Microsoft to buy Skype for $8.5 billion


SEATTLE — Microsoft Corp. is buying Internet phone company Skype Technologies SA for $8.5 billion.

The cash acquisition, announced Tuesday morning, will
give Microsoft a significant consumer brand online, access to 170
million people who use Skype for free or cheap calls, and Skype’s phone
and video calling software, which runs on the Web and Internet-connected

Microsoft said the acquisition will expand its
product offerings, including unified communication software Lync, email
software Outlook, instant messaging software Messenger, free Web email
Hotmail and online video game network Xbox Live.

The acquisition is the largest in Microsoft’s history
and signals a more aggressive business approach from Microsoft as it
expands into cloud computing and tries to get some traction with mobile
phones and tablets.

Microsoft said Skype will run on its fledgling mobile
operating system Windows Phone, Xbox, Kinect and other “Windows
devices,” without being more specific. Microsoft is expected to show a
new version of Windows that will run on tablets this fall.

Skype, based in Luxembourg, is privately owned by an
investor group led by Silver Lake. The company was started in 2003, and
the service has become popular for its free or low-cost local and
international voice and video calls. The service runs over the Internet
instead of traditional landlines or cellular networks. It uses a
technology called voice over Internet protocol, also known as VoIP.

EBay bought Skype in 2005, then sold it to the Silver Lake-led group in November 2009 for about $2 billion.

“Skype is a phenomenal service that is loved by
millions of people around the world,” Microsoft Chief Executive Steve
Ballmer said 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.”

Skype will become a new business division in
Microsoft. Tony Bates, Skype CEO, will become a division president and
report directly to Ballmer.

Before the Skype announcement, Microsoft’s largest
acquisition was the $6 billion purchase of online advertising firm
aQuantive in 2007. Microsoft offered $45 billion to buy Yahoo in 2008,
but the talks fell apart and the two companies now have a search


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