Microsoft buys Skype for $8.5 billion

Microsoft has paid $8.5 billion to purchase free Internet calling company Skype.

At some level, the economy must be better for companies to do billion-dollar deals like this one. It shows a real confidence in the future. Microsoft has been looking for the next big thing after some misses following their early successes. Now they’ve decided the best approach was to just buy somebody else.

Skype was started by a couple of Europeans who were originally involved in an illegal MP3 pirating venture before turning to Internet calling. The Estonian company now completes a big percentage of all international calls, most of them for free or ultra-cheap.

Yet Skype has total worldwide revenues of less than $1 billion. In addition, they actually lost money last year. So Microsoft paid some 10 times the value for Skype to buy it out. (You may also recall that eBay previously spent big bucks to buy Skype, then later had to write off and spin it off.)

But here’s the thing, the significance to me isn’t if Microsoft is making a smart business move or not. The significance to me is how Skype has reshaped its industry and dramatically reduced the cost of long distance calling to free (or really cheap) and made video calls routine.

I was at the 1964 World’s Fair in Queens and the one thing I really remember was the picture phone. It was just shocking that you could see someone while you talked! There have been a lot of dead ends since then with similar technology. If someone developed a picture phone, it was either too bulky or too expensive. Fortunately, Skype and its imitators have figured out how to make the calling free.

The concept of long distance being free is such a new idea. Even those in their 30s will remember when long distance calls used to be expensive. Yet we are now in an era where so much we take for granted today used to be very precious.

Sure, it’s human nature to complain when things go up in price, but we forget the conveniences like long distance calling that are more accessible and attainable than before at a better price!

Editor’s note: This segment originally aired in May 2011.