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Microsoft & SkypeCorporate Strategy 2011Kristoffer Hagstedt, Emelie Hkansson, Johan Thideman

Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Agenda1. Introduction Purpose and key questions Key facts and figures of the acquisition Conclusion 2. Skype History Business Model Sustainability of Skypes Business Model 3. Microsoft History Business Model Product portfolio 4. Analysis of the rational behind the acquisition SWOT-analysis of Microsoft (pre-acquisition) Microsofts objective and strategy (buying rather than developing) Benefits and synergies Possible Issues with the Acquisition 5. Conclusion Why Microsoft acquired SkypeSunday den 11 December 2011 D-MTEC, Corporate Strategy Skype Microsoft Case Study 1

Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Purpose The purpose of this study is to analyze Microsofts reasoning behind the acquisition of Skype, as well as to come up with a recommendation regarding how Microsoft best benefits from the acquisition. Understanding Skypes and Microsofts business models and their product portfolio respectively. Why buy instead of developing similar technology? How can Microsoft benefit and which synergies can be obtained from the acquisition?Sunday den 11 December 2011 D-MTEC, Corporate Strategy Skype Microsoft Case Study 2

Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Key facts and figures (1:2) Early May, 2011: rumors that Skype would enter a joint venture, or be acquired for $3-$4 billion by either Google or Facebook 10th May 2011: Microsoft acquirers Skype at a price of $8.5 billion (cash) Financial multiples (Skype 2010): Enterprise value/EBITDA: > 32x Very high relative to other companies within the IT sector!

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Key facts and figures (2:2) However, Skype is growing rapidly (from 2009 to 2010): User base: 40% Calling minutes: 150% (18 months) Revenue: 20% EBITDA (adj.): 40%

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

ConclusionMicrosoft bought a complementary company, hence Skype mirrors many of Microsofts existing products and in our opinion can Microsoft leverage Skype in several ways. Pros: Acquisitions is in line with the companys growth strategy Prevent competitors from acquiring Skype Skypes technology is complementary to MS products and can be integrated in all of the companys business segments The company got access to Skypes large customer base

Cons: Concerns about the high acquisition price Problems to integrate (retaining employees, organizational etc.)

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

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

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Skypes historyeBay Inc. acquire Skype for $2.6 billion (Oct.14) 2003

eBay sells a two-thirds stake to an investment group led by Microsoft Corp. agrees to Silver Lake for roughly $2 billion buy Skype for $8.5 billion valued at $2.75 billion (Nov.19) (May 10) 2007 2010

Founded by Niklas Zenstrm & Janus Friis

2005

$900 million accounting write down (Oct.1)

2009

2011 Skype files for a U.S. IPO (Aug.9)

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Skypes business model Freemium 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) Other revenue streams: Partnership perspective (licensing opportunities) Advertising opportunities (platform launched 2011)

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

How sustainable is Skypes BM? (1:3)

Communications is no longer just about voice; its now multimodal: mood messages, chat, voice calling, multi-party calling, video calling and online screen sharing. Where and how we communicate is expanding: laptop, mobile phone, flat panel TVs any connected computing device with the addition of software becomes a communication device.

- eBay CEO John Donahoe (2009)

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

How sustainable is Skypes BM? (2:3) Pros Communication paradigm shift Hardwired networks and devices => software-based networks and flexible devices Enormous market size - communication industry (2009): $300B EBITDA $1.4T industry revenue ( compared to the total revenues of ecommerce and Search) > 650 million users => key resource that enables network effects Manages no physical network (peer-to-peer technology) => good and cost efficient scalability opportunities Strong focus on their core competence, i.e. telecommunication Pre-funded accounts => no risk of loss of receivables Strong free cash flow conversion => high margins

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

How sustainable is Skypes BM? (3:3) Cons Customers rely on access to the internet provided by companies that compete with Skype Rapid technology change Low security Does not guarantee high sound quality Strong competitors and low exit barriers for customers iChat Google Voice Apple FaceTime Facebook Chat Viber

A challenge to keep existing and attain new users

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Microsofts business description (1:2)

Worlds largest software company based on softwarerevenue

Microsofts mission is to create technology that transformsthe way people work, play and communicate.

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Microsofts business description (2:2)

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Microsofts product portfolio (1:2)

Microsoft have a broad range of products Main products (by business segments): Home: Windows Live Hotmail, xBox, Kinect, WindowsLive Messenger Office: Lync, Exchange Server Home & Work: Windows Anywhere: Windows Phone

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

Microsofts product portfolio (2:2)

Source: http://infographipedia.com/infographic-skype-from-conception-to-acquisition-rasdroid.htmlSunday den 11 December 2011 D-MTEC, Corporate Strategy Skype Microsoft Case Study 15

Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

SWOT analysis Microsoft (1:2)Strengths Weaknesses

Global brand Multinational company Large customer base Rapid product development Dominant Design - Windows is thestandard OS and complementary goods are adapted to it.

Small market share within the websearch business

Low flexibility due to size Browsers No current OS in mobile phones Weak in the telecommunication market

High compatibility High liquidity (Cash and cash equivalentsof $ 52,772 millions in 2011)

Broad product portfolio

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Agenda

Introduction

Skype

Microsoft

Analysis

Conclusion

SWOT analysis Microsoft (2:2)OpportunitiesThreats

Further development of their products,e.g., Office, Xbox 360

Increased market of open sourcesoftware e.g. Linux

Windows Phone 7 Providing the customer with the fullsoftware environment. (e.g. Operating system, email, chat, scheduling, entertainment, and voice communication)

High bargaining power of buyer Strong competition Risk of hostile takeover due to largeamount of cash

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