Microsoft buys Skype for $US8.5bn

Microsoft has purchased internet phone service company Skype for $US8.5 billion, representing the largest deal in the company’s history as it seeks to claw back market share from rivals Google and Facebook.

Skype was founded in 2003 by Swedish entrepreneur Niklas Zennström, and was 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 valued the company at $2.56 billion.

With 170 million users worldwide, Skype allows users to make low-cost or free phone calls over the internet, bypassing the standard telephone network by channelling voice and video calls online.

Skype last year announced plans for an initial public offering of stock and appeared to be on its way to profitability, but it seems investors are eager for a pay-off.

Technology analyst firm Ovum says Skype is arguably the world’s most successful real-time social communication platform, and its $8 billion price tag means that only companies such as Microsoft have any chance of acquiring it.

The deal with Microsoft represents a hefty premium on the $3-4 billion Google and Facebook were said to be considering for the service just a week ago, and is thought to be considerably more than the company would’ve been valued at in an IPO.

As part of the deal, Skype will become a new business division within Microsoft, with Skype chief executive Tony Bates assuming the title of president of the Microsoft Skype division.

Prior to Skype, Microsoft’s biggest acquisition was its 2007 purchase of digital marketing firm aQuantive for $5.85 billion. Microsoft failed in its attempt to acquire Yahoo! in 2008 for $44.13 billion.

It’s been reported the acquisition could enable Microsoft to distance itself from its business software image and gain momentum in the burgeoning mobile market.

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

“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 companies say Skype will support Microsoft products like the Xbox game console and Kinect motion controller, Windows Phone and a wide array of Windows devices. Microsoft will also support Skype clients on non-Microsoft platforms.

“We see tremendous opportunity to bring together what people want all on a single screen. We are committed to optimising Skype for TV with Xbox and Kinect for the phone and for the PC,” Ballmer said.

According to Bates, the growth of the mobile market is turning into a “rich communications capability above and beyond voice”.

“We also focus very, very heavily on video. Video is in our DNA,” Bates said.

Foad Fadaghi, research manager at market analyst firm Telsyte, told StartupSmart yesterday the tech industry – and the mobile market in particular – is showing signs of a second dotcom bubble.

“There’s a lot of money in the market right now… There are more established users, technologies, markets and platforms, so it has the potential to be a lot more sustainable this time round,” Fadaghi said.