Why Microsoft Is Buying Skype for $8.5 Billion

Just days after reports that Google and Facebook were interested in partnering with, and possibly buying VoIP company Skype, Microsoft announced that it was buying the company for $8.56 billion in cash.

Last year, Skype had revenue of $860 million on which it posted an operating profit of $264 million. However, overall it made a small loss of $7 million, and had long-term debt of $686 million. This is the second time Skype has been bought out; after being started in 2003, it was purchased by eBay in 2005 for $3.1 billion. EBay then sold the majority of its stake in 2009 to a private investment group for $1.2 billion less than it paid.

The purchase was Microsoft’s biggest ever, surpassing even the $6 billion acquisition of advertising firm aQuantive in 2007. That alone makes it surprising; the company’s track record with large purchases is decidedly mixed. Danger, the exciting mobile technology company that produced the Hiptop, better known as the T-Mobile Sidekick line, was purchased for an estimated $500 million in 2008; the result of that purchase was the disastrous KIN phone and a complete failure to integrate the bought-in talent. The aQuantive purchase too had mixed outcomes, with Redmond unable to find a role for the Razorfish division before eventually selling it off in 2009; Microsoft continues to be unable to make a profit from online advertising.
Microsoft has in the last couple of years shied away from similar large acquisitions, sticking to buying smaller, easier-to-manage organizations, leading some to argue that this was a direct result of the digestive difficulties faced with the large purchases. A $7 billion Skype acquisition would show that perhaps Redmond believes it has resolved such problems.

Microsoft’s own software already has considerable overlap with Skype. Windows Live Messenger offers free instant messaging, and voice- and video-chat. It currently boasts around 330 million active users each month, typically with around 40 million online at any one moment. Microsoft has an equivalent corporate-oriented system, Lync 2010 (formerly Office Communication Server) that allows companies to create private networks that combine the communications capabilities of Live Messenger with corporate manageability. The underlying technology of both platforms is common, allowing interoperability between Live Messenger and Lync. The company also plans to integrate Kinect into Lync to create more natural virtual presences.

Skype, in contrast, has around a third the number of active users: 124 million each month. It also has fewer simultaneous online connections: typically 20-30 million. Its instant messaging and voice and video call features are broadly similar to those found in Windows Live Messenger, though arguably more refined.

Though the Skype user base is very much smaller than that of Windows Live Messenger, it does have one key difference: About 8 million Skype users pay for the service. Skype integrates telephone connectivity and is able to make both outbound and inbound phone calls, and while its online services are all free to use, these phone services cost money. Skype also has points of presence across the globe, making it easy to buy phone numbers in foreign markets to cheaply establish an international telepresence.

Skype certainly has some things of value. The telephony infrastructure would make a valuable addition to the Messenger/Lync platform. It could also tie in well with Exchange 2010, which offers voicemail integration. Adding telephony to Lync, Exchange, and Live Messenger is certainly a logical way to extend those products.

Perhaps more adventurous, integrating Skype-like functionality into Windows Phone would be something of a game-changer. Integrated multinational VoIP support would potentially be enormously disruptive to the cellphone market. However, as good as this might be to end-users, it would probably serve only to kill Windows Phone stone dead for carriers.

As much as telephony integration into Microsoft’s communications products and VoIP integration into its telephony product makes sense, it’s hard to make sense of the deal. The purchase price is a phenomenal amount of money to spend on a company that has long struggled for profitability, and it’s hard to believe that it’s truly the most cost-effective way of getting access to telephony and VoIP technology. Microsoft could build equivalent telephony infrastructure for much less, just as Google is doing for Google Voice.

Similarly, although Skype is in many ways a better instant messaging and voice- or video-calling client than Live Messenger, it’s hard to believe that it’s $7 billion better. The Skype client itself is written almost as if it were a piece of malware, using complex obfuscation and anti-reverse engineering techniques, and it would be disquieting for Microsoft to release something that behaved in such a shady way; at the very least, the client would surely have to be rewritten to avoid the obfuscation and outright hostility to managed networks that Skype currently has.

Even the access to paying customers is hard to justify. The terms of the deal mean that for each Skype customer, Microsoft is paying about $1,000. And on average, those customers are worth a profit of about $30, presuming most of Skype’s income comes from subscriptions and call charges. That’s a huge disparity.

