Microsoft's $7.9b Skype deal 'a headscratcher'

"At first when I first read about it, I hated the deal. Now, I don't like it," said Tilson, who is a long-term buyer of Microsoft shares and for all that sees them as a great cash-generating business and an undervalued stock.

Microsoft said it would now be working on integrating Skype with its array of devices just as the Xbox 360, its Kinect accessory, Xbox Live, Outlook and Windows Phone. Nevertheless, Skype will continue to be available on non-Microsoft platforms just as Google's Android and Apple's iPhone.

Ovum analyst Richard Edwards said with Apple's FaceTime video calling service now available on iPhones, iPads and Macs, "it is all the same now or never for Microsoft". Edwards said Skype was "truly the product Microsoft needs to stay in the game".

Some have questioned whether the Skype acquisition will create hostility among mobile carriers as Skype, by offering calls over the internet, is seen as a threat to the telcos' voice earnings.

"It is kind of a head scratcher to me how Microsoft is going to navigate the complicated relationships that it has to have with carriers together as it is repositioning itself as a potentially major threat to their wireless voice business," Craig Moffett, an analyst at Sanford C. Bernstein & Co in New York, told Bloomberg.

"I believe carriers will look for ways to differentiate their offering to the market and this deal may signal the beginning of appealing new voice services from Microsoft, which carriers will be willing to partner with and consumers will embrace," said Novosel, adding that consumers would benefit as Windows Phone would now be in a better position to challenge services available on Google's Android phones.

Fadaghi said it was clear Microsoft had to pay a premium for Skype with rumours of Google and Facebook as well being interested. He said Skype was as much about video communications as voice.

"The impact of Skype on carriers has been more on international call earnings, however strong competition from others just as calling cards and other VoIP (Voice over Internet Protocol) services has as well eroded this market."

Fadaghi said the ability of Microsoft to integrate Skype with Windows Phone 7, Xbox and Kinect represented a "big possibility" for the company.

"We have big goals and aspirations. And when we look into the world and see opportunities to do more with research, we'll drive toward them and keep pushing."

The path to profitability

"We have to see the path to profitability. It smacks of that 1999, 2000 time period when valuations were granted on eyeballs, not revenue and revenues."

Skype made a net loss of $7 million last year on revenue of $860 million, even as its user base grew near 40 per cent to 145 million.

"One of my big fears is that by the time they design this into Outlook, Xbox and their phone software it's going to be overtaken by Google and Apple from a capability standpoint," he said.

The path to profitability

We have to see the path to profitability. It smacks of that 1999, 2000 time period when valuations were granted on eyeballs, not revenue and revenues.