Analysts React to Microsoft's Skype Acquisition

In a bid to energize its online communication services, Microsoft Corporation announced yesterday that it has agreed to buy Web phone company Skype Technologies SA for $8.5 billion.

Microsoft said it intends to integrate Skype's innovation into several products, including its Xbox game console, its Outlook e-mail program, and its Windows mobile phones. Microsoft will as well gain Skype's active user base of 170 million people.

Much-needed kick-start in telecommunications

"This could give Microsoft a much-needed kick-start" in telecommunications, Paolo Pescatore, an analyst at CCS Insight inLondon, told Bloomberg News. In voice services, "Skype has undoubtedly set the benchmark and gained a lot of traction."

Some see it as a strategic win for Microsoft in its Internet communication battles with Google Inc. and Apple Inc., both of which offer Web phone services.

"Apple's got their Face Time video chat. Android has video chat," Colin Gillis, an analyst at BGC Partners LP, told Bloomberg. "Now Microsoft is in the game."

Skype uses a research called Voice over Internet Protocol that allows people to use an ordinary Internet connection, to put it more exactly than a more expensive cellular network, to make a voice or video call.

Microsoft does offer some Web phone services through its corporate Lync product, however could use Skype to expand to consumers, particularly in the mobile segment of smartphones and tablets.

Strategic asset

"It's a strategic asset and a defensive move," Gillis said. "If [Microsoft] can put it on Windows 8, it gives them an advantage. It helps them in the tablet market."

"It doesn't make sense at all as a financial investment," Forrester Technology analyst Andrew Bartels told Reuters. "There's no way Microsoft is going to generate enough revenue and profit from Skype to compensate."

Skype as well has struggled to make money throughout its eight-year existence. According to papers filed for a planned initial public offering this year, Skype took a net loss of $7 million last year on revenue of $860 million. The company carries $544 million in long-term debt, net of cash.

Profit difficult

Skype's business model of offering its most common Web phone services for free has made turning a profit difficult. Though Skype has 663 million registered users, only about a bit more than a quarter of them use the service regularly and only 8.8 million subscribe to paid services.