7 ms·

This is Microsoft's ICQ moment. Overpaying for a company at the moment when its core competency is becoming a commodity. Does anyone have the slightest bit of l

• jcampbell1 15y ago
  > This is Microsoft's ICQ moment Is that a reference to ICQ's "Uh-oh"? If so, I fully agree. If Apple stock is priced to perfection, MSFT is priced to stupidity. This kind of wasted earnings is exactly why Microsoft stock sells at a mere 10x earnings. Investors are fully aware that a large portion of all future earnings will be wasted.
  • d_r 15y ago
    I think this is a reference to AOL buying ICQ.
    • jcampbell1 15y ago
      I don't understand. AOL bought ICQ for 400M, got patent exclusivity to IM for some time, sold a bazillion ad dollars during the dotcom boom through the ICQ client, and then sold the company recently for 200M. I am sure AOL came out ahead on that deal. What is an ICQ moment?
      • jeza 15y ago
        Though in terms of your average joe, no one seems to know about ICQ anymore. Those that do seem to remember it as something of the past (remember those days when we all chatted on ICQ?). Ironically though in Australia it was MSN that took over the market from ICQ. I guess because so many people had a hotmail account and the client came with their computer. Now if only people would switch so quickly to Jabber/XMPP as they did then, though I guess it would help if a popular phone manufacturer would do this by default.
        • jasonlotito 15y ago
          Maybe for the average Joe in the US, but it's still widely used around the world.
          • jeza 15y ago
            I specifically mentioned Australia. Though I have observed trends for IM market share vary a lot more in different countries. So it's probably true that there is still some country where ICQ dominates. By the way, isn't AOL IM still the main game in the US?
        • whatusername 15y ago
          MSN had one killer feature for me over ICQ. Server-side friend lists. When my PC was replaced - my MSN list was there. My ICQ had to be re-added.
          • jeza 15y ago
            This was eventually added to ICQ but probably too late.
  • tybris 15y ago
    No it's not. MSFT is just a sane stock priced my normal investors who want a balanced portfolio and don't believe in fairy tales.
    • jcampbell1 15y ago
      You are ignoring the facts, Microsofts stock price assumes they are not going to generate incremental profits from their new businesses such as Bing, or the Windows phone. I won't comment on whether I think that is accurate, but it is simply what the current valuation implies.
• sukuriant 15y ago
  I have loyalty to Skype. And this is infinitely better than Facebook owning Skype, imo
  • lookingchris 15y ago
    MS and FB are practically the same ethics-wise to me. I'd be interested to hear more of your thoughts on this.
    • kooshball 15y ago
      What do you mean by this? As opposed to Google and Apple?
    • blub 15y ago
      Companies don't have ethics, but a company that sells eyeballs for money is much more likely to take decisions that negatively impact customers compared to a company that sells producs. Google and Facebook would have been worse for Skype, they both suck at privacy.
      • brianpan 15y ago
        This is getting way off topic, but of course companies have ethics. Just like they have core values, goals, and ambitions... A company is made up of people and those people can choose to make ethical decisions and can have a history of acting ethically or not.
        • blub 15y ago
          The fact that employees have ethics does have an effect on the actions that the company takes, but that doesn't mean that the company itself "has ethics". At most we can say that a company employs ethical individuals - still - that won't necessarily lead to ethical decisions. Things like peer-pressure, the board of directors, profits, strategy, market pressure and so on can make good people do bad things. Historically we can see that companies (especially corporations) are as ethical as the laws force them to be, especially when it comes to decisions affecting the bottom line.
• alanh 15y ago
  Agreed completely. Skype certainly has brand recognition and people know it’s “the” way to keep in touch across the ocean, but — and I don’t have studies to back this up — I bet it’s one of those brands people know but don’t feel very fond of. Skype is kind of annoying, for one, and is less reliable and more complicated than traditional telephone solutions (by virtual necessity, but that doesn’t matter). This should theoretically make consumers prone to try alternatives, as parent suggests.
  • JoeAltmaier 15y ago
    But also its the "facebook effect", where you go there because everybody else is there. So that's in Skype's favor.
    • lallysingh 15y ago
      When a friend finds something better than skype, I'll go over with them. Network effects are bidirectional.
• richardw 15y ago
  One reason is likely their experience with IE. They took so much flak destroying Netscape that it's just cheaper and less stress to buy the market leader and get on with it. In terms of 'why', this is just the easiest way to integrate telephony with their own operating system in a way that leverages the network effect. Soon, any app which runs on Windows could just use the Skype Service. Mac/iPhone/Linux will only have bolt-on app integration with the market leader, or have to develop their own from scratch. And Microsoft will slap some very serious marketing behind this. Maybe Windows phones automatically use Skype when you call other Skype users and they're online, saving costs. Or MS could integrate it into business services, taking over internal phone networks. Maybe they have thought of a use I haven't in my 5 minutes of thinking :)
  • netcan 15y ago
    Maybe you are logged into skype by default and 3rd party apps can access it.
