Redmond, Washington — A week after rumors started swirling that Google and Facebook are vying to get Skype, the Redmond Vole has walked in and scooped away the real-time communications company for a cool $8.5 billion in an all-cash deal. This could be the most expensive call Microsoft Corp. has ever made!
In “Glee” parlance, it seemed like the football coach just sat down at the cool kids’ lunch table. Microsoft on Tuesday placed its biggest bet yet–into a definitive agreement to acquire Internet voice and video communications company Skype for US$8.5 billion in cash from an investor group led by Silver Lake.
The acquisition of the VoiP service Skype is the software giant’s latest bid to diversify — on a deal the technology giant hopes will help it better compete in a world shifting away from desktop computers, as its core computer software business faces a growing threat from a new generation of powerful mobile devices.
Skype Chief Executive Tony Bates, left, and his Microsoft counterpart, Steve Ballmer, at a news conference in San Francisco to announce an agreement under which Microsoft will buy Skype for $8.5 billion. (Susana Bates, Reuters / May 11, 2011)
During a news conference in San Francisco, Microsoft Chief Executive Officer Steve Ballmer disclosed the all-cash deal for Skype and sketched out grand plans to bring the technology to a wider audience of consumers and business customers.
“Skype is an extraordinary service that is cherished by millions of people around the world,” Ballmer said today 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.”
In outlining the purchase, Microsoft said it would knit Skype’s Internet and video calling services into its popular Xbox gaming platform, Windows smartphone, and Office e-mail and document software, allowing users to more easily call their friends and colleagues.
Internet audio calls by business associates through the Outlook e-mail program, or mobile conferencing through Windows Phone. Microsoft said it hopes to extract more revenue from Skype by showing users colorful advertising as they make calls.
But some analysts considers that the Skype deal, Microsoft’s largest ever, could become a multibillion-dollar dud, as it once was for eBay Inc. The online auction site acquired Skype for $3.1 billion in 2005 but then disposed of most of its stake in the phone service after failing to wring a profit from it.
“The question is, what is the point here?” said James E. Schrager, a professor of entrepreneurship at the University of Chicago Booth School of Business. “They seem to be buying an interesting company to which Microsoft does not really add anything.”
“By bringing together the best of Microsoft and the best of Skype, we will empower people around the world with new technologies that should bring them closer together,” an effusive Ballmer said.
Surprisingly, the purchase spoils whatever plans Google and Facebook had for Skype, though Facebook’s connections with Microsoft could mean the social media network still stands to benefit from the buy.
Skype, based in Luxembourg, offers free voice and video communications over the Internet, a popular alternative to standard telephone calls, especially over long distances since it was founded in 2003. Skype boasted 170 million connected users and 207 billion minutes of voice and video conversations in 2010.
The agreement has been approved by both Microsoft and Skype’s boards of directors. The deal price was set April 18 and the contracts were signed Monday night.