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back to article MicroSkype: Andreessen settles accounts with Ballmer

Computer history was turned on its head in Silicon Valley yesterday. Until then, the story of Marc Andreessen, pioneer of Netscape, had been about how Microsoft fought dirty during the 1990s browser wars. Redmond, so the story goes, killed little Netscape by telling PC makers who dared drop Explorer from their machines in …

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Silver badge
Flame

Time to....

... delete skype.

Useful while it lasted.

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well done

"Redmond, so the story goes, killed little Netscape..."

And now "Redmond" is killing itself.

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Flame

Could be Wrong

But maybe Microsoft are only good at selling Windows and Office, and everything else is a loss leader?

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Happy

re: Could be Wrong

They also seem to have done reasonably well with those "XBox" thingies, too..

(Least said about the Zune, social meeja phones etc., soonest mended..)

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XBox

>>> They also seem to have done reasonably well with those "XBox" thingies, too..

Are you saying the XBox has recouped it's development/replacement-of-crap-hardware costs? I doubt it. It might (finally) be turning a profit now, but overall I suspect there's a substantial loss.

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Anonymous Coward

Well now they are doing OK

They are in a hole of hundreds of millions on XBOX over its lifetime.

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Anonymous Coward

Nope

You couldn't be further from the truth. The XBox campaign has made a massive loss to date - probably around $6billion and counting. The XBox360 is supposedly making a little profit per unit but it doesn't make up for the massive losses already made on the product.

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Gold badge

Fairly true

Some will mention XBox, but it's success was timing. It came with a network port just at the time when broadband and online games were starting to appear. Also they tended to brand it as XBox, with the traditional Windows and Microsoft branding absent (even though it is based on Windows).

As for Skype, Microsoft was just buying the user base with the intention of marketing everything else they do to you. I think however than Skype will be about as good as MySpace is soon, it will get rewritten and dicked about with until it is a slow bloated incoherent mess.

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You are missing the facts

The games division at MS is making bottom line profits at over 2 billion dollars per year rate now. If you go back to the start of XBox and tally up the division losses, you come to somewhat less than 2 billion total loss prior to the past year and a half when it went cash positive. To date, XBox revenues have filled that original hole and are now a strong contributor to the MSFT bottom line. Not as good as server OS, Windows client, or office automation, of course, but with 6 billion in sales and 2 billion in profits, the games division ranks high on the Fortune index even as a stand-alone business.

I am sorry to burst your bubble!

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MrT
Bronze badge
Megaphone

Does this mean...

... we'll finally get a version that can manage to not stay on the taskbar when told to close? Skype blamed the preferred MS Win7 methodology as the reason why the application never ever went away...

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WTF?

$50/user

...and that's if you count the freeloaders. If you count only paying customers (8 million according to one source I found) that's $1,062/user.

Also keep in mind that MS already has 330 million users for Windows Live (IM/Voice/Video), and has Lync (IM/Voice/Video/Telephony - i.e. equivalent check boxes to Skype) for business.

I just don't get it... there has to be an angle here that we're missing. Don't get me wrong, I don't think Ballmer is the an Einstein or anything... but they (this decision was approved by the board after due diligence) *must* have had some sort of plan in mind to offer that kind of premium on top of an already premium minimum bid of $7 Billion. There has to be some sort of explanation...

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Go

No complex plan here

Just simple pure greed, combined with a little tiny bit of desperation.

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Happy

Doesn't need to be a complex plan

...and at the end of the day greed is what business is all about - the only variable IMO is the ethics (or lack thereof) from company to company, or from one exec to another. I wasn't able to come up with a reasonable pure greed angle, which is why I made that comment. Pure greed doesn't really explain paying almost 300% of Skype's valuation 2 years ago.

Desperation... well I can't imagine anyone shelling out this kind of premium if they weren't desperate in some way. But what exactly are they desperate about and how is that helped by buying Skype?

Is the plan to corner the consumer video chat industry (except for Facetime and Google Voice.... any others come to mind?)?

Is it an IP move to grab patents to block others from entering the market?

Is this really about ads and do they *really* think consumers will put up with video ads being interjected into their video calls?

Is this a way to block other business oriented vendors (Cisco, Lotus, others?) from plugging into Skype?

Is this all about some sort of mobile play (as one friend of mine surmised yesterday)?

You don't spend $8.5 billion just for the hell of it. Even as ridiculous as the Intel purchase of McAfee was there was still an angle to it. Know what I mean?

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FAIL

"For the hell of it"

You'd be amazed, really amazed how much money can be mobilised on what basically is the whim of the CEO, if they have enough yes-men around them.

