Microsoft on Tuesday confirmed it will acquire Skype for $8.5 billion in cash -- a blockbuster deal that represents Microsoft's largest acquisition ever and could dramatically bolster its IP communications strategy, not to mention give Microsoft a new foothold in consumer markets where it has struggled.
Skype, one of the world's most popular VoIP services, had 170 million connected users and accounted for more than 207 billion minutes of voice and video conversations in 2010, according to the companies. It will become a new business division within Microsoft, titled Microsoft Skype Division.
Skype, founded in 2003 by software developers, has been often mentioned as an acquisition target, and has also been acquired once before: by eBay, for $2.6 billion in cash and stock, in 2005. EBay ended up selling 70 percent of Skype to private investors led by Silver Lake in 2009.
In recent months, Cisco, Google and Facebook have all been mentioned as potential acquirers for Skype. Reports that Microsoft was close to a deal to buy Skype, however, began to surface mid-day Monday.
According to Microsoft, Skype will support Microsoft devices like XBox and Kinect, Windows Phone and a number of Windows devices. Microsoft also plans to connet it with Lync, Outlook, Xbox Live and other communities. Microsoft further confirmed it will "continue to invest in and support Skype clients on non-Microsoft platforms," according to a statement released Tuesday.
"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft CEO Steve Ballmer 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."
A Form S-1 filing with the U.S. Securities and Exchange Commission in August 2010 suggested Skype had planned on an initial public offering (IPO) worth up to $100 million.
Skype held off on the IPO, later appointing a new CEO, former Cisco executive Tony Bates, and charting a course to gain more business users. That included the September launch of a formal Skype channel program, and an ongoing list of strategic partnerships between Skype for Business and companies with substantial business enterprise bases, such as Avaya.
According to Microsoft, Skype CEO Bates will become president, Microsoft Skype Division, and report to Ballmer.
"Microsoft and Skype share the vision of bringing software innovation and products to our customers," Bates said in a statement. "Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate."
Microsoft and Skype said the acquisition is expected to close during calendar 2011 following regulatory and all other necessary approvals.