Microsoft Buys Skype for $8.5 Billion – Too Much?

Microsoft’s recent purchase of Skype from eBay has completely put the market in a state of strong but mixed reactions. Whilst some analysts have condemned this move, citing it completely unnecessary and redundant, others have said that it might pay up through other avenues.

Microsoft Buys Skype

Was Skype Worth $8.5Bn?

That is one of the main questions that is going through the minds of industry experts and analysts. Some are outright questioning why Skype was valued at that, like Kim Caughet-Forrest (Senior analyst, Fort Pitt Capital) who said that the company seems to have been evaluated on the basis of the amount of users it has. According to him, it is like the beginning of the last decade when evaluation was based on the audience and not actual economics.

But there are those like Colin Gillis (Analyst, BGC Financial) who are saying that its integration into the whole Windows 8 platform would be a defensive and strategic move. According to him, the buy certainly wasn’t cheap but it was less than what they would’ve paid for a company like Groupon, Twitter or even Facebook — all of which have received obscene bids to buy them out.

How Microsoft Will Make That Much Money Out Of Skype

Well, according to Kim Caughet-Forrest again, since it is less than 2/3 of Microsoft’s cash flow, they will be able to get back quite their investment money. However, he does not think that Skype makes enough money out of its customers to merit this purchase, even though they have a hug base of customers.

Colin Gillis is of the opinion that this move will help them in the tablet market, where Windows 8 is definitely going to at least try to become a strong contender. And if that is what Microsoft is really looking at, then it is possible that they will make the money from the benefits of having Skype onboard instead of directly from Skype.

Overall, only time will show how Microsoft goes about using Skype to leverage their existing market.

Published: Sunday, May 15th, 2011 Last Modified: May 15, 2011

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