Do you really think the board members (all Balmer appointees - i.e., members of his court) would dare to say "That's a really dumb idea, and the numbers so don't stack up it's silly" and expect to keep their lucrative, cushy jobs?

Remember - Microsoft has/had $48bn. It's not actually Balmer's money, it's free gambling chips.

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Silver badge
FAIL

Well

You don't and I don't.

But Ballmer is the kind of legend-in-his-own-mind noisy fool who does.

I doubt there was more happening here than "Facetime - gotta get me some of that. Also, ads. On WinPho 7. With Nokia hardware! I am so made of win!"

And that was about the extent of the strategic thinking.

Stupid giant buyouts turn into fail so often there should be a chapter in IT management textbooks devoted to them, with an introductory spread that says DON'T DO THIS in animated 100pt red letters.

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Patents

My guess is they are buying up patents. It still seems a hefty price to me, but if they can wield them against Google, Apple and the Open Source community to block anyone else completing in the VOIP market then they my be on to something.

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Silver badge

It's not free gambling chips.

If the BoD signed off on it, and it is a clunker of a deal, the trial lawyers will find a couple of shareholders and hoover up that $48 billion plus interest. Mind you, not that the shareholders will necessarily see any of that $48 billion, just that it will get hoovered out of MS, at which point they will no longer be M$.

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@"there has to be an angle here that we're missing"

My guess would be,

Microsoft + Nokia + Skype = Mobile Windows based OS able to allow customers to undercut phone network operators in wifi areas (via Skype) whilst spreading the Windows brand finally onto (they hope) many phones via the Nokia brand.

Phone Network Operators are going to be very nervous of Microsoft + Skype, knowing Microsoft's plans with Nokia, so Microsoft must have considered this serious implication for their relationship with Phone Network Operators. But Microsoft can't afford to care as they have to play for bigger stakes because Microsoft also knows they can get many customers via brand recognition of both Nokia and Skype. That's got to be worth hundreds of millions of phones.

The question is, how many smart phones will exist by then?. This could be Microsoft's final big push to get into mobile computing and they know mobile is side-lining desktops as mobile is a huge growth market. If desktops are side-lined then Microsoft are side-lined and Microsoft don't want that to happen and they will pay billions to help prevent it happening.

5.3 Billion people currently have a mobile phone, (so most are still not smart phones) so that's a huge market to play for and Microsoft desperately wants (and needs) some of that market.

So my guess is we are seeing Microsoft building up to the fight of its lifetime and they are going to throw billions at it. This is their last chance to get into mobile (and they know it, they see the huge growth of smart phones sales). That's why Microsoft would pay billions for Skype. Skype is a chess move and a lure for more customers onto Microsoft/Nokia phones.

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Thumb Up

Re:Minion - "This is their last chance to get into mobile"

That's what my friend seemed to be aiming at when we discussed this the day it was announced. It does seem to make sense. Interesting :)

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Thumb Down

Microsoft ...

Dead man walking.

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Gates Horns

How Redmond killed Netscape

> Redmond, so the story goes, killed little Netscape by telling PC makers who dared drop Explorer from their machines in favour of Andreessen's rival browser that Microsoft would cut their Windows lifeline ..

There's a little more to the story than that:

Q: In or about June 1995, Mr. Gates, did you become involved in the planning for some meetings with Netscape?

A: No.

http://www.theregister.co.uk/2005/10/27/gates_doj_testimony/

"Per our discussion in the hotel room.., this press release actually says they are “jointly developing WordPerfect 8″ and integrating Communicator into that. Combine that with the Corel Java work and I think this does make Netscape a key competitor" January 17, 1997

"With Netscape and Corel working together its nice that we organized ourselves so the group attacking Netscape and the group attacking Corel are under common leadership!"

http://iowa.gotthefacts.org/011607/2000/PX02631.pdf

"I am convinced we have to use Windows -- this is the one thing they don't have"

`In subsequent meetings in the Fall of 1995, Microsoft explained to Intel that its strategy would be to kill Netscape and control Internet standards'

http://www.justice.gov/atr/cases/f2600/2613-1.htm

"Microsoft representative J. Allard had told Barksdale that the way in which the two companies concluded the meeting would determine whether Netscape received the RNA API immediately or in three months.'

"Spyglass, a Pioneer, Learns Hard Lessons About Microsoft"

http://www.nytimes.com/1998/03/02/business/spyglass-a-pioneer-learns-hard-lessons-about-microsoft.html

http://www.justice.gov/atr/cases/f3800/v-b.pdf

http://www.justice.gov/atr/cases/f1700/1763.htm

"The Court has already found that no quality-related or technical

justifications fully explain Microsoft's refusal to license Windows 95

to OEMs without version 1.0 through 4.0 of Internet Explorer"

http://news.cnet.com/html/ne/Special/Microsoft/conclusions_of_law_and_order.html

"We need to smile at Novell while we pull the trigger"

"Do not be foolish, do not archive your e-mail."

