Microsoft Buys Skype, Plans To Integrate It Into Xbox Live

Redmond, WA based Microsoft Corporation has entered into a deal to buy internet telephone company Skype from an investment group led by venture capitalists Silver Lake for $8.5bn. According to Microsoft’s press release, the deal was approved by the boards of both companies, and is subject to regulatory approval.

According to the press release, Skype will become an internal division within Microsoft, with former Skype CEO Tony Bates taking the position of President of Microsoft Skype. Mr. Bates will report directly to Microsoft CEO Steve Ballmer.

Microsoft clearly states a desire to extend use Skype with their other products, and specifically mention Xbox and Kinect as areas of integration, as they look to tie in Skype to the Lync, Outlook, Xbox Live and MSN Messenger communities. They will also be looking to incorporate the system into their Windows Mobile package.

Skype has long been a valued technical service, but has had mixed successes as a revenue-drawing company. According to the Wall Street Journal, the company lost $7m in 2010, and as of December 31st, has $686m in long-term debt.

Skype was founded in 2003 by the same people who developed the peer to peer filesharing network Kazaa. In 2005, they were bought by eBay, who sold the company in 2008 to the investment group led by Silver Lake.

Microsoft has a press conference scheduled for 1100 EST. Gaming Bus will update this article with any relevant information.

Analysis: Speaking purely from a gaming perspective, this is a win for Xbox gamers. Skype is a recognisable name, and the coming addition of their services is going to be a win both for Xbox Live Gold and their customers. The ability to use Skype is going to be a big deal because it integrates with existing hardware, in a well designed system. If they are able to figure out how to integrate the service in a way that enables cross game chat? Look out.

From a business perspective, I frankly don’t know what the hell Microsoft is thinking. If this was an auction, Steve Ballmer would be that idiot that shows up and makes his maximum bid right away. Sure, he takes competitors out of the running right away, and gets his product, but he probably ends up overpaying in the end. That’s pretty much what happened here. This is the largest acquisition in Microsoft history, all for a company that has never really made money and is stupidly in debt. Why would Microsoft do this? Lync is Microsoft’s VoIP solution, and one has to assume that it’s going to be phased out at this point. Why would Microsoft spend $8.5 billion dollars on a depreciated brand?

My opinion concurs largely with ZDNet’s Larry Dignan: this was largely to keep the brand away from Google, Facebook and Cisco, who would have integrated it specifically into their own networks. Mr. Dignan called it “one expensive game of keep away”, and he’s right. I also figure that, in relation to Xbox Live and how Microsoft is trying to tie all of their services together to create lock-in (much like how Google’s done with Apps), it’s much more attractive to put the biggest name in VoIP telephony next to ESPN, Facebook and Netflix as offered services than having casual gamers asking what Lync is.

I will say this: if looked at on a larger scale, it’s old, tone-deaf Microsoft showing up again. The big, clumsy oaf of a corporation has developed a reputation lately – rightly or wrongly – of not being able to develop anything of note anymore, so they’re forced to either acquire other, more nimble companies, or to litigate the hell out of anyone who gets in the way (see: the Linux patent trolling). Basically giving up on Lync while purchasing Skype solely to keep it away from other companies, and likely to create more lock-in for Windows (Skype currently supports both OS/X and Linux; I think that’s going to change), doesn’t help to change that perception. Can Microsoft develop ANYTHING anymore? I’m honestly not sure. Granted, they have enough money to not have to worry about that for awhile, but money isn’t infinite.

Overall, this is a win for Xbox gamers, a HUGE win for Silver Lake (this justified their initial investment and gets a struggling brand off their hands), a head-scratcher for Microsoft due to sticker shock, and a loss for me, the Linux user.

Christopher Bowen

About Christopher Bowen

Christopher Bowen is the Editor in Chief of Gaming Bus. Before opening Gaming Bus in May of 2011, he was the News Editor at Diehard GameFAN, a lead reporter for DailyGamesNews, and a reviewer at Not A True Ending, also contributing to VIMM, SNESZone and Scotsmanality. Outside of the industry, he is a network engineer in Norwalk, CT and a veteran of Operation Iraqi Freedom.