Microsoft Needs a New Watch

Like a rude party guest, Microsoft's (Nasdaq: MSFT  ) timing always seems to be off. Less than a month after spending $8.5 billion on Skype, Microsoft saw the VoIP carrier's software choke on an errant file, keeping some users from logging in and making calls yesterday.

"A small number of you may have had problems signing in to Skype. This predominantly affects people using Skype for Windows. We have identified the problem and will issue a fix in the next few hours," the company wrote in a blog post. (Emphasis mine.)

All seems to be well now -- for the record, I never had a problem -- but the company's steady parade of headlines like these must infuriate investors such as Greenlight Capital's David Einhorn. He's calling for Steve Ballmer to resign, saying Mr. Softy's longtime CEO has spent shareholders' cash on "ill-conceived mergers and acquisitions," as The New York Times DealBook blog reports it.

Einhorn also says Ballmer is out of touch with the major market trends that have lifted the fortunes of Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) in recent years. I disagree. He's not out of touch -- he's off-key. Ballmer has no sense of timing.

Look at the Skype deal. Two years ago, eBay (Nasdaq: EBAY  ) sold what amounted to a two-thirds stake in the VoIP leader for $1.9 billion. Now Ballmer has agreed to pay well more than twice that. Timing is everything, in life and in acquisitions.

To be fair, there are technical reasons for Ballmer to make the deal. Bundling Skype into Microsoft's Office suite makes sense, and adding video calling to the Dynamics CRM product could disrupt salesforce.com (NYSE: CRM  ) . Yet there's also sure to be a ton of integration work needed, all of which must be done in a way that satisfies 700 million Skype accounts and 170 million active users.

Is that tradeoff really worth the company's $8.5 billion price tag? Where's the upside? Microsoft can't simply be after Skype's 700 million accounts. Mr. Softy is the world's leading supplier of computer software. Its customer base numbers in the billions.

The only logical reason to buy the VoIP leader, then, is for its features. Frankly, I have doubts that Skype's network is that much better than the varying alternatives, especially when small-business VoIP specialist 8x8 (Nasdaq: EGHT  ) is growing outrageously. Why spend $8.5 billion when 8x8 commands just $210 million in market value as of this writing?

We've been over this before, I know. I'm raising these questions again because Einhorn did, too, when he alluded to "ill-conceived mergers and acquisitions" in his remarks. He's clearly concerned about Ballmer's ability to squeeze value from the Skype deal.

Yesterday's technical hiccup won't mean much to the overall equation. But it's still a blemish for a company that's suffered far too many for far too long, at far too high a price for shareholders. In that sense, I can appreciate Einhorn's frustration.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of 8x8, Apple, and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 27, 2011, at 3:36 PM, TMFBreakerOrion wrote:

    Hm, does the picture get more interesting if Microsoft were to start buying up the other VOIP's and consolidating them under the Microsoft umbrella?

    That's the thought that went through my head when you mentioned 8x8, that Microsoft could buy them for pocket change. Too much likelihood of that being seen as anticompetitive?

Add your comment.

DocumentId: 1500601, ~/Articles/ArticleHandler.aspx, 7/22/2014 11:50:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement