Microsoft to acquire Skype for $8.5 billion

The software giant says that Skype's video-chatting platform will bolster its Kinect and Windows Phone platforms. It will also "connect" Skype users with Xbox Live.

Don Reisinger
CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
3 min read

Microsoft has agreed to acquire Skype for $8.5 billion.

"Skype is a phenomenal service that is loved by millions of people around the world," Microsoft CEO Steve Ballmer said today in a statement. "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."

Microsoft plans to integrate Skype's technology with the Xbox game console and Kinect motion-sensing device, as well as with its Windows Phone platform. The company also will "connect Skype users with Lync, Outlook, Xbox Live, and other communities."

Perhaps most importantly to Skype users, Microsoft said it will continue to support "non-Microsoft platforms" with the communication service.

Although Microsoft didn't offer further details, it's clear that the company has its sights set on Apple.

Apple already offers the FaceTime video-chatting feature on its iOS-based mobile devices and on Macs, delivering multiplatform communication over the Web. Microsoft could potentially best Apple's offering by supporting Skype on a much wider array of operating systems.

Skype is no stranger to major acquisitions. The Luxembourg-based VoIP company, which was founded in 2003, was acquired by eBay in 2005 for $2.6 billion. Eventually, the online auction site admitted to investors that it had overpaid for the Internet telephony provider. eBay finally spun off Skype in 2009 for approximately $2 billion to a group of investors, led by Silver Lake. eBay retained a smaller stake in Skype.

As an independent company, Skype performed quite well. Over the last 18 months, Skype claims, it saw its "monthly calling minutes" increase by 150 percent. Along the way, the company also saw its revenue and profit grow, turning a $13.2 million profit through the first six months of 2010. In all of 2009, it lost $99 million.

Following those successes, Skype in August filed the first paperwork for an initial public offering. Now, it's likely Skype won't have a chance to follow through.

Last week, Reuters reported that both Facebook and Google were looking to acquire, or at least partner, with Skype. However, in just a few short days, it became clear that those companies were out and Microsoft was in. Yesterday, The Wall Street Journal reported that Microsoft was nearing a deal with Skype that would be valued between $7 billion and $8 billion.

By paying $8.5 billion for Skype, Microsoft has struck its biggest acquisition bid ever. Its previous top bid--Microsoft's 2007 acquisition of online advertising firm aQuantive--was valued at $6 billion.

Microsoft's Skype deal is the second major move the company has made this year. In February, Microsoft inked a deal with Nokia that would make Windows Phone 7 the "principal" operating system in the handset vendor's devices going forward. The first Windows Phone 7-based Nokia devices are expected to hit store shelves next year.

Microsoft said it hopes to close the Skype deal at some point this year. Skype CEO Tony Bates, who came to Skype from Cisco Systems last fall, will become president of the Microsoft Skype Division.

Updated at 5:51 a.m., 6:20 a.m., and 6:45 a.m. PT: to add more details and background on the acquisition.