• Luyt 15y ago
  "With $7B they should have just given away about 15 million Windows Mobile phones in the form of an epic PR stunt." This instantly reminds me of the CueCat [1], which Wired sent out to half a million subscribers. I admit, a phone (even a WP7 one) could be a million times more useful than a CueCat ;-) [1] http://en.wikipedia.org/wiki/Cuecat http://en.wikipedia.org/wiki/Cuecat [2] http://www.joelonsoftware.com/articles/fog0000000037.html http://www.joelonsoftware.com/articles/fog0000000037.html
  • ecoffey 15y ago
    Really interesting reading that Joel on Software now. Had me thinking of the Jimmy Fallon skit where someone held up a QR code in the background that I scanned with my phone, opened in mobile youtube, and I was watching more content.
    • shadowpwner 15y ago
      Off topic, but that was the one with Stephen Colbert singing Friday, correct?
      • ecoffey 15y ago
        Yes it was
• utnick 15y ago
  Not 100% sure, but I think the moneymaker and core competency for skype is not video chat. I have a skype account, I pay for a personalized USA number that people can call with their phones and reach me around the world, I also pay for the ability to dial any number around the world. All of my work contacts also have skype accounts which we use to communicate. It would take quite a bit to get me to move off of Skype.
  • JoeAltmaier 15y ago
    How about move up then? I work for Sococo, and they have a service for distributed teams like yours. Always-on, no minute charge or limit, plus expanded presence information like you wouldn't believe. Can also call out/in, share docs and views, works on Mac/linux/Windows. Above it was mentioned Skype has no loyalty, will be replaced when something better comes along. We're hoping thats Teamspace, Sococo's 1st product.
    • briandear 15y ago
      Only problem is Sococo is designed for closed groups, and it has no video -- it's hardly a Skype competitor in functionality. Besides for group chat and conference calls and Campfire does it better for less money and without having to download anything -- it's elegantly Rails and works from anywhere on any device. I'm sure Microsoft will find a way to break Skype like it breaks everything else!
      • JoeAltmaier 15y ago
        Yeah, Sococo is not a Skype replacement - its for teams, that's for sure. But don't mistake it for another "group chat and conference call" tool. Its designed to remove the friction from those activities by making collaboration instant, always-on and visual.
  • djb_hackernews 15y ago
    Just get a Google Voice number, hook it up to your mobile phones sip client, and enjoy the ability to make and receive calls when ever you have a data connection.(Free to receive but international rates apply when calling out, but US and Canada are free)
• mmaunder 15y ago
  There is a very strong network effect with Skype for PC to PC calls. But I doubt MS is going to get full value. They have had little success with freemium business models and I don't see why this would be different.
  • timc3 15y ago
    In what way do you measure success? Hotmail and Windows Live Messenger for two services have a huge amount of users.
    • InnocentB 15y ago
      I wouldn't call either of those an example of a successful freemium business model. A free, ad-supported business model, perhaps.
    • Tyrannosaurs 15y ago
      Don't they still lose money though? Certainly as of 2008 online services (search, hotmail, messenger) was losing over $1bn a year. I don't believe that they've ever broken that down publicly but it would seem unlikely that any one of those services is making significant money if the who division is losing cash. 10 years on (I think the Hotmail acquisition was that far back) it should be making money unless Microsoft has become a charity.
    • dataminer 15y ago
      I have accounts on Hotmail and Windows Live Messenger since their early days but my use of both of these services has diminished over last couple of years. I have observed the same attitude among my friends and family, all of them still have those accounts but they are active users of other services. I hope skype doesn't end up like Hotmail, windows live messenger.
  • netcan 15y ago
    My estimation is that skype makes enough money to be a fairly profitable company with it's business model (<$1b per year revenue, small or negative profits most years) if that is the goal but, it probably doesn't merit $7b. MS will need to get more value out of skype than current skype out call revenues. They're probably planning something else.
• bvi 15y ago
  While you're right about loyalty, quality matters too. Skype is infinitely better than Google Voice when it comes to video calls (very little lag, if at all!) - plus, users can video conference for free, which is not an option with Google Voice (as of now). My point is, Skype is the best product in the market in its domain, no question. I do agree than Microsoft is massively overpaying for Skype, however.
  • moeffju 15y ago
    Skype stopped free video conferences after the end of the beta phase. You now need a subscription to have video calls with multiple people.
    • bvi 15y ago
      Good point, thanks. But one of the biggest factors in favor of Skype is still its free audio conferencing capability. Google Voice does not have this, unfortunately, and I wonder why.
