Skype

Microsoft’s purchase of Skype for $8.5 billion is a high premium to pay for a product/service that is falling behind its rivals.  The purchase is a big move and many would argue that Microsoft is now in a position where it needs to make a big bold move.  Let’s all recall how well it worked out for Ebay.

Actually, it worked out well for Ebay… when they sold it.  Ebay retained about 1/3 of the company.  The $8.5 billion dollar price puts the value of Ebay’s stake at approximately $2.95 billion.  Ebay paid $3.1 billion for Skype in 2005.  After a poor integration attempt, Ebay sold Skype for $1.9 billion to an investor group that included Andreesen Horowitz, Silver Lake, Index Ventures, and the Canadian Pension Plan Investment Board (seriously).  If you combine the amount received for the stake with the recent sale (assuming the deal closes), Ebay walks away with $4.85 billion.  Let’s not forget the tax benefit received from the $1.4 billion dollar charge Ebay incurred in early 2007.

Rumor had it that Skype had some tire kickers buzzing around.  The usual suspects (Google and Facebook) were said to be in the mix.  Apparently the competition was in the $4-$5 billion dollar range.   Once the Google deal fell apart (due, in part, to the ill fitting technology) Skype appeared to be headed toward an IPO.  The final suitor (Microsoft) had to step and and was forced to a pay a premium for Skype’s massive user base. The user base is too large to ignore.  Skype is the largest international calling service in the world and has approximately 600 million registered users.  Skype’s 2010 revenue came in at about $860 million.

This deal really makes Google’s $50 million dollar acquisition of Grand Central look fantastic (June 2007).

How can you make money on this deal?  Is it time to short MSFT?  Hard to say, but a big acquisition can be a huge distraction.  With the cloud taking over, perhaps it is time to play the MSFT short.  I would expect that further changes are in the wings.  The government considered breaking MSFT into parts back at the height of the antitrust furor.  Now, Microsoft might just do the break up on its own. OS / Applications / Services.

Microsoft

Further Reading:

Skype was reading itself for an IPO.
Google didn’t want to do a deal due to the ill fitting technology.

Google Chrome OS vs. Windows Operating System

Google confirmed their operating system that has been discussed quite a bit in the past.  In fact, it is something that become obvious to Bob and Scott some time ago:

Google OS PC is Here
The Google PC is Coming

This Google Chrome OS news was confirmed late last night on the Official Google Blog.

This certainly changes the game in the PC world.  What a time to jump in.  Microsoft is coming with Windows 7 and netbook style PC’s are all the rage.  Google’s OS is taking aim at that.

Speed, simplicity and security are the key aspects of Google Chrome OS. We’re designing the OS to be fast and lightweight, to start up and get you onto the web in a few seconds. The user interface is minimal to stay out of your way, and most of the user experience takes place on the web. And as we did for the Google Chrome browser, we are going back to the basics and completely redesigning the underlying security architecture of the OS so that users don’t have to deal with viruses, malware and security updates. It should just work.

This is a bit different than my earlier speculation that this would be running with Android as the base OS.  In fact, it is essentially the Network Computer that Larry Ellison claimed was the future way back in the mid 1990′s.  Scott McNealy was on board with the network PC talk about the same time.  Google might just have the timing to make it happen.

In 1995, you couldn’t use the web as your platform.  The apps weren’t there and you didn’t have the ability to be productive with a network PC only.  A local set of apps were an absolute must.

If Google can do this right and ensure an open platform for developers to latch on to (wait, I think I heard facebook say that), then they could create an entirely new ecosystem the way that Apple did around the iPhone.  Create a platform, a marketplace, a user base and development will come.  Plug in your app, give up your 30% and you are in business.

How will a company like Facebook react to this.  They had a similar idea to make Facebook a platform and not just a ‘website’.  Guess what, the Twitter distraction might just turn Facebook into the next MySpace.  The bold plan to create Facebook as a platform is being lost in favor of an eyeball grab.  The worst thing for any company finding that Twitter is distracting them and stealing their user base is the fact that the founders of Twitter don’t need to be bought out. They have been there and done that.

I expect some interesting fallout from the Google OS.  If the OS takes hold, here is what I will watch for:

• What happens with Firefox?
  Gobbled up by Google was my feeling in the past.  Maybe not anymore.  Would MSFT gobble up Firefox? Perhaps
• How does Facebook react?
  Have the abandoned the Facebook as a platform to replace Windows?
• How do the PC manufacturers handle this?
  Can they jump on board without a backlash coming from Redmond?
• What does Apple do?
  Is there a reaction needed from Apple?  They continue to grow share from folks that realize that their phone was that far ahead of everyone else, so let’s buy their computer.  ”Besides, I like their ads” I say “was” to the phone being that far ahead. The Palm Pre is the mobile OS that has finally mounted a challenge to the iPhone in terms of quality.

We have been starved for a catalyst in Tech.  Could this be it?  I doubt it, but it will be a fun game to watch.

A Google PC has been something that has been talked about for years now. I don’t think that Google has confirmed this directly, but they have made every effort to ensure that their products would fill the needs of most computer/web users.

Chrome / Gears / Android

Think the Android OS  is just for a phone?  Think again.

HP and other manufacturers are considering using Android to run some computers.

Android running computers.  Google has more than 20,000 employees.  What do you think they are running? I know, I know… the geeks are screaming “a variant of Ubuntu”.  However, I would venture a guess that there is a sect within the company using a system on Android with Gears and Chrome.

The battle against Microsoft will really heat up when Google is able to pursuade a large corporate customer to drop their MS Office license in favor of Google Docs. Just saying it makes me realize Google Docs needs a better name to be taken seriously on a corporate level.