Microsoft Buys Skype in $8.5 Billion Cash Deal

Microsoft announced Tuesday that it will acquire Skype to the tune of $8.5 bilion in cold cash. The Skype acquisition is Microsoft's biggest and some say, most aggressive deal to date. The last time Microsoft shelled out so much to buy a company was four years ago, when it bought  online advertising firm aQuantive Inc for approximately $6 billion.

How Skype fits into the giant that is Microsoft is summed up by CEO Steve Ballmer when he said , "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." With the deal, Skype will become a business division within Microsoft and its present CEO Tony Bates will have the title President of the Microsoft Skype Division.

Skype will now support Microsoft devices Xbox and Kinect, Windows Phone and other Windows devices while Microsoft will connect Skype users with Xbox Live, Lync, Outlook, and other online applications and communities. Aside from these, Microsoft  will continue to support Skype clients on other non-Microsoft platforms.

Skype has around 663 million registered users in 2010, almost 9 million of which are paying members. It had minimal net profit for the past 8 years of its existence  but was on its way to profitability and an IPO, until Microsoft came in. Last year, Skype had revenues of $860 million but still had a $7 million loss.

There were earlier reports that Facebook, Google, and Cisco planned on buying or partnering up with the internet communications company, which has been on sale for quite a while, but it is Microsoft that ultimately bagged Skype. 

Industry watchers say that Microsoft may have acquired Skype so it can compete with Google Voice and Apple's Facetime. It will also boost the services offered by Microsoft and will prove useful in the future for Windows Mobile operating system. 

But another company would stand to benefit from the deal. And that is the biggest social networking platform of the planet, Facebook, which has Microsoft as one of its investors. With the newest acquisition of Microsoft, Facebook will be able to access Skype's peer-to-peer network and offer voice and video services to enhance its Facebook chat. Skype, on the other hand, can benefit tremendously from an affiliation with Facebook as the latter can help Skype get more clients for its SkypeOut service. Facebook may also allow its more than 600 million users to pay for Skype minutes using Facebook credits. According to Gigaom, Skype and Facebook are already in talks to work out details of this partnership and will make a joint announcement soon.

Skype is owned by Silver Lake, Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board (56 per cent); eBay (30 per cent); and co-founders Niklas Zennstrom and Janus Friis (14 per cent). It was launched in 2003 by Zennstrom and Friis and is based in Luxembourg. 

Let us know what you think about the $8.5 billion Skype and Microsoft deal by adding a comment below. We'd love to hear from you.

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