Microsoft Acquires Skype for $8.5 Billion

On May 12, 2011, wrote:

If many who were expecting a blockbuster acquisition in the tech industry were disappointed with the recent Google-Groupon deal that never happened, well – a bigger deal just came through – to the tune of $8.5 billion in cash.

In a definitive agreement announced Tuesday, software giant Microsoft Corporation has acquired Luxembourg-based Internet phone service and communications company Skype. The investor group, Silver Lake, which bought Skype from eBay in 2009, oversaw the transaction.

The deal represents one of the highest-valued acquisitions in years, and is expected by both companies to soon increase market opportunity as well as benefit individual consumers and businesses. It will, in particular, integrate the Skype platform and connect its 170-plus million users to a portfolio of Microsoft products, including Lync, Outlook, Xbox LIVE, and Kinect.

“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” said Skype CEO Tony Bates, who will now become the president of the new Microsoft Skype division. “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.”

In a blog post on Forbes, The Tech Trade’s Eric Savitz analyzed the keys to the $8.5-billion deal and said that “the growth opportunity for Skype, substantial as a stand-alone business, is even higher when meshed with Microsoft’s various communications and Internet offerings.”

Mr. Savitz also provided a rundown on the reactions of other industry observers, who each highlighted the reasons of and expectations from the strategic deal.

  • With Microsoft, Skype will be better positioned to find new ways of monetizing the platform, instead of having a majority of users pay nothing to use its voice and video communications service. Continued monetization through advertising and gaming is also expected.
  • Other Microsoft products expected to have tighter integration with Skype include the Bing search engine as well as the Windows Phone 7, which could then help Microsoft to perform more competitively against industry giants like Google and Apple.

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