News

Big Day for Microsoft, Skype says Ballmer

Major milestone to enhance cross-platform communication.

• By Jeffrey Schwartz
• 05/10/2011

Microsoft CEO Steve Ballmer described the company's acquisition of Skype for $8.5 billion announced today as a major milestone in Redmond's effort to enhance cross-platform communications between mobile devices, PCs and home entertainment systems.

Executives of Microsoft and Skype appeared at a press conference at which they discussed the deal, announced earlier today.

"This is a big day for Skype, it's a big day for Microsoft," Ballmer said, in an attempt to justify the large premium the company is paying for Skype. "We're adding a new division and a new promise to our customers, the promise of universal, next-generation communications."

Tony Bates will be at the helm of the new division; he is now Skype's CEO and will be president of the new Skype division. Bates said he anticipates Skype's user base growing from millions to billions of subscribers. "We believe that this is a platform and a set of services that can reach everyone on the planet," Bates said.

Microsoft CEO Steve Ballmer and Skype CEO Tony Bates at the San Francisco announcement of Microsoft's acquisition of Skype. Source: Microsoft Corp.

Ballmer talked up Skype's huge installed base of 170 million users and the fact that on average, 30 million people are online at any given time. He said 600,000 new users sign up every day. While the discussion was short on specifics regarding integration with existing Microsoft technologies, he indicated the potential to extend Skype across Outlook, Xbox, Kinect, Messenger, Hotmail and Lync.

Extending Skype to Lync could have implications for enterprise customers using or considering that product. "For business, we've had an incredible uptake of our Lync communications client. We're committed and want to build on that success," he said. "The product is off to a fantastic start and we have plans to enhance it, in addition to connecting it into the rest of the Skype customer base, which in and of itself will be viewed as a great value to our customers."

Ballmer emphasized that Microsoft will continue along Skype's path of supporting multiple platforms, including Apple's iOS and Google's Android. "I said it and I mean it, we will continue to support other non-Microsoft platforms," he said.

Microsoft Chief Financial Officer Peter Klein said Skype generated $860 million in revenues in 2010 and is growing at a rate of 20 percent per year. Skype posted EBITA earnings of $264 million, which Klein said is growing at a rate of 40 percent. Despite the operating profit, Skype ran at an operating loss of $7 million, according to published reports.

"So you've got a strong growing business with an engaged user base and great technology, you've got great operating leverage, and in addition to that, there's new revenue streams and new growth opportunities that we're just scratching the surface on," Klein said.

Among those new revenue opportunities are selling advertising and adding premium services, Skype's Bates said. "Advertising is a very powerful monetization scheme for us," he said.