Microsoft's 'audacious' $8.5 billion Skype purchase

In a deal that's being called "audacious," Microsoft has purchased Skype for $8.5 billion, the most it's ever paid to acquire another company. The mega-deal has been met with some skepticism and criticism, given Microsoft's spotty track record with acquisitions — and the fact that eBay bought and sold Skype at a loss a few years ago. Is the VoIP (Voice over Internet Protocol, the technology that allows phone conversations to be transmitted over the internet) provider really a good buy for the tech titan?

This deal makes absolutely no sense: "The purchase price is a phenomenal amount of money to spend on a company that has long struggled for profitability," says Peter Bright at Wired. Microsoft doesn't need Skype to get into the VoIP game. They could build their own internet telephone system for "much less" than they paid for Skype, "just as Google is doing for Google Voice." Besides, Windows Live Messenger already offers voice and video chat. And that services boasts nearly 330 million active users, compared to Skype's 124 million. In short, Skype's "technology isn't good enough" and it "users aren't lucrative enough or plentiful enough to justify" this deal.

"Microsoft buys Skype for $8.5 billion. Why, exactly?"

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Actually, Microsoft needed to keep Skype away from competitors: "In the end, the deal may be worth it — if only to keep Skype from the competition," says Larry Dignan at ZDNet. If Google or Cisco — "Microsoft’s main enemy in unified communications" — had bought Skype, it would have been "a pain in Microsoft's arse." Sure, they probably overpaid, but the deal makes sense if only to give Microsoft an edge over the competition.

"Microsoft's purchase of Skype: One expensive game of keep away"

And Skype has value for Microsoft: This deal will boost the Microsoft brand, and help the company compete with Google and Apple's push into the VoIP market, says Preston Gralla at Computerworld. Plus, there's the potential to use Skype to drive more users to Microsoft's Bing search engine, and give the lackluster Windows Phone 7 a much needed boost. The company "is certainly overpaying but it's a deal that Microsoft had to make."

"Five reasons Microsoft had to buy Skype"