Eight and a Half Billion: Microsoft Calls Skype

There is a call made this week, and the call is the deal: the eight and a half billion dollars that Microsoft promised for Skype, the news that broke on Tuesday and filled the pages on Wednesday. The call is the validation: the free service that became the prize. The questions began that day: would the price be justified, would the users stay free, would the integration succeed where eBay failed. The eight and a half billion dollar call is the May 2011 story, and the story is the lesson: the free service that became the prize, the deal that will define the decade.

Eight and a Half Billion is the subject of this article: what Microsoft announced this week, who built Skype, why the network is the prize, and what the bet means.

1. The Announcement This Week

The announcement is the news, and the news is the week: the Tuesday statement from Microsoft, the agreement to acquire Skype, the total consideration of eight and a half billion dollars in cash, the largest acquisition in the history of the company. The announcement is the report: the stories that ran the same day, the headline that said Microsoft calls Skype, the free service that was the subject, the price that was the point, the number that changed the conversation. The announcement is the moment: the software industry that stopped, the analysts who reached for the calculators, the record that fell.

The announcement is also the Wednesday: the questions that remain open, the deal that still has to close, the review that lies ahead, the calendar that belongs to Microsoft. The announcement is the May 2011 context: the company that has been chasing the internet, the Skype that has been growing, the match that was made, the reasons that were given, the doubts that were voiced. The announcement this week was the beginning, and the beginning was the bet: the eight and a half billion dollars that will be watched, the communications that will be tested, the company that will be changed.

2. The Luxembourg Company

The company is the origin, and the origin is Luxembourg: the Skype that was founded in 2003, the founders Niklas Zennstrom and Janus Friis, the creators of Kazaa, the home of the internet's calling service. The company is the history: the eight years of building, the software that spread without a sales force, the downloads that grew by word of mouth, the users who chose Skype because it was free. The company is the independence: the business that answered to its users, the firm that the giants could not ignore, the seller that would be bought for eight and a half billion dollars.

The company is also the money: the two point six billion dollars that eBay paid in 2005, the write down that followed, the stake that Silver Lake's investors bought in 2009, the two point seven five billion dollar valuation that followed. The company is the scale: the roughly one hundred and seventy million connected users every month, the default video calling service of the world, the product that the price would measure. The Luxembourg company was the seller, and the seller was the proof: the free service that could be worth real money, the founders who would be paid, the movement that had arrived.

3. The Network

The network is the product, and the product is the software: the Skype that carries the calls, that connects the computers, that shows the faces, that makes the video call an ordinary thing. The network is the ubiquity: the one hundred and seventy million connected users per month, the default free video calling service, the first choice of the families and the businesses, the name that appears in every conversation about staying in touch. The network is the craft: the years of releases, the calls that were improved, the quality that grew, the trust that was earned one conversation at a time.

The network is also the economics: the calls that cost nothing, the users who paid nothing, the revenue that came from the few, the subscriptions and the calling plans that paid for the many. The network is the brand argument: the service that hundreds of millions of people loved, the phenomenal brand that Ballmer described, the reach that no rival could match. The network was the prize, and the prize was the point: the communications of the world, the software that carries them, the eight and a half billion dollars that landed in the middle of the field, the deal that every rival will answer.

4. The Buyer

The buyer is the company, and the company is Microsoft: the Windows and Office and Xbox business, the name that defined the personal computer era, the software maker that the office ran on. The buyer is the record: the largest acquisition in the history of the company, the six point three billion dollars of the aQuantive deal of 2007, the bar that was set, the bar that was beaten. The buyer is the strategy: the bet on communications, the future that Ballmer described, the direction that the chief executive pushed, the software that must connect everything, the products that will carry the calls.

The buyer is also the voice: the chief executive Steve Ballmer, the statement that called Skype a phenomenal brand loved by hundreds of millions of people, the message that the deal was about the future of communications. The buyer is the commitment: the promise that Skype would reach across Windows, across Office, across Lync, across Xbox, across Windows Phone, the reassurance that the users needed, the question that every analyst asked. The buyer was the believer, and the believer was the bet: the eight and a half billion dollars that Microsoft placed on communications, on the network, on the future.

5. The Future of Communications

The future is the framing, and the framing is the strategy: the communications that will live in every product, the Skype that will be woven into Windows, into Office, into Lync, into Xbox, into Windows Phone. The future is the reach: the consumer service that touches hundreds of millions, the enterprise video that the companies have been waiting for, the two audiences that meet in one network. The future is the promise: the video call that becomes as ordinary as the email, the face that appears on every screen, the communications that Microsoft will own, the calling that will belong to the software.

The future is also the question: the integration that must happen, the products that must change, the teams that must merge, the culture that must mix, the work that begins now, the months that lie ahead. The future is the May 2011 reading: the consumer reach plus the enterprise video, the two strengths that the deal combines, the platform that the company has been building. The future of communications was the argument, and the argument was the deal: the eight and a half billion dollars that bought the network, the strategy that will be tested, the decade that will judge it.

6. The Price Question

The question is the price, and the price is the doubt: the eight and a half billion dollars in cash, the twelve times revenue that some estimates suggested, the number that made the analysts blink, the price that made the room quiet. The question is the money: the users who paid nothing, the revenue that was thin, the monetization that was weak, the business that had never proven it could earn its keep. The question is the math: the value that the market put on Skype in 2009, the two point seven five billion dollars, the threefold jump that the new price represents.

The question is also the review: the regulators who must approve, the scrutiny that lies ahead, the deal that has not closed, the outcome that no one can promise, the calendar that still belongs to the lawyers. The question is the warning: the eBay deal that failed, the write down that followed, the integration that went wrong, the lesson that Microsoft must not repeat. The price question was the doubt, and the doubt was the drama: the story of this week, the story that will run all year, the question that will not go away, the number that will not stop being asked.

7. The eBay Lesson

The lesson is the predecessor, and the predecessor is eBay: the auction giant that bought Skype in 2005, the two point six billion dollars that were paid, the promise that was made, the integration that did not work. The lesson is the write down: the value that was reduced, the stake that was sold, the investors led by Silver Lake who took control in 2009, the two point seven five billion dollar valuation that followed. The lesson is the warning: the acquisition that looked brilliant and turned heavy, the synergy that never came, the cautionary tale that every analyst quoted.

The lesson is also the difference: the buyer that has changed, the network that has grown, the one hundred and seventy million users that eBay never had, the video that became the default, the moment that is not 2005, the market that is not the same. The lesson is the question: will Microsoft succeed where eBay failed, will the integration hold, will the users stay, will the bet pay, will the decade prove the price right. The eBay lesson was the context, and the context was the caution: the eight and a half billion dollars that must do what two point six billion could not.

8. The Lesson

The lesson is the shift, and the shift is the software: the communications that were once the telephone's business, that became the internet's business, that are now the software company's business, that are worth eight and a half billion dollars. The lesson is the validation: the free service that became the prize, the price that the market put on the network, the recognition that the giants could not ignore. The lesson is the phrase: communications is the future, the sentence that will be quoted, the claim that will be tested, the thesis of the coming years, the claim every vendor will repeat.

The lesson is also the bet: the Microsoft that staked its record, the eight and a half billion dollars that were placed, the network that must deliver, the promise to keep. The lesson is the May 2011 story, and the story is the lesson: the announcement this week, the Luxembourg company, the free service that became the prize, the network that became the bet. The eight and a half billion dollar call is the beginning, and the beginning is the year: the question that the industry will answer, the communications that will be watched, the network that will define the decade.

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