Microsoft-Skype acquisition

This is about the study on Microsoft acquisition of skype. Skype is a freemium voice over internet protocol service and instant messaging client, currently developed by the Microsoft Skype diversion. The service allows communicating with peers by voice using a microphone, video by using a webcam and instant messaging over internet. Unlike most of the VOIP services, Skype is a hybrid peer to peer and client server system. Skype is communications software whose purpose is to break down barriers to communication. With an Internetconnected device, families, friends and colleagues can get together for free with messaging, voice and video. At low cost, they can also call landlines or mobiles virtually anywhere in the world. - Skype press, 2011

Skypes History

Skype business model

Freemium Fremium is a pricing strategy by which a product or service is provided free of charge

 Free-of-charge services (e.g. Skype-to-Skype calling, video calling, chat, multi-party calling, file transfer) Premium services (e.g. subscriptions, SkypeOut, Online numbers, Voicemail, SMS ) But money is charged for advanced features, functionality or virtual goods.

Advantages of this model

Communication paradigm shift In earlier times they were hardwared networks and services but skype was moved to software software based networks and flexible devices Enormous market size - communication industry (2009): compared to the total revenues of ecommerce and Search) Strong focus on their core competence, i.e. telecommunication $1.4T industry revenue (

Disadvantages
Customers rely on access to the internet provided by companies that compete with Skype Rapid technology change

Does not guarantee high sound quality Customers get good sound quality only when there is proper network otherwise interruptions will occur. Strong competitors and low exit barriers for customers A challenge to keep existing and attain new users

Factors affecting mergers and acquisition

Mergers & acquisitions (M&A), in the broad sense, may imply a number of different transactions ranging from the purchase and sales of undertakings, concentration between undertakings, alliances, cooperation and joint ventures to the formation of companies, corporate succession/ ensuring the independence of businesses, management buy-out and

buy-in, change of legal form, initial public offerings and even restructuring (Picot, 2002, p.15). However, Nakamura (2005) explains that using a broad definition of M&A could lead to confusion and misunderstanding as it entails everything from pure mergers to strategic alliance. Therefore, this thesis adopts the definition of M&A in a narrower sense as clarified below. - Merger is the combination of two or more companies in creation of a newentity or formation of a holding company (European Central Bank, 2000, Gaughan, 2002, Jagersma, 2005). - Acquisition is the purchase of shares or assets on another company to achieve a managerial influence (European Central Bank, 2000, Chunlai Chen and Findlay, 2003), not necessarily by mutual agreement (Jagersma, 2005). In acquisition, the acquiring company may seek to acquire a significant share of stocks or assets of the target company. Consequently, there are two forms of acquisitions: assets acquisitions and share acquisitions (Chunlai Chen and Findlay, 2003). An asset acquisition occurs when a company purchases all or part of the target companys assets and the target remains as a legal entity after the transaction whereas in a share acquisition a company buys a certain share of stocks in the target company in order to influence the management of the target company. Depending on the significance of the share of stocks acquired by the acquiring company, acquisitions are then classified into three types: (1) complete take over (100% of targets issued shares), (2) majority (50-99%), and (3) minority (less than 50%) (Chunlai Chen and Findlay, 2003, Nakamura, 2005). In order to be useful in valuing and negotiating deals and thereafter in effectively integrating and managing the acquired businesses, due diligence needs to cover, apart from accounting and legal matters, the following aspects of the target company, commercial e.g. competitive position, customer relations, patents, operational e.g. production, technology, processes and systems, human resource e.g. compensation, training, employee relations, organizational e.g. structure, management style, power distribution, information systems e.g. performance, cost, complexity, compatibility. The major factors affecting the mergers and acquisitions are Strategic Fit between Business Strategies, Long Term Plans, Transfer of Skills, Customer Base, Updating Technology, Stakeholders, Corporate Culture, Decision Making, Employees, Expansion, Competitive Positioning

I have been dealing with Transfer of skills, customer base and long term plan

Transfer of skills
Skype indulging in high quality video chat services Microsoft top software producer

Peer to peer video

Lync has one to many videoconferencing but skypes peer to peer video chat adds another potentially more efficient and easier way to place video calls. Transfer of technologies between two organizations finds its root in the mergers and aquisitions integration process.

Change in use of materials

This kind of resource transfers transfer, combines and rationalises the material resources of both the companies. Transfer of functional skills and transfer of general management skills also will be there. Skypes infrastructure would make a valuable addition to Microsoft Messenger and its lync unified communications platform.

Customer Base
Though skype userbase is very smaller than that of Windows live Messenger, it have a key difference. About 8 million skype users pay for the service. Skype integrates telephone connectivity and is able to make both outbound and inbound phone calls and while its online services are free to use, these phone services cost money. Skype also has point of presence across the globe making it easy to buy phone numbers in foreign markets to cheaply establish an international telepresence. ( Use the customer base of skype to connect to Lync) Microsoft has real time communication- It has live communications server (lync) Live voice and video chat in X-box live etc. But as a MS employer said, Ms was not in the communications market the way skype was. It didnt have an easy way to connect callers to the traditional phone system like Skype does.

Lync required SIP trunching gear, Windows Live Messenger used to have a service called Windows live call but was crapped So Microsoft bought skype to make move into IP communication Connecting the users of skype with the users of their Outlook products Skype for Outlook.com lets you connect with your skype friends right from your Outlook.com box

Long term Plans

Same as every organization, the strategy of Microsoft is to become the market leader. This acquisition of skype can be seem as a further step to its growth strategy. By acquiring Skype and making use of its advanced technology, Microsoft can develop its products and can add to its growth strategy. Thus, this acquisition will help Microsoft to accelerate its long term plan.

Reference articles An empirical analysis of factors affecting cross-border acquisitions: U.S.-Japan Microsoft and skype Critical Success Factors in Merger & Acquisition Projects Factors Affecting M&A Success: A Starting Point for the Topic Renaissance