Microsoft buys Skype for $8.5 billion; creates new business division

Microsoft buys Skype for $8.5 billion; creates new business division

Summary: The rumors were right. Microsoft announced on May 10 that it bought Skype, an Internet communications vendor, for $8.5 billion.

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The rumors were right. Microsoft announced on May 10 that it bought Skype, an Internet communications vendor, for $8.5 billion.

Instead of trying to mash Skype into an existing Microsoft business division, the company has decided to create a new, separate Skype business division, with Skype CEO Tony Bates as the newly minted President. Bates will report directly to Microsoft CEO Steve Ballmer.

In its press release announcing the deal, Microsoft played up the potential synergies between Skype and its own communications offerings, including its Lync VOIP platform, Outlook mail, Messenger instant-messaging, Hotmail Web mail and Xbox Live gaming service.

"Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms," said the release.

Microsoft offered no timetable or further details as to when and how it will make Skype available as part of any of its existing product offerings.

According to earlier reports, Microsoft was bidding against Google and Facebook for Skype. As my colleague Larry Dignan noted, the $8.5 billion Skype purchase price made for one expensive game of keepaway.

Microsoft and Skype are holding a press conference (hopefully) outlining more particulars of the deal at 11 a.m. ET. There will be a live Webcast (with no follow-up interviews permitted).

Today's deal with Skype marks Microsoft's largest acquisition (dollar-wise) in the history of the company.  For the past couple of years, Microsoft execs seemingly had decided that Microsoft’s history of assimilating successfully its big acquisitions (aQuantive, Danger, AdECN, Bungie, etc.) was not so great, resulting in the company shying away from anything but relatively minor, targeted acquisitions.

Last night, AllThingsD reported that Microsoft dealmaker Charles Songhurst was key in helping Microsoft CEO Steve Ballmer broker the Skype deal. Interestingly, Songhurst also was credited with helping convince the Microsoft brass to call off the Yahoo acquisition.

Topics: Social Enterprise, Collaboration, Hardware, Microsoft, Mobility, Operating Systems, Software, Windows

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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164 comments
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  • RE: Microsoft buys Skype; creates new business division

    That's one big boost for Windows Phone 7 right there. OS-level integration of contacts with (for example) the option to make Skype calls when a contact is online could be very tasty.
    MarkXA
    • If they do that....

      I wonder how long it will take. It won't happen in the Mango timeframe, as Mango is pretty close to done now (from all accounts)... WP8 is supposedly end of 2012... Maybe then? MJ
      Mary Jo Foley
      • RE: Microsoft buys Skype; creates new business division

        Well, Mango's supposedly going to have Messenger properly integrated, so if they're connecting Messenger to Skype as they claim then it may be able to take advantage of that without extra work at the phone end. Depends if Mango Messenger supports voice calls or just IM.
        MarkXA
      • RE: Microsoft buys Skype; creates new business division

        @Mary Jo Foley
        They have announced Skype client for Mango few days back during their MIX11, http://www.electronista.com/articles/11/04/13/windows.phone.7.gets.skype.and.spotify

        Look at second paragraph, "Skype is due in the fall, once Mango is available, Microsoft said." This was dated 04/13/2011, so they have this slated for Mango.
        Ram U
      • RE: Microsoft buys Skype; creates new business division

        @Mary Jo Foley,

        *Money talks
        But it don't sing and dance
        And it don't walk
        And long as I can have you here with me
        I'd much rather be...
        in a world free of this awful company

        They're very good at buying lame duck companies [this time] for much more than it's worth. But they have zero experience of turning them around, and lots of experience of ruining them. I just cancelled my Skype account.

