Microsoft is certainly overpaying by spending $8.5 billion to buy Skype, but it's a deal that Microsoft had to make. In the end, the several billion dollar premium it pays won't matter, but the significant benefits Microsoft gains from the purchase will be real and long-lasting. Here are five reasons why Microsoft had to buy Skype.
The most obvious reason Microsoft bought Skype is for enterprise collaboration. Microsoft's Lync (formerly called Communications Server) links computers to a PBX and offers VoIP calling, instant messaging and videoconferencing. Lync Online offers the same service via the cloud. Skype has a similar tool called Skype Connect. The purchase of Skype will help Microsoft make big gains here, and fend off Google's push into the market, and Apple's push via Facetime.
Expect Microsoft to use Skype to boost Bing as well. It's estimated that Skype has more than 660 million users worldwide, with 170 million active users each month. Microsoft will certainly figure out ways to drive those users to Bing. In addition, expect some kind of Bing-Skype two-way direct link.
Kickstart Windows Phone 7
Windows Phone 7 continues to languish, despite all of Microsoft's attempts. The deal with Nokia will certainly help, but the fruits of that are several years away. And the deal by itself might not be enough.
The Skype purchase may help Microsoft boost Windows Phone 7. Deep Skype integration into the operating system itself, rather than having it merely run as a client as Skype does on Android and iOS, may well give Windows Phone 7 capabilities than neither Android nor iOS can match.
Keep Skype away from Google
Microsoft is buying Skype not only for the benefits it offers, but also to keep it out of competitors' hands. If Google had bought Skype, it would have been disastrous for Microsoft. Imagine if Google owned Skype and integrated it with Google Apps, Gmail, Google Talk, and Google Voice. Also imagine that there was some kind of deep integration between Skype and Android. That would have been a disaster for Microsoft. Even if Microsoft doesn't do a good job of integrating Skype into its own offerings, keeping it away from Google has tremendous value.
Build the brand-buzz
The final reason Microsoft had to buy Skype was to help build buzz around the Microsoft brand. When was the time Microsoft, rather than Apple or Google, was seen as being innovative?
Building your brand is about more than bragging rights; it has has significant economic benefits. The recently released Millward Brown's 2011 BrandZ study found that Apple is the world's most valuable brand, with the brand name itself worth more than $153 billion. Microsoft was number five with a brand value of more than $78 billion. So building the brand buzz has a real effect on the bottom line.