Posted on 11 May 2011 by BobL
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.
Posted on 09 November 2009 by BobL
If you are wondering why Google has become so dominant… read this article from Bill Gurley (Gurley is a VC at Benchmark Capital).
Bill discusses the case where Google is not only offering the mobile OS (Android) for free, but they will be paying carriers. This is an incredibly difficult proposition for companies who are a forced to show revenue directly for their product.
To Google, everything is a numbers game. It is all about the math. They are able to monetize in a rather indirect way. It is in a way that the consumer doesn’t mind. They aren’t splashing my screen with ads on every product or forcing me to watch a commercial prior to viewing a mobile video, they are simply building on what I am already used to… seeing an ad when I search for something. On top of that, they do their best job to be sure that it is a relevant ad. I actually appreciate the result and look for the ads to provide guidance.
The GPS companies have a big deal on their hands here. Google is not dependent. When I was able to get GPS on a phone, I wondered why there would still be a need for the GPS providers. Ahhh… the data. Google just got around that.
There is another player here. Microsoft could do something interesting with their “birds eye” data. I really appreciate the service at Bing Maps. I can get a real good sense of where I am with this imagery. I wonder if MSFT will be able to bring it to a handset near you. We shall see.
This is an interesting game.
PS: If you like reading about VC’s or the startup culture and want to follow a few great startup stories (including Ebay) check out the book eBoys
Excerpt…
I then asked my friend, “so why would they ever use the Google (non open source) license version.” (EDIT: One of the commenters below pointed out that all Android is open source, and the Google apps pack, including the GPS, is licensed on top. Doesn’t change the argument, but wanted the correct data included here.) Here was the big punch line – because Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!!
via Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com.
Posted on 18 June 2009 by BobL
Posted on 03 June 2009 by BobL
As I mentioned back on April 1st (no I wasn’t kidding), there is a Google PC effort in the works. It appears that the effort to move the Android Operating System (OS) to the PC is in full swing. This time Google is directly involved.
Microsoft announced Bing last week and Google has made some efforts to bash it. You can read Matt Cutts Twitter feed to see what I mean. This might just be Google’s effort to steal the spotlight and put MSFT on their heels. Read more below about the Google OS / Android OS that is setting out to challenge the dominance of Microsoft.
To top it off, Google has also challenged Kindle at the e-Book game. You had to wonder why they were scanning all of those books. Is Google feeling threatened in it’s old age?
Google version 1.0
Google gets aggressive. In a direct challenge to Microsoft (MSFT), Google (GOOG) is offering its free Android operating system for use on computers. Acer, the world’s second-largest laptop maker, will release an Android-run netbook by next quarter. Asustek Computer has also developed a model based on Android. Earlier this week, Google said it plans to launch a program to let publishers sell digital versions of their books directly to consumers, a move that would put Google in competition with Amazon (AMZN) and its e-reader Kindle.
via Wall Street Breakfast: Must-Know News — Seeking Alpha.
Posted on 12 May 2009 by BobL
In this episode, Bob and Scott discuss the next market catalyst and where things are headed. Scott reviews some of the sectors where you should have been since the beginning of the year and a chat regarding buying something that is already way up follows.
Scott makes a move in Citicorp and discusses his feeling on the stock given a long time horizon. MSFT takes down $3.5 billion to add to the $20+ war chest on hand. Chris Flowers buys a bank and Bob and Scott discuss the possibility that private equity is lining up to lend to the business community when traditional bank lending fails to refinance.
Episode 5 - What is the next market catalyst?
