Microsoft acquires Skype for $8.5B in cash

Skype has a buyer, and it isn't Facebook or Google (NASDAQ:GOOG) as rumored--instead, Microsoft (NASDAQ:MSFT) will acquire the Internet telephony services provider for $8.5 billion in cash, promising increased accessibility of real-time video and voice communications across platforms including Windows Phone, Xbox and Kinect. Both companies' boards of directors have signed off on the deal--Skype will continue as a business unit within Microsoft, with CEO Tony Bates assuming the title of president of the new Microsoft Skype Division, reporting directly to Microsoft CEO Steve Ballmer.

Skype touts 170 million connected users and served 207 billion minutes of voice and video conversations in 2010. Microsoft said it will connect Skype users with communities including Outlook, Lync and Xbox Live, and will also continue to invest in and support Skype clients on non-Microsoft platforms.

With Skype, Microsoft acquires a recognized brand name that should boost the company's profile as it struggles to gain traction in the consumer market--adding Skype video chat and other web telephony services significantly bolsters Microsoft's product portfolio and gives users another reason to remain connected to its platform. However, Microsoft must tread carefully as it integrates Skype into its Windows Phone 7 mobile operating system, introduced late last year--by giving consumers a cheaper alternative to traditional carrier voice services, Microsoft runs the risk of damaging the operator partnerships on which WP7's growth depends.

As recently as last week, it appeared either Facebook or Google was the frontrunner to acquire Skype. Citing sources with direct knowledge of the talks, Reuters reported Facebook CEO Mark Zuckerberg had participated in negotiations to acquire Skype outright, while another source indicates the social networking giant was instead looking to forge a joint venture--Google also held preliminary joint venture discussions, the report stated. Last August, Skype filed documents to go public but later put its IPO plans on ice--the Skype offering was expected to bring in about $1 billion.

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