Microsoft to Buy Skype for $8.5 Billion

Skype and Microsoft held a news conference in San Francisco to announce an agreement under which Microsoft will buy Skype for $8.5 billion. It is the software giant's latest bid to diversify, though some analysts predict it will be a multibillion-dollar dud.

Skype Limited is the Luxembourg-based company that develops and operates the VoIP software Skype. It has its headquarters in Luxembourg City. Skype has 663 million users where 8 million are paying customers. Microsoft will pay close to 13 USD per user if the acquisition numer is correct.

eBay acquired Skype Limited in September 2005 and in April 2009 announced plans to spin it off in a 2010 IPO. It was acquired by Silver Lake Partners in 2009. And now, in May 2011, Skype was purchased for US$8.5 billion by Microsoft, and the company is to be incorporated as a division of Microsoft.

So, why does Microsoft want Skype?

There are several conjectures.

No.1 The technology giant is seeking new ways to make money as its core computer software business faces a growing threat from a new generation of powerful mobile devices. 

So far, Microsoft has had trouble breaking into other kinds of markets. Its Bing search engine accounts for about 13.4% of online searches, far behind Google's 65%, and Microsoft's Windows smartphones have not made a significant dent in the market now dominated by phones powered by Apple Inc. and Google.

Microsoft has also been criticized for its past acquisition efforts, including its high-profile 2008 bid for Internet giant Yahoo Inc. for $45 billion. That sale fell through, and three years later Yahoo is worth about half of what Microsoft was willing to pay. Analysts said Microsoft may have also overpaid in its 2007 purchase of online ad firm AQuantive for $6.33 billion. 

No.2 The Windows Phone 7 operating system could need some expansion help and Skype could be the must-have application that can attract more users to the platform.

No.3 Microsoft prevents archrival Google from buying Skype. Although the search giant has for years allowed users to make Internet calls using its Google Voice service, it too was rumored to be interested in Skype.

Microsoft said it would weave Skype's Internet and video calling services into its Windows smartphone, Xbox gaming console, and Office e-mail and document software, allowing users to more easily call their friends and colleagues. Microsoft said it hopes to extract more revenue from Skype by showing users colorful advertising as they make calls.