Microsoft And Skype

Last Updated on 14/05/2011

Let’s face it. Mergers And Acquisitions (M&A) are more popular today than it has been for a long time. Post-recession companies are sitting on large amounts of cash and are picking up smaller target companies and technologies. But more on that in a second.

Essentially, companies can grow by buying (M&A) or creating/making using their internal know-how. M&A is the more expensive option, but a faster route to market and in today’s frenzied environment the speed-to-market is a major issue. The downside, however, is that companies can dive headlong into a FAD, end up buying products that ultimately do not integrate and, of course, may suffer from cultural incompatibilities/be mishandled. Nortel is a good example of this last issue.
Unfortunately many a CEO is more adept at throwing around shareholder/reserve money than innovating and marshalling internal resources to create from within – and saving money. I say this, especially, because organic creation has a much better chance of success in the long-term than an acquisition. Time and internal collaboration allows for far more consideration of the issues involved than a surprise one-shot outside acquisition.

Having said that, I have been reading 2 articles that perhaps inadvertently point out how these decisions are more complex and perhaps more thought-out than we think.

Take a look:

This article points out that the cost per user of Microsoft’s acquisition of Skype is not significant and Microsoft will regain its cash reserve, if not recoup its investment, in less than a year: http://www.businessinsider.com/numbers-microsoft-skype-deal-2011-5

This article captures some of the collateral ill feeling M&A can attract from the user, analyst or investor community. In other words, there are other factors to be considered when a company is large or public (several brokers, analysts and users exclaim that this will be the end of Skype and Microsoft will tarnish the service): http://www.theglobeandmail.com/globe-investor/markets/markets-blog/microsoft-bashing-unleashed/article2017074/

Also see this article which points out more M&A tech deals have been announced in 2011 ($94 billion) than at any year since 2000. Microsoft’s contribution via Skype alone: $8.5 billion alone. If you are on the block this is the year to sell: http://www.theglobeandmail.com/globe-investor/investment-ideas/wall-streets-five-favourite-tech-heavyweights/article2020063/

*I do work on behalf of Microsoft

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