Microsoft buys Skype for $8.5 bn

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Luxembourg, May 11: Microsoft Corporation announced that it will acquire Skype Global, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype.

With 170 million connected users and over 207 billion minutes of voice and video conversations in 2010, Skype has created a niche market for itself by serving both the individuals and institutions.

This purchase will be useful for the company as it will gel with Microsoft's long-standing focus and investment in real-time communications across its various platforms, including Lync (which saw 30 percent revenue growth in Q3), Outlook, Messenger, Hotmail and Xbox LIVE.

Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.

“Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft CEO Steve Ballmer. 

With Microsoft taking it over, it has the potential to be a part of our living rooms television based video-conferencing. This may change the very nature of how individuals keep in communication with their peers and family members. 

“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," Balmer said.

Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

Tony 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.

Skype was founded by two entrepreneurs in 2003. One of them was Swedish, the other was Danish. The software was developed in Estonia by a small team of programmers.

Then, Skype was acquired by eBay in September 2005 for $2.6 billion. After it was not able to understand how to make the business model a source for generating profit it sold out to an investment group led by Silver Lake in November 2009.

Skype has made impressive progress over the past 18 months under Silver Lake"s leadership, increasing monthly calling minutes by 150 percent, developing new revenue streams and strategic partnerships, acquiring the intellectual property powering its peer-to-peer network, and recruiting an outstanding senior management team.

Its revenue rose 20 percent last year, to $860 million, and operating profit climbed to $264 million, though it had a net loss of $7 million after making its debt payments.

Other members of the selling investor group led by Silver Lake include eBay International AG, CPP Investment Board, Joltid Limited in partnership with Europlay Capital Advisors; and Andreessen Horowitz.

The acquisition is now awaiting the regulatory approvals. The parties hope to obtain all required regulatory clearances during the course of this calendar year.

Even though Microsoft still governs the home PC's the company lags in new technologies. Its foray in mobile market ended in a disaster and it lags in the smartphone software market as well.

Industry experts consider that the future of communications will be led by video calls, as well as voice and text messages. And Skype has the benefit of being an early bird, the company which started less than a decade ago, has now become a basic feature on smartphones.

This acquisition will give the company the chance to catch up with its arch rival google. Though Microsoft has spent a lot of money on Bing, its new search engine, it has not helped it catch up with the search engine leader. Even Google is trying to make a foot-hold in the internet phone call and video messaging service space. But rather than facing the difficult task of falling behind here, Microsoft has bought the company with the leadership position.

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