Image: Microsoft Announces Skype Acquisition For 8.5 Billion
Justin Sullivan  /  Getty Images
Microsoft CEO Steve Ballmer, left, shakes hands with Skype CEO Tony Bates during a news conference on May 10, 2011 in San Francisco, Calif. Microsoft has agreed to buy Skype for $8.5 billion.
By Allison Linn Senior writer
updated 5/10/2011 7:56:03 PM ET 2011-05-10T23:56:03

To all those Skype fans who think Microsoft will ruin their beloved web video conferencing toy, analysts say: Stand down — for now, anyway.

Swiftly after the announcement that Microsoft would acquire Skype for $8.5 billion, comment boards on and elsewhere filled up with fears that Microsoft would ruin Skype, make the product unusable for people who don’t run Microsoft’s Windows operating system or bog it down with features they don’t want.

“I guess my days of skype'ing' are over. Whenever MS gets ahold of something it seems to always end up driving me away from it,” one commenter wrote.

Story: Microsoft lands Skype, but investors skeptical

( is a joint venture of Microsoft Corp. and NBC Universal, which is a unit of Comcast Corp.)

Those concerns are overblown, analysts said, arguing that Microsoft sometimes has a better track record with acquisitions than it does with in-house products.

“I think the Skype folks are worrying about nothing,” said Rob Enderle, with the independent firm Enderle Group. “Microsoft is not going to break this.”

Enderle said many of Microsoft’s most successful products — including its first computer operating system and some of the building blocks of its popular Office suite — were built in part with acquisitions.

He said other products, such as Hotmail, likely are better than they would have been without Microsoft’s investment in them.

“Hotmail is probably our best example of what’s likely to happen,” Enderle said, noting that web-based e-mail product also has remained free.

Enderle noted some of Microsoft’s biggest missteps have been with products that were built in-house, such as the Zune music player, and those that were far afield from its core business of making operating systems and business software. He cited WebTV as an example.

Skype, on the other hand, fits well with Microsoft’s business products such as Office and Exchange, and its consumer messaging and gaming offerings.

Users may be wary in part because Skype has already been down a similar road. The company was acquired by auction site eBay in 2005, but then sold again to a group of investors in 2009. It had considered a public offering before the Microsoft acquisition was announced.

Bern Elliot, a research vice president with Gartner, noted that Microsoft is leaving Skype Chief Executive Tony Bates in charge, a sign that Microsoft plans to give the group some measure of autonomy.

He also noted that it is in Microsoft’s best interest for the product to work across multiple platforms, including non-PC ones, so that it can attract the broadest audience possible.

Of course there’s a risk that Microsoft will mismanage the Skype product, Elliot said. But he doesn’t think it’s something people should be overly concerned by right now.

“They’re clearly interested in maintaining the Skype base,” he said.

Elliot noted that the acquisition has likely made a number of potential competitors nervous. Those range from technology companies that directly compete with Microsoft to telecommunications firms who may worry that a Microsoft-backed Skype product will make their traditional communications tools less necessary. He noted that it’s likely in those competitors’ best interest to bad mouth the acquisition.

“If I were a competitor, I would say Skype is going to be no longer independent,” Elliot said.

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Explainer: Microsoft-Skype: The winners and losers

  • Image: Microsoft Announces Skype Acquisition For 8.5 Billion
    Justin Sullivan  /  Getty Images
    Microsoft CEO Steve Ballmer, left, shakes hands with Skype CEO Tony Bates during a news conference in San Francisco, Calif. Who are the winners and losers in the deal?

    With the news that Microsoft will acquire Skype for over $8 billion including debt, the question becomes: Who are the winners and losers?

    Skype is an enormous service with over 500 million users, and a transformative potential in many areas of technology, from telecommunications to social networking. The potential ramifications are huge.

    Here are the winners and losers in the deal.

  • WINNER: The Skype investors made a huge return on investment

    Denis Balibouse  /  Reuters

    Skype's investors bought in at a $2.5 billion valuation two years ago and are selling for $7 billion ($8.5 including debt).

    That's called winning. Especially when the company's IPO had been postponed and it didn't look like a bidding process would have been straightforward: Facebook, reportedly interested, doesn't have the cash, and Google (or Cisco) would have had the deal mired in antitrust forever.

  • WINNER: Marc Andreessen is now officially Silicon Valley’s ‘Kingmaker’

    Paul Sakuma  /  AP

    Marc Andreessen, left, is a partner at Andreessen Horowitz, one of the investors in Skype. He sits on eBay's board and was key in putting the deal together, and now he got the first big exit for his new VC firm. With this deal, he cements his status as one of the most powerful dealmakers in Silicon Valley.

