Microsoft Agrees to Buy Skype for $8.5 Billion to Add Web Calls

Microsoft Corp. (MSFT) agreed to buy Skype Technologies SA for $8.5 billion, using its cash pile to gain the world’s most popular Web-calling service and expand its Internet presence after past failures.

Microsoft will acquire Luxembourg-based Skype, with 170 million active users, from an investor group led by Silver Lake, the companies said in a statement today. The agreement was approved by the boards of directors of both companies.

The takeover may help Microsoft Chief Executive Officer Steve Ballmer attract Web users and narrow Google Inc. (GOOG)’s lead in Web advertising. Microsoft will connect Skype to its Outlook e- mail, Xbox game console, Windows mobile phones and corporate- phone software. The acquisition is Redmond, Washington-based Microsoft’s largest, surpassing the purchase of AQuantive Inc. for about $6 billion in 2007.

“This could give Microsoft a much-needed kick-start” in telecommunications, said Paolo Pescatore, an analyst at CCS Insight in London. In voice services, “Skype has certainly set the benchmark and gained a lot of traction.”

Skype will become a Microsoft business unit, the companies said. Skype CEO Tony Bates will be president of the Microsoft Skype Division, reporting to Ballmer.

Microsoft to buy Skype, claim reports

The possibilities of Windows Phone and Skype complementing each other might be endless, with the use of Skype on Windows phones to making video calls with Kinect received on mobile devices or vice versa.

On the backdrop of reports of Google and Facebook partnering with Skype, reports have now claimed that Microsoft intends to buy the VoIP (Voice over Internet Protocol) company for close to $8 billion.

Wall Street Journal has said this in a recent report citing its own sources, which in a way confirms the rumours earlier published by GigaOm.

The Microsoft-Skype deal would be a big push for the Windows based smartphones. The possibility of making free calls using Skype on Windows Phones may prove to be tempting for many users, though phone to phone VoIP calls are not allowed in India yet. Only those calls which originate from computers are allowed in India right now.

Another interesting possibility for users may be use of Kinect, another Microsoft product which helps in making video calls, in combination with Skype. The Kinect-Skype combine would enable users to talk to their friends and family through high quality video calls using their televisions. These calls may originate from TV sets and end up on devices such as iPhone, iPad, Android, and of course Windows Phone 7 phones. The reverse may also be possible.

Skype was founded in 2003 and was later bought by eBay in 2005, which then sold its stake to a private investment group. Even earlier, Microsoft has revealed that Skype would soon be available on Windows Phone 7 devices. So one thing's for sure, the interest from the company is already there.