Microsoft to acquire Skype for $8.5 billion

Updated (6): Deal ends Skype IPO talk, as well as overtures from Facebook and Google

skype

Microsoft is acquiring Internet phone company Skype for $8.5 billion, the companies confirmed within the hour.

The deal, a major coup for Microsoft and a blow to other Skype suitors -- Facebook in particular -- needs to be approved by the boards of both companies.

From the press release:

The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities. The combination will extend Skype's world-class brand and the reach of its networked platform, while enhancing Microsoft's existing portfolio of real-time communications products and services.

With 170 million connected users and over 207 billion minutes of voice and video conversations in 2010, Skype has been a pioneer in creating rich, meaningful connections among friends, families and business colleagues globally. Microsoft has a 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.

Microsoft is conducting a press conference to discuss the deal at 11 a.m. EDT.

The probability that Microsoft and Skype would reach a deal was first reported last night by The Wall Street Journal.

The acquisition by Microsoft would conclude a checkered history for Skype that has included a meteoric rise in user popularity, time under the eBay umbrella and contentious lawsuits over intellectual property. Business Insider has a concise timeline here. That site also has a good rundown of the winners and losers, with the former including Skype founder's Niklas Zennstrom and Janus Friis, Skype's investors, particularly venture capitalist Marc (The Kingmaker) Andreessen, and Microsoft's Windows Phone 7 partners. Among the losers: Cisco.

More to come ...

(Update, 9:55 a.m.: Looks like Om Malik at GigaOm had the jump on the Wall Street Journal on the initial reports yesterday. Malik also has this take on the deal today: "It won't surprise me if Microsoft comes in for major heat on this decision to buy Skype -- and the software company could always botch this purchase, as it often does when it buys a company ... I also don't believe that Facebook and Google were serious buyers. Google, with its Google Voice offering, doesn't really need Skype. In essence, I feel that Microsoft was bidding against itself. Even then, I personally think this is a bet worth taking, especially for a company that has been left out in the cold for so long.")

(Update 2, 10:20 a.m.: Analysts tell IDG New Service that they see the deal as a largely defensive move by Microsoft.)

(Update 3, 10:40: Darrell Etherington at GigaOm says he takes Microsoft at its word that Apple customers need not fret about being short-changed here: "There's plenty of reason to believe that isn't just an empty statement. Microsoft might erode its existing Skype subscriber base by ignoring or closing down support for platforms where the service is popular, including Apple devices.")

(Update 4, 10:50: While Microsoft's stock price dipped 2% on the news in early trading, the market as a whole is reacting positively to the deal, according to this story in The Wall Street Journal.)

(Update 5, 11 a.m.: Arik Hesseldahl at All Things Digital is cautiously optimistic regarding the likelihood that Microsoft can make Skype a more meaningful player in the workplace: "The problem is the perception that Skype isn't stable enough to meet the must-work requirements of the enterprise. The outage that occurred around Christmas last year, and others like would tend to discourage CIOs from deploying Skype in any meaningful way.

"One thing that Microsoft brings to the table in this combination is the smarts to fix what's wrong with Skype, and then convince CIOs that it's stable enough to use. Some of the fundamental weaknesses in Skype's peer-to-peer infrastructure could potentially be fortified with some help from Microsoft's cloud service Azure.")

(Update 6, 11:30 a.m.: We may have a winner for most pessimistic assessment. Rex Nutting at MarketWatch writes: "Microsoft is well-known for ruining everything it touches, but it's hard to imagine Skype's quality getting any worse than it already is.") 

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