Windows Live Messenger users have shown no propensity towards paying money, unlike Skype’s 8 million paying users, and it may be a challenge to convert them from nonpaying to paying. However, since at the moment they have essentially nothing to pay for, it’s difficult to use that as evidence that they wouldn’t pay if there were services worth paying for. Especially as there’s likely to be quite a bit of overlap between the customer bases: People aren’t giving Skype the money instead of Microsoft because they prefer paying Skype, they’re doing it because Microsoft simply doesn’t sell Skype-like telephony facilities. And Lync customers are already on the payment treadmill, so it should be far easier to extract further payments from them for additional services.

Ultimately, it’s hard to see how the Skype purchase is worthwhile from a technology or user-access perspective. The technology isn’t good enough and the users aren’t lucrative enough or plentiful enough to justify it. But that doesn’t mean it won’t happen — and the prospect of keeping the company out of reach of Google and Facebook may just make the purchase irresistible.

Battle of the operating systems- Windows 7 or Ubuntu 9.10 !!!

Whether you're a die-hard Windows fan or a Linux evangelist, here is the lowdown on the latest updates.

Taking the vital aspects of an operating system into account, which is better, Ubuntu 9.10 or Windows 7?

Speed

In terms of speed, if you've got an older computer that is starting to feel sluggish but you either don't want to or can't afford to buy a new computer, give Ubuntu a go. You'll get an up-to-date operating system running quite smoothly on your out-of-date computer.

Verdict: Windows 7 is much better than Vista on older hardware, while Ubuntu always has been strong on a wide range of hardware.

Drivers and hardware

Ubuntu is generally good at recognising hardware. Windows needed a driver downloaded for vintage 3Com Wi-Fi PC Card, but it worked right away with Ubuntu – and even improved from 9.04 to 9.10. Ubuntu added extensions automatically.

If Ubuntu doesn't automatically install a driver, it can be quite a bit of effort getting something to work, and not all hardware and peripherals will work with Linux. Sometimes you'll have to go to the command line, which is terrifying territory for most users. It's worth checking to see if Linux drivers exist for your printer and other key peripherals.

Windows has always had issues with drivers. . Windows 7 doesn't seem to have completely solved these issues.

Verdict: Both Microsoft and Ubuntu could improve how they handle drivers.

Multimedia

Looking at the default applications that come with both Windows 7 and Karmic Koala, Ubuntu installs the Rhythmbox player for music and the Movie Player for video. Both are capable, and anyone familiar with Apple's iTunes will find the application easy to navigate.

Because of licensing restrictions and Ubuntu's own philosophy, it does not ship with the ability to play commercial DVDs. It's relatively easy to add commercial DVD support by adding Ubuntu Restricted Extras in the Software Centre.

Most versions of Windows 7 come with Windows Media Player and Media Centre. The Media Centre is impressive and polished. It organises your pictures, video and music files, and it gives you the kind of 10-foot interface that works well from your couch in the lounge.

Verdict: Microsoft wins this one with its Media Centre, though Linux enthusiasts will be quick to point out the digital-rights management issues of Windows.

Software and applications

In terms of software, Ubuntu is like the iPhone. Almost anything you'd care to do, there's an app for that. However, you'll have to learn to translate from the applications that you're used to on the Mac or Windows. For people looking to make the switch to Linux, osalt.com is a good directory of open-source alternatives to common commercial software.

Ubuntu comes with OpenOffice and Gimp photo editing software installed.

Windows 7 users will need to buy Microsoft Office, or you can also download OpenOffice and Gimp. Windows users will be used to Outlook to handle their email. Ubuntu ships with Evolution, which handles email and also has calendar software.

Ubuntu 9.10 comes with Firefox 3.5 as standard, and it now ships with the Empathy multiple protocol instant messaging client. Empathy works with most instant messaging systems including AIM, Gtalk/Jabber, MSN and IRC, just to name a few.

Windows 7 has Windows Live messenger and ships with Microsoft's internet Explorer 8, which is a vast improvement over previous versions. You'll have to download Windows Live messenger as part of the Windows Live apps. To install other applications, Ubuntu 9.10 changed the Add/Remove Software application with a refreshed tool called Ubuntu Software Centre. You can search the directory full of hundreds of applications.

