearly think that there is a company behind these services. At home I have skype installed on Windows, Mac OS and Linux because it's what the family and a few friends use, I wouldn't even have it installed on anything, particularly Linux (the Linux client is terrible) if not for that reason.

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Rcj

Does he actually have *any* credibility as a tech journalist?

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His idol?

I assume this is the same Rory Cellan-Jones who insists on showing his iPad in every piece to camera?

Not sure that Balmer is his idol, more that he is a tech reporter who doesn't mind flatering the big players he speaks to.

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Big Brother

Problem is, there are no bigger idiots to buy it off them

This is the second time someone has paid appallingly over the odds for Skype. What's in the water coolers there than makes buyers go mad?

If Microsoft do mess around with it, people will go elsewhere. VOIP isn't hard.

About the only reason to buy it that I can think of that makes sense is that there is a serious secret subsidy from the NSA who want to be able to listen into Skype calls. With it owned by Microsoft, they could have the encryption 'enhanced' so that they can.

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Grenade

will Skype have to comply with US warrants?

Skype - once it is owned by a US company - will have to comply with (warranted and possibly un-warranted) US wiretaps and the 'concerned' calls from powerful (and well-lobbied) politicians who don't like something somebody is saying over Skype.

If you are concerned about MS, then you don't understand Homeland Security, the NSA, and the US Gov't very well...

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Coffee/keyboard

MSN may have more people on it...

...but that doesn't alter the fact that it sucks worse than Skype.

MSN killing features in Skype:

- being able to retrospectively edit IM messages already sent/received

- being able to view IM history as if it just happened, rather than in some abomination of an XML style mangled list view

- being able to see when all messages were sent/received, not just the most recent one

- not randomly disconnecting and reconnecting during the day, every day

- it doesn't have "winks" and "nudges"

Yes, Skype had it's supernode failure recently, but overall it is FAR more reliable (for IM) than MSN.

And yes, MSN has custom smilies, but big frikkin deal.

We can only hope that MS doesn't throw all these good things away, and force us to come up with yet another alternative to the MS mediocrity machine.

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Go

Huh?

Arithmetic average = $70,000+ is the good ol' USofA.

http://www1.salary.com/Systems-Administrator-salary.html

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Anonymous Coward

errrr

"Microsoft is now the worlds largest telco"

shouldn't that be "Microsoft is now the worlds largest telco but also the one with the smallest ARPU"

doesn't sound like such a long game to me.

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Paris Hilton

Skype is worth more than Sun?

DAMN BUBBLE ECONOMY, HOW DOES IT WORK?

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Gates Horns

If Skype were based on open standards

I very much doubt Microsoft would have been interested in Skype.

Microsoft are interested in the 100mn+ active users that Skype have, and they're only interested in those users because they use a proprietary service that they can control 100%, and that others will find hard or impossible to muscle in on with compatible client software.

Sure this is a long game, but they will also be providing clients only for devices that don't compete effectively with Microsoft - there's absolutely no way Skype will appear on Sony PS3 hardware for instance, and it will only appear on iOS, Android and Linux because it's already there, though it will most likely stagnate and become a second class experience.

I like Skype on my Nokia N900 - it's fully integrated to the point you hardly realise you are using it to make or receive a call, but then so is Google Talk and that's what I'll be suggesting my friends and family use in future as the embrace of Microsoft around Skype is unlikely to end well.

Effectively "buying" Nokia for a pittance and without the pain of running a mobile hardware maker was a genius move (for Microsoft, a dark day for for everyone else) but actually paying serious cash to own Skype is just crazy when they could have done everything Microsoft needed them to do - ie. integrating their client into any and all of Microsoft's products - for a small fee.

Is owning Skype simply to restrict it's presence on other competing platforms really worth $8.5bn? Ballmer may say that support for Skype on non-Microsoft platforms is essential in the communications business but I think we'll see the reality of this soon enough and we'll see that open standards/SIP/XMPP based VoIP is the only way ahead.

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Happy

Photos never lie

Why does Steve Ballmer never look happy?

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Gates Horns

He looked pretty pleased the other month

Shaking hands with his old pal Elop, and getting one up on his old boss Gates in the process - he never managed to get that deal with Nokia...

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money

Because money doesn't buy you happiness!

