Microsoft acquires Skype

Cyrus Farivar | Estonia, Featured
10 May 2011

Today, Microsoft announced its acquisition of Skype for $8.5 billion. This is a terrible idea for Skype.

(June 3 addition: What I really mean is: I’m a big fan of Skype and a big fan of Estonia, and I want to see both thrive. I don’t really view Microsoft as a beacon of innovation, and my gut reaction when I heard the news was that this would somehow change the DNA of the company. I could be wrong — I hope I’m wrong!)

As soon as I heard the news, I pinged a few current and former Skype employees. One wrote back:

“[The deal] is great for investors, not sure it’ll be great for the company – [Microsoft] is not really known for being a fast mover and I think the people in the company are totally fed up by changes in management and ownership by now.”

That pretty much confirmed my gut reaction to this deal too.

The investors — including Andreessen Horowitz, Silver Lake Partners, CPPIB, and the two original founders, Niklas Zennström and Janus Friis — will do quite well, as they purchased a 70 share of Skype from eBay at a total valuation of $2.75 million. (eBay, of course, mystified many when it initially bought Skype for $2.6 million in October 2005.)

As I write in my book, Skype was born in April 2003 in the basement of the Institute of Cybernetics, a Soviet-era research lab built over 30 years earlier on the edge of the Estonian capital, Tallinn. By August of the same year, the company had reached 60,000 users with hardly any announcement or fanfare.

The company had produced the world’s best and easiest-to-use Internet telephone (VOIP) software. It quickly became a symbol of modern Estonia – despite the fact that its founders were a Dane and a Swede – the core programming team was Estonian, and the company’s first offices were in Tallinn. By November 2006, when President George W. Bush visited Tallinn, he received as a gift, not a painting or traditional piece of Estonian clothing, but rather something much more practical – a Skype phone. Since then, it has become a ubiquitous communications tool — one that practically everyone I know who wants to communicate with other people overseas uses on a regular basis.

Even more recently, an Estonian ad company unveiled the world’s first Skype phone booth in Tallinn airport. Can you imagine Microsoft doing something like this?

Out of the long list of Microsoft acquisitions, the only one of real note was Hotmail, which Redmond famously paid $400 million for back in 1997. But seriously, when was the last time Microsoft came up with something truly innovative that wasn’t XBox-related? Recall also that previous attempt to acquire Yahoo sent investors running after the acquisition was rebuffed.

While Skype has expanded during the tenure of CEO Josh Silvermann, expanding its user base and expanding its use in professional television, with the likes of Oprah and Al Jazeera using it in their broadcasts, I’m just not convinced that Redmond will know how to make Skype even better, especially when Google Voice is nipping at its heels.

Regardless, Skype will continue to be a symbol for Estonia, as Priit Kallas tweeted earlier today: “Eestlased (Estonians) think that Skype is ours anyways no matter who owns the shares.”

2 Comments

  1. [...] that legacy? Cyrus called today's deal "a terrible idea for Skype," drawing agreement from one of the company's current [...]

  2. Noah says:

    Although they’re clearly not known for such innovation, shouldn’t Microsoft be able to integrate Skype into Hotmail and onto their Xbox consoles?

    Also, if they could beat Google on the public video-phonebooth front, that would be quite a victory, no?

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