Microsoft on Tuesday announced they would buy Skype Global for $8.5 billion in cash — the largest acquisition ever for the technology giant.
The deal will give Microsoft a boost in voice and video communications, allowing the company to leverage Skype’s technology on a variety of platforms, including Xbox 360, Kinect and Outlook. In 2010, Skype users had 207 billion minutes of voice and video conversations.
“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft chief executive Steve Ballmer said in a statement. “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.”
Despite its popularity, the service has struggled to maintain profitability. Since most of its services are free, Skype makes much of its profits from a small group of users who pay for long distance calls to telephone numbers. In 2010, Skype recorded $859.8 million in revenue but notched a net loss of $7 million, according to a filing.
Microsoft, analysts say, has often been an smart acquirer of start-ups and smaller companies, picking off technical teams that are then folded into products likes Windows, Office and Internet Explorer. But during Mr. Ballmer’s tenure as chief executive, beginning in 2000, the company has also made far larger, riskier bids, mostly unsuccessful.
In 2004, Microsoft entered into talks to buy the big business software company SAP, for about $50 billion, according to testimony that came out in a court case. In 2007, Microsoft acquired aQuantive, an online advertising company, for roughly $6 billion, a sizable premium, and some suggested it overpaid.
Nearly three years ago, the company made a surprise $48 billion offer for Yahoo. Talks then broke off, and Microsoft withdrew its bid, but later reached a partnership to take over Yahoo’s search business.
The Microsoft acquisition marks the second time a technology giant has acquired Skype.
EBay bought the company in 2005 for $2.6 billion with hopes of tightly integrating the service as a sales tool. But the deal never lived up to its promise and eBay took a $1.4 billion write-down on its investment.
Skype was sold in 2007 to a consortium of investors led by Silver Lake Partners, Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board. Marc Andreessen of Andreessen Horowitz, who co-founded Netscape Communications, was seen as a pivotal matchmaker for Skype, at one point trying to put it together with Facebook, another company for which he is on the board, according to people involved in the discussions.
The Microsoft deal ends the speculation about the future of Skype. The company had been planning an initial public offering but delayed its debut last year, prompting talk that it would be sold to another technology giant like Facebook, Google or Cisco Systems.
The boards of both companies have approved the deal.
“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” said Tony Bates, the current head of Skype who will become the president of the newly created 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.”