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Jury Still Out on $8.5bn Skype Acquisition

May 29, 2012 | William Zimmerman
By Nick Wingfield, Financial Review

By some measures, Tony Bates has accomplished a lot at Skype since Microsoft paid $US8.5 billion for the internet calling service.

The statistics tell the story. In seven months, the number of people using the service each month has jumped 26 per cent to nearly a quarter of a billion, affirming Skype's status as one of the crown jewels of consumer internet services.

But the deal, the biggest acquisition in Microsoft's history, will ultimately be judged by whether Microsoft can weave the product deeply into its vast product portfolio, providing a superior Skype experience on products as various as Windows PCs and Xboxes. In that regard, Mr Bates, who was previously the chief executive of Skype and became president after the deal, and his Microsoft colleagues have not yet delivered.

"It's still promising and intriguing, but we really haven't seen it rolled out across the products," said Bill Whyman, an analyst at ISI, an investment research firm.

One important milestone will come this year, when Skype is expected to release a preliminary version of its calling software that runs on Windows 8, a coming overhaul of Microsoft's flagship operating system intended to work well with touch-screen computers. The idea that Skype can give Windows and other Microsoft products an edge is the only way the company can justify the high price it paid, analysts say.

Mr Bates is performing a tricky balancing act in Microsoft. As part of the deal, Microsoft gave Skype a longer leash than it grants most of its divisions, even allowing Mr. Bates to work in Silicon Valley - important not least for its symbolism. With offices scattered across time zones in Sweden, Estonia, Luxembourg, Prague and London, Skype is the only Microsoft division located almost entirely outside the parent company's Seattle-area home base.

In an interview in his spacious office in Palo Alto, Mr Bates, an affable Briton, said he insisted that his employees receive new security badges stamped with the Skype logo, not the standard Microsoft badges.

Another sign of his independence is the Apple MacBook Air on his desk. While using Apple products publicly is not unheard-of among Microsoft executives, it is nevertheless considered a mild form of sacrilege at a company where everyone is expected to fly th

"We've kept our identity and our autonomy," Mr Bates, 45, said.

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