Microsoft buys Skype for $8.5 billion; creates new business division


microsoft skype

The rumors were right. Microsoft announced on May 10 that it bought Skype, an Internet communications vendor, for $8.5 billion.

Instead of trying to mash Skype into an existing Microsoft business division, the company has decided to create a new, separate Skype business division, with Skype CEO Tony Bates as the newly minted President. Bates will report directly to Microsoft CEO Steve Ballmer.

In its press release announcing the deal, Microsoft played up the potential synergies between Skype and its own communications offerings, including its Lync VOIP platform, Outlook mail, Messenger instant-messaging, Hotmail Web mail and Xbox Live gaming service.

“Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms,”
said the release.

Microsoft offered no timetable or further details as to when and how it will make Skype available as part of any of its existing product offerings.

According to earlier reports, Microsoft was bidding against Google and Facebook for Skype. As my colleague Larry Dignan noted, the $8.5 billion Skype purchase price made for one expensive game of keepaway.

Today’s deal with Skype marks Microsoft’s largest acquisition (dollar-wise) in the history of the company. For the past couple of years, Microsoft execs seemingly had decided that Microsoft’s history of assimilating successfully its big acquisitions (aQuantive, Danger, AdECN, Bungie, etc.) was not so great, resulting in the company shying away from anything but relatively minor, targeted acquisitions

  • Xbox 360 Kinect + SkypeTV: There is already a video chat feature on the Kinect but a Skype-login and interface could encourage more people to make this a part of their Xbox experience. Skype is already on some televisions so integration with the Xbox seems to be a good fit.
  • Windows 7 OS + Nokia + Skype: This could be quite a powerful combination as more and more smartphones are equipped with front-facing cameras and make use of the 4G network, which means video calls will only become the norm on mobile devices. Plus, it gives the partners an edge against Apple’s proprietary Facetime application. Skype users are also able to send SMS messages from the Web to handsets so this could be a great bonus for future customers with Nokia phones running Windows 7.
  • MSN Messenger + Skype: Hopefully, Messenger will be replaced with Skype because IMing on Skype is a breeze but uninstalling Messenger from machines running Windows is a hassle. The combination of Messenger and Skype users will give G-Chat and Google Voice some competition (perhaps to finally roll out to more countries)
  • Outlook + Skype: By integrating your Skype contacts with your email address book to make voice and video calls, Microsoft is looking to the beefed up Outlook to better compete with Gmail/G-Chat/Google Voice.
    MS Lync, Xbox Live + Skype: These new groups will expand Skype’s user base, according to the press release.

Last night, AllThingsD reported that Microsoft dealmaker Charles Songhurst was key in helping Microsoft CEO Steve Ballmer broker the Skype deal. Interestingly, Songhurst also was credited with helping convince the Microsoft brass to call off the Yahoo acquisition.

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