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Its not really revenge if

He may be tripling his money now but how much money would he have made if Netscape was still around?

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Wow

Wow.. a Thumbs down on a simple statement or question.. Really?

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Happy

Wha?

I think it is more likely they'll just put a button on there linking to Bing.

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Silver badge
Big Brother

Why pay over the odds for Skype?

So that the NSA et al can wire-tap every skype call around the world -- problem solved.

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Silver badge
Linux

Video ads

"Ballmer made his interest more than clear on Tuesday in San Francisco. "More than 40 per cent of Skype today is video and video ads are one of the biggest opportunities we see going forward. We estimate 45 per cent growth in video based ads over the next few years," he told press."

Just what we wanted, irritating adverts distracting us from our conversation. If you're in advertising and marketing, Bill Hicks has a suggestion for you.

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WTF?

Aaagh!

"your video call will start, after these messages"

Aaaagh!

Aaaagh!

Aaaagh!

Aaaagh!

Aaaagh!

Aaaagh!

Aaaagh!

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Something doesn't add up

"The consortium bought a $1.9bn stake in the company, valuing the unwanted Skype at $2.7bn.

Andreessen Horowitz wasn't the largest stakeholder: that was Silver Lake Partners, which put in $1bn and held 39 per cent."

They paid $1.9bn but were NOT the largest stakeholder? When the other stakeholder put in only $1bn? And the company was vlued at 2.7bn, but the two stakeholders mentioned put in 2.9 between them?

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Silver badge
FAIL

@stuartnz

The consortium, of which Andreessen Horowitz was a part, bought a 70% stake in the company for $1.9bn. Lake Partners were the largest stakeholder in the consortium, paying $1bn out of the $1.9bn. The remaining 30% remained owned by Skype.

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D'Oh!

Thanks!

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Pint

HoHoHo

"somehow managed to convince the chief executive of the world's largest software company"

but that CEO is also a moron. Shooting fish in a barrel.

But that's churlish, enjoy...

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Bronze badge

To get all that money back, he's going to have to scream and jig a lot more in his footprint

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

DEVELOPERS DEVELOPERS DEVELOPERS DEVELOPERS!

http://www.youtube.com/watch?v=d_AP3SGMxxM

WHOOOOOOHOOOOO YEEEEEEE WWWWHOOOOOO

Maybe he has a hankerin' to do some more jumpin'?

About 5 minutes long vid with some awes bass and riffs...

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Anonymous Coward

The price seems high, but...

Microsoft won't only be paying for all the users they gain, but to stop Facebook from getting their hands on Skype.

Let me explain my pet theory.. Microsoft made a fortune selling to The Great Unwashed, and the mass market has treated them well, acquiescing to their monopoly nicely. However, those same masses are starting to care mostly about being able to run a browser- mostly tog et to their feckin' social meeja. They don't really care much, as long as it works, is stable, starts up fast.

This nightmare scenario is the "network computer" that has been preached at us for years, without really existing, and it is anathema to Redmond. People can partake fully of FB and f(r)iends without needing to pay any heed to Microsoft. Precise details of their computer become as mutable as the choice of smartphone platform, if not more, as they care less about apps, sometimes.

MS has already lost a lot of ground and relevance. Think of this as damage control with more than a dash of panicky flailing.

TL;DR: Commoditisation, because karma's a bitch.

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FAIL

selling ads

Here in the states, You know what the nicest thing about subscrtpion internet TY is (from services like Netflix and Amoxon is? No Bloody Comercial Breaks!

Sorry M$, if you think you're going to make a mint, because people would rather have free stuff subsidized by advertising, you're doomed.

At this time, streaming TV over IP in the US is hot because A) we pay a small fee monthly or it, sans advertisiing, B) We aren't endure endless commercial breaks for products we'll never buy, if we can possibly help it, and C) we aren't required to pay a flat rate subscription fee for the right to view to a truckload of advertiser subsidized content we don't want to watch anyway. (Take Note Cable and Satillite TV Co's - I'm talking about YOU here!)

So why does M$ think they can make $ here through advertising subsidies, when the subscriber base hates and barely tolerates advertising? Seriously, isn't this a bit of trying to feed in the shallow and depleted end of the revenue pool?

/gds

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Here in the UK

People love advertising.

At least, I assume that to be the case as something like 11 million people pay to subscribe to Sky and the channels are all still full of adverts.

Getting people to pay for a subscription to a service that still has adverts.... genius marketing, you have to take your hat off to them.

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Gates Horns

Heh

>>> Silver Lake told Forbes Microsoft stands to make three to four times its purchase price

Cool.

