It’s official; Microsoft buys Skype for $8.5 billion

After rumors that first Facebook and then Microsoft were in talks to acquire Skype, the latter announced that it has acquired the VoIP giant for $8.5 billion in cash.

Skype will be integrated into Microsoft devices and systems such as Xbox and Kinect, Xbox Live, the Windows Phone, Lync and Outlook, Microsoft said in a report. The company has pledged to continue supporting and developing Skype clients on non-Microsoft platforms as well.

The deal, which was spearheaded by Microsoft CEO Steve Ballmer with assistance from Charles Songhurst, the company’s head of corporate strategy, was completed Monday evening,

The acquisition is an expensive one for Microsoft. Not only is it the largest price Microsoft has paid for a company in decades, Skype is not yet profitable. Despite revenues totaling $860 million last year and operating profits of $264 million, the company lost $6.9 million overall, according to documents filed with the SEC. And the company carries $686 million in debt.

Much of the company’s appeal rests in its largest user base of 663 million, 145 million of which use Skype monthly (Update: Microsoft says Skype has 170 million regular users), and 8.8 million of which are paying customers.

There is one clear set of winners here: Skype’s investors. A group including Silver Lake, Index Ventures, Andreessen Horowitz and the Canada Pension Plan (CPP) Investment Board purchased the company from eBay for $2.75 billion in September 2009.

In August, Skype filed for an IPO but put plans on hold after Tony Bates joined the company as CEO in October. Bates will take on the title of president of the Microsoft Skype Division and report directly to Ballmer.

Source: Linkedin News

Will EBay sell off 65% in Skype for $2b?

EBay Inc agreed to sell 65% of its Skype Internet-calling unit to an investor group led by Silver Lake for about $2 billion to focus on reviving sales at its main e-commerce site. The buyers will pay $1.9 billion in cash and will also give EBay a $125 million note, the company said in a statement on Tuesday. Ebay, which had planned an initial public offering for Skype, will retain 35% of the business.

The sale lessens CEO John Donahoe’s dependence on a unit that he has said doesn’t fit with the rest of EBay’s operations. The company is improving its Internet-retail operations to stem customer defections to Amazon.com Inc. Donahoe’s predecessor bought Skype for about $2.6 billion in 2005 and wrote down its value the following year.

The buyers also include Andreessen Horowitz, a venture-capital firm headed by Internet pioneer Marc Andreessen, and Index Ventures, a firm that invested in Skype before EBay acquired it.

Skype, started in 2002, lets people make calls from their computers to land lines and mobile phones, as well as other computers. It makes money when users call regular phones, set up voice mail and use text-messaging services.

Donahoe said in May that Skype’s value in an IPO could be over $2 billion.

Agencies

Will Internet die by 2010?

Video killed the radio star. But could it also kill the Internet? New research from American analyst firm Nemertes Research Group says that by 2010, increasing Internet traffic, particularly video applications like YouTube and Hulu, will fatally clog the tubes.

This isn’t the first such prediction that has been made in the recent past: Brett Swanson of the Discovery Institute, a think tank, warned in 2007 of a coming surge of data that “today’s networks are not remotely prepared to handle”. So are the increasingly dire predictions of the demise of the Internet on the mark, or have rumours of the Net’s death been grossly exaggerated?

It is true that with the advent of Web 2.0, Internet usage has shifted to bandwidth-heavy applications like YouTube and Skype. The amount of traffic generated by YouTube in 2006 was more than that of the entire Internet in 2000. At 50-60 percent a year, the current growth of Internet traffic is enormous. However, several experts believe that the Internet is in no danger of collapsing under the weight of its own success.

Andrew Odlyzko, a computer scientist at the University of Minnesota who specialises in analysing historical trends in networking, believes that global Internet traffic is and will remain manageable with modest capacity updates.

There is some evidence to support that conclusion. For one, telecom companies in both Britain and America are already investing significant amounts in order to upgrade Internet infrastructure, including the last mile cable, to increase capacity. Secondly, the Internet was originally developed to withstand all kinds of catastrophes and has proven to be remarkably robust. It has coped with massive growth over the past 15 years. There’s no reason to suppose this can’t continue.

Anyway, engineers are preparing for the worst by working to replace the Internet with a superfast ‘grid’. So, even if capacity updates fail to keep pace with demand, an alternative will be in place. No one is suggesting that the Internet wouldn’t face operational difficulties if it was left just as it is.

The debate is over whether the rate of investment in capacity upgradation is fast enough to cope with rising demand. Studies like this can provide an impetus for telecom majors to invest in infrastructure. As of now, though, it’s safe to assume that the Net will be with us for a while more.

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