Microsoft buys Skype for $US8.5 billion

Microsoft plans to connect Skype users to Lync, Outlooks and Xbox live

Skype CEO, Tony Bates

Skype CEO, Tony Bates

Microsoft has agreed to buy Skype for $8.5 billion, the companies announced Tuesday.

"I’m excited to announce that Skype and Microsoft have entered into a definitive agreement whereby Microsoft will acquire Skype for $8.5 billion US, Skype CEO, Tony Bates, wrote in a blog post. "Once the acquisition closes, Skype will become a new business division of Microsoft. It is an exciting day for all of us at Skype – we’ve taken a significant step towards realising our vision of making the world a better, more connected place.

Bates said the acquisition was the best way to extend Skype’s reach.

"Once the acquisition is complete, Skype will operate as a new business division of Microsoft, and I look forward to working with the team as president of Microsoft Skype to write the next chapter of the Skype story. Onwards!"

Over the last week, the voice and video communications company had been rumored to be discussing an acquisition or partnership with Cisco, Facebook and Google.

Skype has more than 170 million connected users and in 2010 notched up 207 billion minutes of voice and video conversations.

The companies announced that Skype will support Microsoft devices Xbox and Kinect as well as Windows Phone and other of Windows devices.

"Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities," the companies said in a statement.

Microsoft pledged it would continue to invest in and support Skype clients on non-Microsoft platforms. Skype will become a new business division within Microsoft and Skype CEO, Tony Bates, will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft CEO, Steve Ballmer. "Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

Egon Durban, managing director of Silver Lake, the investor group that sold Skype to Microsoft said the group was "excited about Skype's long-term future with Microsoft, as it is poised to become one of the world's most dynamic and comprehensive communications platforms".

Founded by Niklas Zennström and Janus Friis, Skype was bought by eBay in 2005. After that company failed to figure out how to integrate it with its online auction business, it sold a majority stake to an investment consortium including its founders and Silver Lake.

Skype made a name for itself offering free voice calls from PC to PC, charging to connect calls between PCs and the public telephone network. Later it added video chat and, more recently, software clients for smartphones.

Microsoft offered a similar PC-to-phone service for consumers under the Windows Live Call brand, and continues to offer PC-to-PC text, voice and video chat with its Windows Live Messenger service.

Skype and Microsoft also target businesses with their communications offerings. Microsoft has a server-based unified communications tool that connects PCs to a PBX to offer VoIP calling, instant messaging and videoconferencing. Previously called Communications Server, it is now branded Lync, while Lync Online is a cloud-based service offering similar functionality. Skype Connect, meanwhile, is a service that allows businesses to connect their PBX to Skype to handle incoming and outgoing calls. A management tool, Skype Manager, allows businesses to control call costs.

Additional reporting by Peter Sayer.

Follow Georgina Swan on Twitter: @swandives

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