Verdict: Ubuntu wins this hands-down with a huge range of free software packages ready to download.

Cloud computing

Ubuntu 9.10 brings cloud storage to the masses with its Ubuntu One service. It's simple and well integrated. Whenever you save a file, you have the option to save it directly to Ubuntu One. Up to 2GB of storage is free, and you can pay for higher amounts of storage.

You can also share files with other people, and your files are easily available on other computers, even ones not running Ubuntu. The service is in beta, though, so I'd expect a few glitches.

Microsoft has a remote storage and remote desktop service in beta called Live Mesh and SkyDrive, which offers 25GB of storage for free. It's not yet integrated into the operating system and Microsoft is under scrutiny about what it integrates into the OS because of its market dominance.

Verdict: Ubuntu wins this as well. Live Mesh isn't as well integrated yet as Ubuntu One is immediately from startup.

Ease of use

Adding new software sources so that you can easily install applications such as Skype or Google Earth will be beyond most average users. User interface design still lags behind software on Mac OS X and Windows 7.

Windows 7 will be an adjustment for XP users. Vista users won't notice a change apart from a faster, smoother experience and fewer annoying pop-ups second-guessing your choices.

Verdict: Windows still is easier to use than Linux for some key tasks. Ubuntu is making a lot of progress, but Microsoft has stepped up its game as well.

Final Verdict

Windows 7 is a worthy successor to Windows XP. Vista had well-known flaws, which meant it never replaced XP for most users. For those with a lot of investment in Windows software, there probably will be no reason to look elsewhere.

For those not that tied into the world of Windows, Ubuntu is certainly worth a look. Consumers have never had more choices for capable, powerful and easy to use operating systems, and Ubuntu is only one Linux distribution.

windows 7 pricing anounced

Microsoft will not be offering upgrade version of Windows 7 to Europeans.

In the past Microsoft has given people already using Windows a chance to upgrade to a new version when it becomes available.

While that option will be offered in the US, Microsoft said its efforts to comply with competition regulations meant it could not do so in Europe.

European regulators dismissed the claim, saying the move limited choices rather than opening them up.

No choice

Windows 7 is due to go on sale on 22 October around the world.

Anyone outside Europe buying a new PC between now and then - running Windows Vista Home Premium, Business or Ultimate - will get the chance to upgrade the operating system on it, at no cost, to Windows 7.

While Microsoft will not charge for the upgrade, some PC makers may impose a fee to ship disks with Windows 7 on them to customers.

The worldwide upgrade option programme is due to begin on 26 June.

Those who want to upgrade to Windows 7 on a older PC will pay a reduced price for the software. Stand alone versions of Windows 7, that can run on more than one PC, will also be available.

Microsoft said these upgrade options will not be available to Europeans.

"We will not be able to offer an upgrade product within Europe," said John Curran, Windows business lead at Microsoft UK, adding that only the full version of the software will be available to Europeans.

Microsoft will make an upgrade offer to buyers of new PCs but will send them a full version of the software rather than an upgrade version.

In Europe, the full version will cost the same as an upgrade version.

In the UK the upgrade version of the Home Premium edition of Windows 7, available to those with an existing Windows license, will be £79.99.

By contrast buying this in a shop, and which can be installed on more than one machine, will cost £149.99.

The upgrade option was not available, Microsoft said, because it was trying to comply with European competition regulations.

Microsoft has said that Windows 7 will be offered in Europe without the Internet Explorer browser on board.

A Commission spokesman dismissed Microsoft's claim that it was taking the action to comply with European laws.

"The essential point of our case is consumer choice," said the spokesman.

"We would want to look extremely closely at the terms under which Microsoft is making Internet Explorer available to computer manufacturers," he said.

"If the effect of the technical separation of Windows and Internet Explorer is neutralised by particular terms and conditions they offer to manufacturers to install Internet Explorer, they're no better off."

The preferred remedy for Europe, he said, was to offer users a screen when they first switch on Windows 7 that gives them a choice between IE, Chrome, Firefox, Safari or Opera.

"For them to claim that this is somehow imposed by the Commission or is going to resolve the problem with the Commission is far from clear," he said.

"It's certainly not because we've asked them to do it."