Is the Microsoft-Skype Deal Really Worth $8.5 Billion?

There's been a ton of news, discussion, and analysis of Microsoft's $8.5 billion acquisition of Skype, the free internet telephone service. Opinion of the deal has varied from overly negative to blushingly positive, but the truth will probably fall somewhere in between. Yet the ginormous, $8.5 billion pound elephant in the room is whether Microsoft will ever recoup that investment on a service primarily known for providing free internet telephony and video services to consumers.

That’s an awful lot of money for an internet phone service. Microsoft already has enough problems getting all of their disparate messaging services (Messenger, Communicator, Live Meeting, et. al.) to work properly and has a branding and communication challenge in educating consumers and enterprises about what they all are and what they're good for. How will Skype help them in that department?

For me, this acquisition also underscores the yawning gulf between the management approaches of former Microsoft CEO Bill Gates and current CEO Steve Ballmer. Bill Gates was (and still is) widely recognized as a tech visionary, someone who had a vision of where he wanted Microsoft to go and effectively marshaled and inspired his employees to get there. Anyone remember the famous May 1995 “Internet Tidal Wave” memo where Gates encouraged employees to embrace the Internet as a strategic priority for the company?

I'm sure Steve Ballmer is a fantastic manager, and a stellar salesman. But I think most of us would agree that he isn't the product and strategic visionary that Microsoft had in Bill Gates, or that Apple now has in Steve Jobs. And I think Microsoft desperately could use someone like that now.

At MacWord Expo in 2007, Steve Jobs famously said the following about his management philosophy at Apple:

I believe that Ballmer is too busy chasing where the puck is now. Buying Nokia, buying Skype, and trying to buy Microsoft a seat at the table where most of the momentum and innovation is now in the tech industry, which is focused on the cloud, the web, mobility, and social media. Microsoft is an immensely wealthy company, but they can only throw money at their problems for so long. Especially when throwing $8.5 billion at a time. And Microsoft has yet to articulate a strategy on how these disparate acquisitions will fit together and give Microsoft a competitive advantage.

Skype is very strong in the consumer space, but Microsoft has tried (and failed) many times to follow in the footsteps of Apple as a consumer tech leader. Anyone remember the Zune? Or the Kin? Other than Xbox Live and Windows 7, Microsoft has struggled mightily in the consumer space. Microsoft's strategy can't be to simply follow in the footsteps of Google, Facebook, and Apple, which is surely a losing proposition.

Rather than spend their sweat and treasure in the Sisyphean task of trying to out-maneuver competitors on their own turf, shouldn't Microsoft look at re-invigorating their core business, which is providing market-leading IT software and services for SMBs and enterprises? As far as all the Skype employees go, I have a feeling that many of them may eventually end up at Google, Facebook, or some other company that is driving innovation rather than following in its wake, which seems to be what Microsoft is doing now.

So is the Skype technology, brand, and user base really worth $48 a person, especially if all the people who made Skype what it is eventually leave? Buyer’s remorse is an uncomfortable thing, especially when it has to be counted 8.5 billion times.

So what are your thoughts about the $8.5 billion Skype deal? Let me know what you think by commenting on this blog post or following me on Twitter.

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