        *Apologies to Neil Diamond...
        Graham Ellison
      • RE: Microsoft buys Skype; creates new business division

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      • RE: Microsoft buys Skype; creates new business division

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      • RE: Microsoft buys Skype; creates new business division

        So if they're connecting Messenger to Skype as they claim then it may be able to take advantage of that without extra work at the phone end. Depends if Mango Messenger supports voice calls or just IM. <a href="http://www.writinghelp.co.uk/dissertation/">Dissertation</a> | <a href="http://www.writinghelp.co.uk/thesis/">Thesis</a>
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    • RE: Microsoft buys Skype; creates new business division

      @MarkXA
      What? You think Skype would not have put an app on WP7? Are you saying that there is no current api access to contacts on WP7? That Microsoft was incapable of using 8-1/2 billion to grow its chat and video-conferencing services into mobile, and have more change than can be hidden in a sofa left over?

      You're daft. Everyone knows that the real point, the deal-maker, the king synergy is that Bing/Skype/XBox cooperation makes pizza-ordering while gaming magnitudes easier. That's tasty integration.
      DannyO_0x98
      • RE: Microsoft buys Skype; creates new business division

        @DannyO_0x98
        Mmmm, pizza ;) Agreed, Skype was coming to WP7 anyway, as are the contacts API and Messenger. But when it comes to voice and video calls there's really only one game in town, and this deal means that not only does Microsoft get to pull all the Skype users into their cloud services fold but also that it's safe for them to bake support in to their products in a much deeper way than would otherwise have been the case. Getting Skype right into the WP7 people hub and Xbox Live has to be a pretty good selling point. $8.5b worth of good? I'm not a numbers man ...
        MarkXA
      • RE: Microsoft buys Skype; creates new business division

        @DannyO_0x98
        :o) Skype, pizza, games, movies, chat, movie streaming, phone integration, laptop access, X-Box connectivity.... Now, if they can just integrate grocery delivery (for the few required things in life that pizza places won't deliver (yet)), and microwave oven controls, we'll have the complete end of the need for face-to-face human interaction.
        bobatwork
      • RE: Microsoft buys Skype; creates new business division

        @DannyO_0x98
        Good call; you're absolutely right! And if nothing else, this along with a few other things in the works, give the nay-sayers another 10 to 20 years to predict Microsoft's demise.
        eargasm
    • RE: Microsoft buys Skype; creates new business division

      @MarkXA
      ya !! but what about a separate bussiness...
      http://dexterclass.blogspot.com/2011/05/microsoft-owns-skype-for-85-billion-s.html
      northnwest
  • RE: Microsoft buys Skype; creates new business division

    Great. So much for ever getting a working version of Skype with FFC support for my Galaxy Tab.
    Cyberpyr8
    • RE: Microsoft buys Skype; creates new business division

      @Cyberpyr8 There is always Fring.
      balsover
      • RE: Microsoft buys Skype; creates new business division

        @balsover Yes a more open standard. I ditched Skype after the whole VZW mobile fiasco where they disabled voip for mobile and then killed fring access too. Tango seems to have better video and reliability than Fring but no voip.
        LarsDennert
  • Bye Bye Skype

    Ebay tried it and failed. Now MS thinks it can make it work?

    Not to mention many will avoid it because it's MS.
    itguy08
    • RE: Microsoft buys Skype; creates new business division

      @itguy08 Uhm....MS thinks it can make it work because eBay doesn't have the delivery conduits that MS has. eBay can't integrate Skype into Xbox or Windows Phones or merge it with an existing, already widely used instant messenger, instead of being yet ANOTHER IM program you have to download, install and keep updated.
      bigsibling
      • If there is a way to screw it up ...

        @bigsibling

        ... MS will find it.
        RationalGuy
      • RE: Microsoft buys Skype; creates new business division

        @bigsibling - Frankly, I think this could Kill WinP7 being sold by carriers. Looks like MS wants to expand their hardware offerings. Gee...what ever happened to their 'it is the software stupid' mantra?

        Guess MS wasn't happy just copying Apple's OS, iPod and iPhone. MS wants to be a hardware/software hybrid as well!

        MS = LOSERS
        The Danger is Microsoft