• netcan 15y ago
  My mother, father, brothers and friends in 3 countries all have skype running most days. Skype have my credit card so I always have skype-to-phone available (I use it mostly to find my cell). It's been that way for me for about 7 years. That means I have skype running and I use it every day (but I only spend about $20 per year). It's not loyalty, but network effects and momentum count for something too. Not sure that adds up to $7b (I dunno how to evaluate anything that big), but it is something. I'm sure this has a big chance of being useless, but it also has a chance of being helpful. If in 2 years (assuming skype can keep it's usebase) every windows pc tablet & phone is connected to skype by default, it could be strenthened. If skype integrates in some significantly useful way with outlook/exchange (scheduling calls, confirming meetings, emailing chat sessions, synching contacts) it could help strengthen the corporate MS position (the real cash cow). Like many decisions, it's not the decision itself that is most important, it's the subsequent actions, the execution. That said, a 1m phone giveaway would be epic. MS have money to burn and big fish to catch. Burn. Catch.
  • fullmoon 15y ago
    Thanks for reminding me to remove my credit card info.
  • jakarta 15y ago
    From the estimates I have seen, Skype generates $250mm in EBIT per year. That would mean that Microsoft is paying 28x earnings. If we want to approximate EBIT as free cash flows (not the same, but this is back of the envelope) and assume a 10% discount rate, to break even Skype would need to be growing EBIT at 6.4% annually for the next 10 years or so. I don't know how achievable that really is, but maybe they could test raising prices to get some of that growth.
    • netcan 15y ago
      nikcub has a comment on this thread that convincingly puts Skype "gross profit close to $500M+ for YE 2011." I was going off an article that had skype revenue/profit as 859.8/20.6 for 2010 and negative the year before. I assume that the accounting tricks of having been bought by a PE firm that he mentions are responsible for the discrepancy. If true, P/E is < 20, not bad. Still, I doubt that is really what MS is after.
• drawkbox 15y ago
  ICQ was mainly purchased/sought-after for their instant messaging patent: http://www.haaretz.com/print-edition/business/u-s-awards-icq-founders-patent-for-instant-messenger-software-1.25189 http://www.haaretz.com/print-edition/business/u-s-awards-icq... Which is now owned by DST the same large investors in Facebook and Zynga.
• tybris 15y ago
  Personally, I don't know any alternative to Skype and I don't want to bother to find out. The only other video conferencing software I've used is NetMeeting.
• riams 15y ago
  "They're going to use whichever video chat comes built into their SmartPhone, tablet, computer, etc. They're going to use FaceBook's eventual video chat service or something Google offers." Really? I'm thinking the barriers to switch from Skype are pretty high due to the vast amount of users Skype has. Why switch to a slightly more polished product when you have no one to communicate with there? We have to remember that the Hacker News crowd probably represents early adopters. Most people will not be as quick to try/switch to new services.
  • JoeAltmaier 15y ago
    They were pretty quick to adopt Skype. Its only seconds to load another VOIP-style client, and no time at all to use the one that came preinstalled. And you always know who you want to talk to on Skype, you're not calling the flower shop or anything, its your brother-in-law or whoever, so you can arrange for them to try another client in seconds. So the barrier to switching is pretty low.
    • gsmaverick 15y ago
      Very few people are going to go through the hassle of installing a new client just to make a phone call if a good solution, which both parties have, already exists.
      • JoeAltmaier 15y ago
        Well, they did that for Skype. And if it comes with the platform, that barrier is gone. But yes, there is market inertia and Skype has it.
        • jokermatt999 15y ago
          Most people I know who use Skype didn't have a video/computer calling solution before Skype. The barrier to installation for a new service that is much lower than switching to a competing service. If they're just getting into that kind of service, the benefits are quite large. Switching to a competing service has much less utility to them, because they already have a solution for the main problem; in this example, calling people. Switching requires losing their old contacts (network effect) as well as learning a new system. To put it in equation: Installing something like skype for the first time: Total utility of program - hassle of installing and learning a new program = large benefit Installing a competitor: Marginal utility of somewhat better program - previously available contacts on old system - hassle of installing and learning a new program = much less benefit
• dingle_thunk 15y ago
  Look at this as an enterprise VOIP play. Skype + Exchange + Dynamics CRM + OCS/LYNC + SharePoint is a pretty strong platform. Plug that all into Windows Phone and you've got a strong corporate platform generally.
• timedoctor 15y ago
  I think you might overestimate how easy it is for people to switch from Skype. With all your Skype contacts, friends on Skype, the fact that many users would not even fully understand how to download another software program and install it, these are reasonable but not huge barriers to entry. However did they overpay? In my definition anything that is more than 10 time net earnings is overpaying. So unless their net earnings dramatically improve to $700 million in a few years (unlikely), or unless there are some significant synergies that I am not aware of, I would say it's overpaying.