Steve Ballmer, Microsoft’s chief executive, defended the price in an interview, saying the deal—the biggest in his company’s 36-year history—will let Microsoft “be more ambitious, do more things.”
And the Journal notes something critical the Times does not: That Microsoft is buying Skype with profits it has held overseas to avoid paying income taxes in the U.S. It also points out that Microsoft has a not-so-sterling track record with big acquisitions.
The WSJ also devotes a Heard on the Street piece to how much Microsoft is overpaying for Skype. It raises the critical question of what the heck Skype’s business model—remember those?—is:
Microsoft’s job may be to make “life better for billions of people” around the world, as CEO Steve Ballmer said Tuesday. But in paying $8.5 billion for Skype, it is improving life mainly for Skype’s owners.
Most of the investors that now own the Web telephony company bought into it only 18 months ago, in a deal that valued Skype at $2.75 billion. In contrast, the chance of Microsoft’s long-suffering shareholders ever seeing a healthy return from Skype is doubtful.
Yes, Skype has a huge user base, 663 million as of Dec. 31, and a well-known brand name. But even in the Internet age, that isn’t enough to generate returns from such a high-priced deal. There still needs to be a decent business model.
Skype doesn’t have that
Good stuff.
The Times did put a brief piece up yesterday pointing out that analysts and others are raising questions about what Microsoft paid. That story, however, didn’t make the paper. And if we’re talking about online-only offerings, check the withering criticism of the price from the WSJ columnist Evan Newmark, who says it offers “8.5 Billion Reasons to Fire Steve Ballmer.”
Needless to say, more skepticism is due here from the NYT. The Journal and FT are a model here if we’re going to avoid repeating the media mistakes of the first tech bubble.
Other interesting angles not explored:
Skype's major shareholder after ebay was Marc Anderseen of ye olde Netscape fame (interesting how Marc's approach to selling out has changed in relation to Microsoft).
How much of this is an attack on google gmail and voice which is a pain to set up, but offers free US and Canada calling?
Nice to have an instant mobile app that can do web calls on iPhone, Android and other platforms (and can do so over 3g on the iphone 4 in video in background process).
Youtube had a crappy business model and a horde of users when google paid stupid money for it:
http://www.msnbc.msn.com/id/15196982/ns/business-us_business/t/google-buys-youtube-billion/
and slapped ad views all over it. Guess what's going to happen to skype. (They should call it "BillBoard") Microsoft can offer an ad package that covers Bing, skype, hotmail, and who knows what copies google and facebook tech.
The small picture is the bubble and the ROI. The big picture is the war for the marketplace and ad space.
#1 Posted by Thimbles, CJR on Thu 12 May 2011 at 09:33 AM
concur.
#2 Posted by edward ericson jr., CJR on Fri 13 May 2011 at 10:01 AM
"The small picture is the bubble and the ROI" sounds suspiciously like the stuff we heard a decade ago. "This is a new paradigm." "We'll lose money on every customer but make it up on volume." "Eyeballs, not revenues." "Revenues, not profit."
I mean, the Microsoft CFO actually dared to utter the acronym "EBITDA" during the press conference -- and not a single reporter even questioned him about it. That's sort of like saying, "We bought Skype because it practices Enron accounting" -- and then all the reporters jumped in the air and went, "Yay!" Charlie Munger (Warren Buffett's partner) famously called EBITDA "bullsh*t earnings."
Incidentally, Google has not earned a profit on Youtube yet. But Google also wasted a lot less money on Youtube. Heck, if Microsoft had bought Skype for the $1.65 billion that Google spent on Youtube, it might actually have been a decent deal.
#3 Posted by Tom, CJR on Fri 13 May 2011 at 04:45 PM
""The small picture is the bubble and the ROI" sounds suspiciously like the stuff we heard a decade ago."
No it isn't. I'm not claiming that the deal makes profitable sense on any sort of level on any sort of time frame. I'm not trying to herd people in to invest on online ads and web service blah blah.
I'm saying that this deal is less indicative of Microsoft's business strategy and more indicative of Microsoft's willingness to spend a lot of money taking out google (or any other rival as the former head of Netscape found out) and taking over their market.
Not business focused, war focused. That is why they are willing to completely over pay for established services with little profit to show.
Now if you're an investor and you look into Ballmer's intense eyes as he talks about taking out google and trying to reclaim its former computing dominance as the market shifts from pc to mobile (and from windows to android and IOS) do you really want to leave your money with them?
Ballmer's praying you'll say yes.
#4 Posted by Thimbles, CJR on Fri 13 May 2011 at 11:22 PM
The Skype deal is a steal for Microsoft.
From city to city, the U.S. is living in 2011 - fiber optic, microwave relay and satellite digital communication. However, within cities, we are living in 1876- copper analog phone lines a low compression, extremely limited digital bandwith.
The local phone systems drive nearly all the commerce in the U.S. and gaining the ability to access these systems and to interface with web applications is worth billions of dollars.
You think Microsoft cares about your Sunday call to grandma? Hardly.
The economic possibilities are limitless- instant searches for any services, parts or inventory to or from a voice line. Voice prompting and voice recognition makes hands free commerce. Video from a vendor to a customer on demand. Etc. etc.. etc...
What small business wouldn't pay Microsoft $500 a year to drive calls for services? What huge business wouldn't pay thousands?
#5 Posted by padikiller, CJR on Mon 16 May 2011 at 07:21 AM