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Pint

Messenger vs Skype

Dear Sir,

The best hing about Skype is that it can behave as a telephone with minimal call charges. A client of mine in the Netherlands gave me a mobilephone but then complained about the costs as I am in England most of the time. So, I setup a Skype landline number, and make them pay my Skype bill. The total cost of my telecomm solution has come down around 50%. Good for them.

My wife uses Skype to call her family abroad and this lowers her telecomm bill by about £100 a month. Which is a Good Thing(TM) Patent Pending.

Not sure how valuable it is to have Skype integrating into Office except for the communicator and the various address books, but then again the communicator is used for a quick chat or when someone's phone doesn't work, so that might a nice idea.

Skype on mobile seems, indeed, rather pointless:

1) You need coverage to receive a skype call on your mobile

2) It is annoying that when you're logged in to Skype on various devices all devices start ringing at the same time

3) You more or less have a calling plan on your mobile anyhow

I would want to see what Microsoft does, if anything, with the callcharges. It could be a nice milkmachine that can be turned on like a tap: more or less money depending on how cashstrapped Mr Ballmer feels any given month... This is where my greatest fear is, indeed: While I trust Skype to do the Right Thing(TM) Patent Pending, I don't quite feel the same about Microsoft...

Maybe now is the time, though to stop that silly credit card restriction that Skype is running: Only three top-ups per month with the credit card, otherwise use Paypal. From where Skype came from, I can understand that restriction, but now that Skype and Paypal are not sisters anylonger, we can hopefully start doling out cash in a more unrestricted manner...

Regards,

Guus Leeuw

PS: We need a thumb-iin-the-middle icon...

PPS: Beer, as there is no coffee icon...

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Flame

I think cloud based telephony could be the biggest win here

Personally I think Microsoft have made a wise move here. A comment I am sure to get shot down in flames for. With their SAAS based cloud offerings now becoming a major part of their strategy (am I the only one who has seen the ads???) it's clear that real time communications as a cloud based strategy is an absolute requirement. Currently MSN or Live messenger cannot break to PSTN, nor can any of their hosted enterprise offerings. An area mined with all sorts of complexity, regulatory requirements, billing etc etc.. Skype are already there..This therefore provides the vital link to a hosted PBX to millions of their customers both in consumer and enterprise world wide. Worth $8billion?? THat is eye watering, we'll have to wait and see ...Flames so I am prepared.. :)

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Anonymous Coward

Web telco company stake L@@K!!!

"the unwanted web-telco company that they bought a $1.9bn stake in from eBay"

Did they snatch it with a bid at the last second? And did they pay instantly via PayPal?

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Unhappy

There goes another one

There was another company with technology MS needed. It was a 3D software company called TrueSpace. MS bought the company, got what they needed from TrueSpace then killed it. I'm now feeling that again...

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Jinx

Was talking about that TrueSpace debacle last night with friends.

I'm waiting for the inevitable rebrand for Skype from Microsoft's marketing department, how long before we see it renamed...

Microsoft Windows Live Skype Instant Messenger powered by Bing

That slips off the tongue so much more fluidly than Skype don't you think?

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Happy

@temperneatly

"MS bought the company, got what they needed from TrueSpace then killed it."

A close look at Microsoft history will show that is SOP.

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Gold badge

Much earlier than that

Same with Blue Ribbon Soundworks in the 1990s. I used to use their really cutting edge MIDI Sequencer called Bars and Pipes on the Amiga. Nothing else at the time did real time MIDI adjustments using a pipeline and plugin tools (think real-time quantise, real-time echos, real-time transpose and so on). I still don't think any other sequencer to this day does, the focus is now on audio plugins.

As far as I can see Microsoft bought them and never used any of their technology.

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Boffin

Buy and Kill

Microsoft has a history of buying companies just to take technologies off the market.

There used to be this mobile operating system that some of you might remember, called Symbian. Now, before Symbian was called Symbian, it was called EPOC, and it ran devices such as the Psion Series 5. The Psion had a web browser called Web, which was developed by a company called STNC.

In July 1999 Microsoft bought out STNC, and killed the product. Until Opera was released in beta in February 2000, a supported Web browser for Psion devices didn't exist.

Exhibit A : http://www.microsoft.com/presspass/press/1999/jul99/stncpr.mspx

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FAIL

Too bad.

On hearing the news I uninstalled it from everything in the house, phones included.

Any bets on how long it takes Microsoft to completely destroy it or make it as miserable and useless as Hotmail?

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FAIL

Pathetic.

So you uninstalled the software that worked fine before the acquisition and still does? You really need to get help.

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