Microsoft announces deal to purchase Skype

Redmond-based Microsoft has reached a deal to buy Internet communications icon Skype, for $8.5 billion in cash, the biggest acquisition in the company's 31-year history.

The deal, which the two companies announced Tuesday, represents a renewed commitment by Microsoft to compete in online communications against carriers such as Apple and Google, both of which feature video calling features for smartphones and other products.

"We will empower people all over the world with new technologies that will bring people together," Microsoft CEO Steve Ballmer said at a press conference in San Francisco.

Negotiations between the two companies began when Microsoft approached Skype's chief investor, Silver Lake, with an unsolicited offer to buy the online communications company, which has become so synonymous with Internet voice and video contact that it has become a verb. Skype CEO Tony Bates said the company was preparing to go public and had no intention of selling, but the offer was too good to pass up.

"We think this allows us to expand from hundreds of millions to billions," said Bates, who will head Microsoft's new Skype division. "We think this is a platform that can reach everyone in the world."

Microsoft's goal is to link video and Internet calling into its other services. Ballmer wants to make Skype a key part of the Windows 7 Phone, Xbox Live, and other Microsoft products.

Skype brings with it more than 170 million users around the world.

"We want to stitch together the world," Ballmer said. "And we have the big customer bases that we can connect in a way that can add value to the community."

Ballmer envisioned Skype's use on Microsoft's products as a way to keep ties close despite geographic barriers. It will allow people traveling the world to speak to each other, and for someone across the country to participate in a family reunion through their Kinect device, he said.

While the company will focus on bringing Skype to Microsoft devices, Ballmer promised to continue distributing the service to non-Microsoft platforms.

"The fundamental value property of communication is being able to reach everybody, whether they happen to be on your device or not."

Skype was founded in 2003 by Niklas Zennstrom and Janus Friis, who also created the music downloading service Kazaa.

Over its eight-year history Skype has bounced around between owners. Ebay Inc. bought the service in 2005 as a possible means for buyers and sellers to communicate. When that plan was unsuccessful eBay sold off 70 percent of the company to a group of investors in 2009.

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