    Business Insider: Skype’s road to $8 billion

  • WINNERS: The Skype founders got $1.1 billion for showing up

    Mario Tama  /  Getty Images

    Niklas Zennstrom and Janus Friis, who originally founded Skype, weren't invited in the original buying syndicate. But thanks to some key intellectual property behind Skype that they own, they bullied their way in with a lawsuit, pushing out Index Ventures and its Partner Mike Volpi. Their stake is now worth $1.1 billion. Talk about double dipping.

    Business Insider: Microsoft on why it dropped $8 billion on Skype

  • WINNER: The Skype executive team will be flying off into the sunset


    Skype's executive team is mostly made up of hired guns brought in from Cisco and other big companies by the new investors, only a couple years ago. They almost certainly won't stick around for the Microsoft era and are probably already shopping for private islands and yachts.

    Business Insider: Ten amazing Windows 8 rumors that make Apple nervous

  • WINNER: Facebook kept Skype off Google's hands without having to shell a penny

    Paul Sakuma  /  AP

    Facebook tried to bid for Skype when it looked like Google was interested. Skype would be a great potential partner for Facebook, giving them added video and voice chatting capabilities, and a great asset for Google in its war with Facebook over the "social graph." Instead of having to actually buy Skype to keep it off Google's hands, its longtime partner and shareholder Microsoft did it on Facebook's behalf.

    Business Insider: The 29 most valuable brands in the world

  • WINNER: Nokia, and other Windows Phone 7 partners have a great asset now


    A huge component of the Skype deal is mobile. Google has Voice, Apple has FaceTime. Now Microsoft has an amazing asset it can tie into Windows Phone 7. That's good news for Nokia and other Windows Phone 7 partners like HTC and Samsung.

  • WINNER: eBay did make money on Skype

    Paul Sakuma  /  AP

    eBay was roundly mocked for buying Skype, which everyone saw as a money-burning extravaganza. Now eBay gets $2.4 billion for its stake into the company, after selling the rest for over $1 billion, all for something it bought for $2.5 billion. In the end, eBay made money on Skype.

  • ON THE FENCE: Microsoft could turn Skype into something great, but will it?

    Justin Sullivan  /  Getty Images

    How the Skype deal turns out for Microsoft depends on what Microsoft does with it.

    On the one hand, it's an amazing asset with tons of potential. And using cash for acquisitions is better than letting it sit on the balance sheet (but might be worse than returning it to shareholders).

    On the other hand, Microsoft is just bleeding money online, and Skype loses money. Is it really time to add more red ink?

  • LOSER: Cisco now has a strong rival in enterprise conferencing

    Justin Sullivan  /  Getty Images

    A big source of growth for Skype was always going to be business conferencing. But Skype has consumer DNA, so Cisco was able to use its hold into the enterprise and sales power to keep them away from the gravy train. Now Skype has a home with a company that does nothing so well as sell software to companies. WebEx, its video conferencing suite, was one of Cisco's biggest and most successful acquisitions, but it looks like it's going to take a hit.

  • LOSER: Google got a perennial rival to overpay, but in the end that doesn't matter

    Justin Sullivan  /  Getty Images

    Google was probably never really interested in buying Skype. It doesn't need the technology and barely needs the userbase. It has Android and Google Voice. But it was interested in bidding up the price and getting Microsoft to pay through the nose. And that it did perfectly.

    But if Microsoft is smart about Skype, it's an asset they can use to compete better with Google in many important areas, from enterprise software to mobile to social networking, and that will matter more than paying a few extra billion that would have been sitting on its balance sheet anyway.

  • LOSER: Index Ventures and Mike Volpi got pushed out of the deal

    Tony Gentile  /  Corbis

    Index Ventures, the most prominent European VC firm and an original investor in Skype, was slated to invest in the Skype spinoff, but got pushed out by the Skype founders' lawsuit.

    In particular Mike Volpi, a former top Cisco exec and CEO of Joost, the Skype founders' next venture, was sued by the Skype founders and booted out. If we were him, we'd be drinking heavily right now.

  • LOSER: European tech doesn't have a Google

    Scott Barbour  /  Getty Images, file

    Skype is basically an American company now. It already had mostly American investors, and now it's owned by Microsoft. Tech hubs like Silicon Valley are often built around big, important public companies that irrigate the ecosystem by buying up smaller companies, turning early employees into angels or entrepreneurs and being an example. Skype was Europe's biggest success. It was already unlikely that it would be a big, standalone European success but now that dream is gone for good.

    Betfair and Vente Privée, a lonely continent turns its eyes to you ...

Video: Ballmer, Bates on Skype deal

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