Microsoft confirms Skype puchase for $8.5bn

Software giant Microsoft on Tuesday announced the acquisition of VoIP company Skype in an all cash deal worth $8.5bn. Such a move gives Microsoft a greater presence  in the unified communications sphere with internet telephony and video calling capabilities.

The acquisition is the largest in Microsoft’s history, and gives it a significant foothold in the online communication world, with Skype claiming 170 million connected users and over 207 billion minutes of voice and video conversations in 2010.

Despite huge injections of cash on marketing, Microsoft remains a laggard in the online space behind leading brands such as Google and Facebook. Online searches provided by Microsoft’s Bing search accounted for 30 per cent of the US market in April 2011 compared to Google’s 64 per cent, according to Experian Hitwise statistics.

On the video communications side, rival Apple, which recently overtook Microsoft to become the most valuable technology company in the world, has great presence with its Facetime video tool, which is available on all of its webcam enabled iOS4 devices. A tight association between Skype and Microsoft could help the Redmond based company push its Windows 7 based devices, which have struggle to make a dent in a smartphone market dominated by Apple iOS4 and Google Android powered handsets.

Additionally, with the deployment of fast LTE networks gathering apace throughout the world, the use of Skype is likely to continue to grow. This will give Microsoft a relationship with networks operators as they look for ways to promote their LTE networks.

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 Steve Ballmer. Skype will support Microsoft devices like Xbox and Kinect and Windows Phone, 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.

“With Apple FaceTime – a competitor to Skype – now available on the Mac, iPhone 4, iPad 2 and the new iPod touch, it is definitely now or never for Microsoft,” said Ovum principal analyst Richard Edwards.

“There are other products and companies out there that offer a much better fit architecturally than Skype (and they come with a much cheaper price tag too), but Skype is undoubtedly the product Microsoft needs to stay in the game.

“Skype is arguably the most successful real-time social communication platform on the planet, and its $8bn price tag means that only companies such as Microsoft have any chance of acquiring it, “But is it a good fit for Microsoft’s business model? Answer: Yes. It’s popular, it runs on Windows PCs, and later this year it will be available on Windows Phone 7.”

Giles Cottle, senior analyst at Informa Telecpms & Media, added that despite scepticism at Microsoft’s ability to handle big acquisitions, Redmond is a better home for Skype than some of the company’s other rumoured suitors. “Microsoft undoubtedly has over-paid for Skype in the short-term, but potentially not in the long term. Buying Skype gives Microsoft the ability to do whatever it wants with voice to an audience of 700 million users. This kind of scale does not come cheap,” he said.