Analyst View: Microsoft snatches Skype for $8.5 billion

Skype Chief Executive Officer Tony Bates (L) speaks as Microsoft CEO Steve Ballmer listens at their joint news conference in San Francisco, May 10, 2011.

NEW YORK (Reuters) - Microsoft Corp plans to buy Internet phone and video service Skype for $8.5 billion as it seeks to regain ground from fast-moving rivals such as Google Inc. Below are analyst comments on the deal:

COLIN GILLIS, ANALYST, BGC FINANCIAL

"It's a strategic asset and a defensive move. If (Microsoft) can put it on Windows 8, it gives them an advantage. It helps them in the tablet market," he said referring to Windows 8 software for tablets which he expects to hit the market in 2012. "It's sizable but it's less than they'd pay for Groupon or Twitter or Facebook."

ANDREW BARTELS, ANALYST, FORRESTER

"It doesn't make sense at all as a financial investment. There's no way Microsoft is going to generate enough revenue and profit from Skype to compensate.

"There's so many other alternatives for connectivity. What makes Skype attractive is it's got a lot of users. It's widely used especially by the more technologically sophisticated consumers.

"I'm sure shareholders are saying that Microsoft should have given a dividend to shareholders rather than spend it on this."

Regarding relationship with wireless carriers:

"Helping a competitor like Skype reduces the need for a cellphone plan. I'm not sure how much it's going to hurt. It certainly doesn't help (carrier relations).

"One of the heaviest usage of Skype is in fact for video chat. One of the possibilities is Microsoft might expand the usability more.

"I do think you can make an argument Skype gets better under Microsoft than eBay."

KIM CAUGHEY FORREST, SENIOR ANALYST, FORT PITT CAPITAL

"I can't wait to hear the logic behind this."

"They really have to do some explaining on the call as to how this company merited that price and how they'll return the value to shareholders.

"They (Skype) have a lot of customers but it doesn't seem like they get enough money from those customers.

"This is less than two quarters of their cash flow to buy the company. They'll be able to pay for it very quickly."

On integration into Xbox Live:

"Xbox Live seemed to be doing pretty good without that.

"It's more interesting they're thinking of incorporating it into Outlook.

"Software companies think consumers want this but the question is will they pay for it," she said referring to friends who have 18-hour Skype sessions with each other without paying a penny to Skype.

On wireless carriers:

"It could help them if it's integrated (into cellphones)" as it could be easier than the Apple iPhone app.

"This would drive a lot of data and a lot of bandwidth. it would be carrier neutral.

"It smacks of that 1999, 2000 time period when valuations were granted on eyeballs not revenue and earnings.

"There's been a lot of talk as to whether Microsoft should be broken up and stop investing in money losing nascent businesses, stop trying to chase the hot areas and become a slower growing higher cash yielding business."

(Reporting by Sinead Carew)