Despite Wall Street’s dim view of the company, Microsoft’s products are nearly ubiquitous, and the company has the ability to promote Skype to hundreds of millions of people worldwide. Skype, like Google Voice and Viber, allows users to make calls over the Web without paying cellular carriers.
The all-cash deal gives the software giant an online communications tool that will be woven through its Office applications, Xbox games and nascent smartphone line. But it had to pay a high price. Skype’s owners will enjoy a multibillion-dollar payoff, even though the company doesn’t make a profit.
Very little will change in the experience for current Skype users. But by integrating Skype into Microsoft’s products, the software giant may try to find ways to get people to pay for the service. Right now, only 1 percent of Skype’s 170 million registered users pay for extra features and to reach people who are not on Skype.
“We see enormous opportunity to grow this business,” said Steve Ballmer, Microsoft chief executive.
The marriage of the companies combines a whimsical Web darling founded by European engineers with a granddaddy of high-tech. Skype chief executive Tony Bates will continue to lead Skype as a separate Microsoft division and report directly to Ballmer, Microsoft said.
It will be Skype’s fourth owner in its nine-year history, which includes an acquisition by eBay in 2005 and a private-equity investment in 2009 by Netscape founder Marc Andreessen, Silver Lake and the Canadian Pension Plan Investment Board. It’s also tried two times to go public, and analysts estimate it would have a stock valuation of about $1 billion.
But Ballmer said he expects Skype will add to Microsoft profits in the first year and that regulators will approve the deal by the end of 2011.
The acquisition doesn’t solve all of Microsoft’s problems. But it immediately makes it a well-known name brand in videoconferencing. Ballmer noted that Skype has come to personify the service it provides.
“Skype is a verb,” he said.
The merger comes at a crucial time for the maker of the Windows operating system. For the past decade, Microsoft’s star has been fading.
It bought Hotmail in 1998 for $100 million, and that business fizzled. The firm’s Zune MP3 player never made a dent in the dominance of Apple’s iPod. Its Bing search engine has slightly improved its market share in recent months but is still far behind Google in market share. And most troubling to observers, the company that transformed the PC has been stuck on the sidelines of the critical mobile phone market while Apple’s iPhone and Google’s Android platforms have taken off.