Microsoft buys Skype for $8.5bn

The software giant hopes to integrate Skype's VoIP and video-chat services with its platforms, including Lync, Outlook, Xbox Live and Windows Phone

Microsoft has confirmed that it will buy Skype, the internet telephony company, for $8.5bn in cash.

Skype logo on desktop

Microsoft has confirmed that it will buy Skype for $8.5bn (£5.2bn). Photo credit: Pixelbully

The £5.2bn takeover has been agreed by the boards of both Microsoft and Silver Lake, the leading firm in the investor group that picked up a majority stake in Skype in 2009. Other members of that group include CPP Investment Board, Andreessen Horowitz, Skype founders Niklas Zennström and Janus Friis — via their company Joltid — and eBay, which bought Skype in 2005 for $2.6bn and retained a 30-percent stake when it sold the service off in 2009.

The online auctioneers failed to integrate the peer-to-peer service into their business model as was originally planned. Microsoft said in a statement on Tuesday that its acquisition of Skype would "increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities".

"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft chief 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."

Microsoft Skype Division

Assuming it gains regulatory approval, which is hoped for by the end of 2011, Skype will become a Microsoft business division called the Microsoft Skype Division. It will be headed up by current Skype chief Tony Bates. According to Microsoft, Skype will "support" various Microsoft devices such as Xbox and Kinect — which already offers video-calling capabilities — as well as the Windows Phone platforms and "a wide array of Windows devices".

Skype users will also be able to connect with Lync, Outlook, Xbox Live and "other communities", Microsoft said, promising that the company would "continue to invest in and support" Skype clients that are available for non-Microsoft platforms. Apart from the Windows version, Skype can be downloaded for Mac, Linux, Android, iPhone and Symbian, and is also integrated with TV sets from manufacturers such as Panasonic and Samsung.

The market-leading service, which had until now been planning a public flotation, currently has around 170 million users and carried over 207 billion minutes of voice and video conversations in 2010. Those figures represent a 150-percent increase in monthly calling minutes during Silver Lake's ownership tenure, Microsoft said. Silver Lake managing director Egon Durban said in the statement that his investor group was "thrilled with Skype's transformation during the period of our ownership and grateful for the extraordinary commitment of its management team and employees".

"We are 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," Durban added.

Enterprise customers

However, the takeover of Skype will not necessarily be enough to attract enterprise customers to Microsoft's voice and unified communications services, Analysys Mason analyst Steve Hilton said in a statement.

Skype, while having some nice communications features, is still a consumer-grade solution. Enterprises don't want low-quality communications services when dealing with customers.

– Steve Hilton, Analysys Mason

"Skype, while having some nice communications features, is still a consumer-grade solution," Hilton said. "Enterprises don't want low-quality communications services when dealing with customers. While enterprises will trade off lower prices for lower quality, they could have purchased Skype solutions long ago had they wanted to save a few dollars (or pounds or Euros)."

Hilton also pointed out that Microsoft had had "plenty of voice-centric train wrecks over the years", such as the company's IP PBX play, Response Point.

Informa analyst Giles Cottle said Microsoft would prove a better home for Skype than other companies rumoured to have been interested in buying the service, such as Google and Facebook.

"Microsoft... has numerous ways in which it can make use of Skype: video calling for Windows 7 Phones (and a competitor to [Apple] FaceTime), offering a true PC-based VoIP service with Windows Live Messenger, voice chat in Xbox Live and, of course, strengthening its enterprise communications proposition," Cottle said in a statement. He added that Microsoft had "undoubtedly... over-paid for Skype in the short term, but potentially not in the long term".

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