Skype and Microsoft or How Management Can Be Everything

Skype is one of those disruptive internet applications that can break a niche market. Since its launching in 2003 the communications software has experienced huge growth and popularity. Today Skype has more than 500 million registered users worldwide and is the largest provider of international calling services in the world, surpassing any single phone company, according to research firm TeleGeography.

In 2005 eBay bought Skype for $4,2 billion to integrate the free communication tool into its marketplaces all over the world. It was a big bet that didn't work, and eBay sold Skype in 2009 for about $2,75 billion. Definetively it was just bad business for eBay. Their vision to conquer global ecommerce by talk turned out to be too early, maybe.

So Skype was again led by VCs and investors in 2009, looking to increase revenue stream through new products and an advertising platform. Skype received a huge amount of money with which to conquer the entire communication space and they have come a long way from their starting position. But the market is hot and the big players like Google, Facebook and Microsoft, don't want to lose the communications battle in an era where social media has exploded, showing that internet is much more about communications than good content, advertising and ecommerce.

Don't forget that Skype lost $7 million on revenue of $860 million last year, according to papers that the company has filed since announcing its intentions last summer to launch an initial public offering of stock. The IPO was later put on hold. Skype's long-term debt, net of cash, was $544 million at the end of 2010.

Microsoft finally won out and took Skype for about $8,5 billion. Google tried to be there, but for sure for less money. And Facebook made an effort but maybe they thought that Microsoft should pay the bill and then they would get a special treat from their investor of reference. Facebook has to use their huge cash reserve to continue to conquer instant written communications between humans, and leave voice calls for telecommunications players.

So the final question is: Will Microsoft be able to make the Skype acquisition profitable? At this point it is a question of management. If Microsoft has a clear and proven vision of how to integrate Skype into their operations, bringing value to customers from day one, and they can execute it perfectly, they will have a incredible opportunity to conquer a big part of the worldwide telecommunications pie. The price paid for Skype would then sound reasonable and the acquisition would make plenty of sense. But can they integrate Skype and all their disruptive freemium approaches in the licensing software house? This is a challenge for management and cultural vision and time will tell how this brave acquisition ends.

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