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Microsoft Purchases Skype For $8.5 Billion

May 10, 2011

Microsoft announced on Tuesday that it is buying Internet phone service company Skype for $8.5 billion.

The purchase is the largest ever during Microsoft’s 36-year history.

“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft chief executive Steve Ballmer said in a statement early Tuesday announcing the purchase.

“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.”

The software company said Skype will become a new business division within Microsoft with Skype CEO Tony Bates assuming the title of president of the Microsoft Skype Division.

Tens of millions of people use Skype to make free phone calls over the Internet using their computers or smartphones. 

Microsoft’s biggest acquisition until now has been its 2007 buy of digital marketing firm aQuantive for $6.3 billion.  The company unsuccessfully tried to buy Yahoo! in 2008 for $47.5 billion.

Microsoft and Skype said the boards of directors for both companies have approved the deal.

Bates said Microsoft and Skype “share the vision of bringing software innovation and products to our customers.”

“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,” Bates said.

Silver Lake managing director Egon Durban said he is “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.”

Skype will support Microsoft products like the Xbox game console and Kinect motion controller, Windows Phone and a variety of Windows devices. 

Some investors expressed skepticism over the deal.

“It doesn’t make sense at all as a financial investment,” Andrew Bartels, an analyst at Forrester Research, told Reuters. “There’s no way Microsoft is going to generate enough revenue and profit from Skype to compensate.”

Magnus Rehle, managing director of Greenwhich Consulting, said in a statement that Microsoft is “buying a brand and a big chunk of customers.”

“It could (also) be a defensive strategy from them… to block Facebook and Google from doing it instead,” Rehle added.

Skype was founded in 2003 and acquired by online auction giant eBay in September 2005.  It was sold to the investment group led by Silver Lake in November 2009 in a deal that placed the company’s value at $2.75 billion.

Skype has 170 million users and has logged over 207 billion minutes of voice and video conversations in 2010.

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