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Microsoft plus Skype?

Microsoft just took Skype off eBay’s hands for the Buy It Now price of $8.5 billion. Yikes.

That’s a lot of money for a company that provides a free service. After all, the whole point of Skype is to use your computer to bypass the long-distance phone system. It’s like flipping a finger to The Man: I can use my $50/month Internet service to bypass the $3/minute phone system. Take that, AT&T! (Never mind that AT&T is providing many Skype users’ Internet service, too.)

Actually, Skype does make money. Or more accurately, it collects money. Skype has revenue, but not profits. In its most recent financial filings the company reported revenue of $860 million with $264 million of EBITDA (earnings before income tax, depreciation, and amortization). But other expenses turned that $264 positive into a $7 million negative for the year. In short, Skype loses money, and its accountants don’t see any clear way to make that stop.

Evidently Steve Ballmer and the brain trust a Microsoft think otherwise. They plunked down $8.5 billion — in cash! — for the opportunity to turn Skype into a money-maker. That’s a really, really big pile of green foldies. It’s also the biggest acquisition in Microsoft’s history, which suggests that it’s the biggest and most important deal since Bill Gates was fondling floppy disks.

I can’t imagine what they see in Skype to make it worth that kind of money. The cynical view is that Microsoft feels its grip on on the Web slipping away and wants desperately to be a part of that again. Google, Amazon, eBay, Apple, and other companies are redefining how we use Web-enabled gizmos, and Microsoft doesn’t want to be left out. It’s the rich but nerdy kid that wants to hang with the cool kids, even if it has to buy their friendship.

Recall that eBay bought Skype for $2.6 billion back in ’05. That deal never made sense to me, either. What did eBay want Skype for? Sure, I guess you could bid for second-hand Cabbage Patch dolls while talking with the seller, but who wants that? I rather like my anonymity when using eBay, and I suspect others do, too.

Worst case, eBay was just a safe deposit box for Skype, keeping it dry until Microsoft could buy it for triple the price. Whatever eBay’s original plan was for Skype, it may not have materialized but it sure did deliver a nice profit. Shop victoriously.

 

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