However, compared to prior target companies, (apart from being cool and a verb for online voice and video calling) looks a lot more lucrative. As of 2010, the popular service has 663 million registered users out of which 170 million are connected. Impressively, Skype users made 207 billion minutes of voice and video calls in 2010. So far so good! But unfortunately the rosy picture just ends here – only 8.8 million of these users actually pay. That roughly boils down to 1.32% of the entire user base. Further, Skype incurred a loss of $7 million on revenues of $860 million in 2010. In short, the company still hasn’t figured out a way to make profits. What’s more? If one were to calculate Skype’s revenue per user, it would round up to just $1.3.
If these facts weren’t enough, then Microsoft should have at least learned a lesson or two from eBay’s Skype misadventure before taking the plunge. In 2005, the online auction portal paid $2.6 billion to acquire Skype. The idea was to integrate voice and video calling features into the auction process. But, after close to three years of failed attempts to derive synergies, eBay wrote off $1.4 billion from the value of Skype. It’s not that Skype is not growing, it’s growing; but only in terms of numbers that really don’t matter to Microsoft. Last year, its monthly users stood at 145 million implying an increase of 38%. Paid users were also up by 19%. However, if Microsoft wants a 10% annual ROI, paid users will have to grow 40 folds, which seems unlikely anytime soon.
Further, with the acquisition, Microsoft plans to embed Skype’s services across its offering. Potential combinations include linking the service to Outlook e-mail, Xbox game console, Windows mobile phone and corporate suite Lync. But, except for the Xbox and Outlook combinations, Skype’s services don’t fit anywhere else. Moreover, Skype significantly overlaps with Microsoft’s video chat, instant messaging and web conferencing tools. This could turn out to be a major hindrance in integrating Skype services with Windows Phone 7, a mobile operating system which is being developed by Microsoft in collaboration with Finnish telecom giant Nokia.
No doubt, Microsoft is sitting on $40 billion in cash, and that does make the Skype acquisition affordable. But this does not mean that it should be spending irrationally. The fate of all major M&A rests on execution and Microsoft is not an exception. Agrees Michael Hodel, the US based CFA at Morningstar as he tells B&E, “Microsoft will need flawless strategic and tactical execution over the coming months and years to keep its shareholders from losing money on this transaction.” However, the challenge in this case is to leverage the 663 million users without destroying what attracted so many people in the first place (the service is free). Well, we still wonder how Ballmer and team will pull this one off!
Read more.....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
If these facts weren’t enough, then Microsoft should have at least learned a lesson or two from eBay’s Skype misadventure before taking the plunge. In 2005, the online auction portal paid $2.6 billion to acquire Skype. The idea was to integrate voice and video calling features into the auction process. But, after close to three years of failed attempts to derive synergies, eBay wrote off $1.4 billion from the value of Skype. It’s not that Skype is not growing, it’s growing; but only in terms of numbers that really don’t matter to Microsoft. Last year, its monthly users stood at 145 million implying an increase of 38%. Paid users were also up by 19%. However, if Microsoft wants a 10% annual ROI, paid users will have to grow 40 folds, which seems unlikely anytime soon.
Further, with the acquisition, Microsoft plans to embed Skype’s services across its offering. Potential combinations include linking the service to Outlook e-mail, Xbox game console, Windows mobile phone and corporate suite Lync. But, except for the Xbox and Outlook combinations, Skype’s services don’t fit anywhere else. Moreover, Skype significantly overlaps with Microsoft’s video chat, instant messaging and web conferencing tools. This could turn out to be a major hindrance in integrating Skype services with Windows Phone 7, a mobile operating system which is being developed by Microsoft in collaboration with Finnish telecom giant Nokia.
No doubt, Microsoft is sitting on $40 billion in cash, and that does make the Skype acquisition affordable. But this does not mean that it should be spending irrationally. The fate of all major M&A rests on execution and Microsoft is not an exception. Agrees Michael Hodel, the US based CFA at Morningstar as he tells B&E, “Microsoft will need flawless strategic and tactical execution over the coming months and years to keep its shareholders from losing money on this transaction.” However, the challenge in this case is to leverage the 663 million users without destroying what attracted so many people in the first place (the service is free). Well, we still wonder how Ballmer and team will pull this one off!
Read more.....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
