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Why Did Microsoft Pay Over The Odds For Skype?

It remains a mystery why Microsoft paid so much for Skype; at $8.5 billion, the VoIP behemoth has been valued at around three times the market capitalisation it would have reached had it opted for the IPO it has been planning for so long - which is not bad at all.

In comparison, Microsoft paid an 85 per cent premium for its previous big acquisition, advertising powerhouse Aquantive, and unless there has been some secret auction between Microsoft, Google and/or other third parties, we fail to see why so much has been spent to get Skype.

True, combining Windows Live Messenger and Skype will help Microsoft reach one billion registered user accounts globally, but then there are possibly tens of millions of duplicate accounts and only a fraction of them would actually bring in hard cash.

But then, Microsoft, it seems, has plans to make Skype work harder than it currently does, possibly by bringing in even more advertising (for example, pre and post roll snippets in voice and video calls).

BusinessInsider reckons that Microsoft is using money that, in the words of Pascal-Emannuel Gobry, may have been rotting in the bank. But then, paying well over the odds for a company and effectively spending around $6 billion more than the true market value is hardly an astute financial move.

Microsoft could, for example, have used the money to extend its stock buyback programme or buy even more shares in Facebook; back in 2007, the company bought a 1.6 per cent stake in Facebook for £117 million at $14 a share, and $5 billion could have purchased a significant percentage of the social networking website (or even a majority stake in Groupon).