>>> "if it manages the acquisition well".

Oh. never mind.

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Sil
FAIL

childish outlook

What a childish outlook.

There is no revenge there, just business sense.

ones ennemies of today are ones business partners of tomorrow and vice versa.

Andresseen did his deals because he deemed they made business sense and so did Ballmer.

Whether it does is another question.

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Stop

8.5 billion...

Yeah, it's a lot of money. Though, to my mind, they didn't buy Skype because they wanted it. They bought it to stop Google and Apple from buying it. Period.

Now that they've bought it, they'll have to find something to do with it.

"We'll monetise it buy superimposing little ads on top of the video stream..." blah blah blah. Yeah, fine, whatever. That actually won't bother me - it's the same on YouTube, hasn't stopped me from using YouTube. But that's not *really* why you bought it, Mr. Bullmer. You bought it because you are scared of Google and Apple. And who can blame you.

I'm surprised the press haven't picked up on this particular angle. But I'm convinced he simply bought it to take it off the market.

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Troll

eliminating another one of Andreessen's products

if Andreessen is only after money then just maybe he feels a little bit happy about getting a reward for his investment but is that all he does this for? the money? If that's the case, I doubt he got enough or what he got made enough of a dent in Microsoft's wallet for him to rejoice. Microsoft used illegal business practices and purposefully targeted Andreessen's Netscape products and all he'd worked for and whom he worked with got dumped onto the street because of this. Not because Microsoft made a better product or some kind of legal business choices. We're talking coercion and threats and things like paying businesses to not use Netscape and paying companies to pay customers to not use Netscape.

Besides, Andreessen's got enough money to be doing VC work so unless he has become a money gobbler for the sake of collecting it, I doubt there's any feeling of getting back at Microsoft for what they did to Netscape Communications Inc.

the troll because the whole premise of there being a settling of accounts is a troll for comments.

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Paris Hilton

Software Dicks

What's with these guys?

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Myspace

Of course, Skype can easily be the next Myspace.

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Alert

Showing people my age

I can remember here in the States when cable first got off the ground.. one of the main features was lack of adverts.. that was the selling point.. Since you were paying to have TV cabled into the house you were supposed to get less commercials than the over the air broadcast... 25~30 years later and we now have 30 minute commercials being aired.

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Silver badge

What do you mean only 30 minutes?

There are many channels that are nothing BUT one long commercial.

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Silver badge

Here's the play I see.

They integrate Skype into XBox, Windows, and Live/Hotmail while allocating a small developer budget to keep what is now thought of as Skype working on other systems. At some point that will die of natural causes because so many people will drop Skype just because MS owns it. The make money from it by launching a two-tier approach. One free with ads, probably just one before each phone call. It suffers from all the usual problems that already affect free VOIP. They offer a second tier with QOS and no ads for say $5/month. It's a minimal add-on fee for the gaming subscription, but generate dependable yearly income - something MS is sorely lacking and which is the real drive behind SaaS. Even if they only get a 10% conversion to QOS that works out to about $1 Billion/year in revenue. And they overcome the usual Skype problem of how do you contact someone else because it is installed by default on all the XBox and Kinnect Systems.

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Gates Halo

Skype Seems Worth It...

It seems to me that within a generation Skype will replace landlines/mobiles. We'll all have one telephone number each, which will direct to the home unit (connected to broadband) if it can't connect to the smartphone (connected to wireless broadband).

Telephone line rental, and call costs etc etc will all just vanish. Premium adfree Skype will become available - there's plenty of room in people's direct debits for it with telephones gone.

For 100 years there's been telephones over telephone wires, but the writing is on the wall for them, Skype is the replacement and it's going to be a massive industry. If Microsoft don't cock it up (they have the reverse of the Midas touch these days it seems) then this aquisition will be enormous.

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CPU

a fool and his money...

Odd that Mr B has been hoodwinked? Did someone advise him that he'd be getting Skype's 170 million customers' and just neglected to mention that only a tiny amount actually pay, with real money, for the service? So what have MS gained? 170 million eyeballs for advertsing fodder. Alas most of those are adverse to actually buying or paying for anything, these will be from the "internet is free" demographic.

And before anyone accuses me of be a MS beater, I'd like to point out I was one of the PAYING Skype users: it's fine for chatting to your Mum, but you can't rely on it for business once USA wokes up as the quality would drops dramatically: yes, you too can sound like you are talking underwater to a Dalek!

I think it shows that the Marketing Johnnies running MS have forgotten the mistakes of the past- raw numbers don't count, people with money in their pocket count. Time to watch another internet bubble grow (and burst in the near future).

MS, when you going stop buying someones elses customers and start making your own again?

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