Microsoft acquires Skype, bad news for internauts

This video is called Microsoft to buy Skype in $8.5bn deal.

By Mike Ingram:

Microsoft and the future of Skype

16 May 2011

The announcement Tuesday May 10 that Microsoft paid $8.5 billion for the online voice and video service, Skype, has prompted much speculation as to Microsoft’s motives and the future of the Skype service.

By any estimate, the deal was overpriced for a company that last year made a net loss of $7 million on revenues of $860 million. The projected Initial Public Offering for Skype was estimated at 50 percent less than what Microsoft paid for the service. This is Microsoft’s largest ever acquisition but still represents a small fraction of the software giant’s massive wealth. Microsoft has a net worth of around $220 billion.

Skype was first launched in 2003 by software developers Niklas Zennström and Janus Friis. The two had previously developed the peer-to-peer file-sharing service Kazaa. Skype is based on the same underlying technology, which allows the service to utilize the power of user’s computers rather than investing in expensive server technology.

The ability to make international voice calls from computer to computer, and later to landlines, independently of the telecommunication giants proved instantly attractive. Skype had 50,000 registered users by September 2005, doubling that figure to 100,000 by April 2006. Today, an estimated 170 million people worldwide are Skype users. By 2010, Skype was said to be responsible for a quarter of all international telephone calls.

Skype’s overwhelming success made it an early target of corporations seeking ways to capitalize on the user base. Online auction site eBay bought Skype for $2.6 billion in 2005 with a view to integrating it into its auction services. The integration never happened, and in 2009 eBay sold 70 percent of Skype to an investment group that included former founder of Netscape, Marc Andreessen. The 70 percent stake was valued at $2.75 billion.

The purchase by Microsoft poses a real threat to democracy and the free exchange of ideas. What has become an essential utility for millions of people is now controlled by one of the world’s largest corporations, and one that has a record of subverting technological advances in the interests of maintaining its own monopoly. (See, “The Microsoft law suit, software development and the capitalist market“)

It is not yet clear how Microsoft intends to make a profit out of the Skype technology, or if Skype will go the way of so many previous purchases by the company, including Groove, Placeware, Massive, LinkExchange and WebTV, all of which were shut down.

Bill Gates: here.

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