Microsoft Completes Skype Acquisition

Microsoft has formally completed its $8.5 billion Skype acquisition, making the communications company a division within its already-sprawling corporate structure.

“This represents a huge leap forward in Skype’s mission to be the communication choice for a billion people every day,” Tony Bates, formerly Skype’s CEO and now president of Microsoft’s Skype unit, wrote in an Oct. 13 posting on The Official Microsoft Blog. “Joining forces with Microsoft is the best way to accelerate this mission and capitalize on our position at the intersection of social, mobile and video communications.”

Bates now reports directly to Microsoft CEO Steve Ballmer. Skype’s services will be meshed with a variety of products in Microsoft’s portfolio, including its Lync unified communications (UC) platform, Outlook and Xbox Live. Moreover, Skype’s enormous user base gives Microsoft increased influence over the evolving voice over IP (VOIP) and video conferencing market.

Skype previously found itself an acquisition target in 2005, when eBay agreed to pay $2.6 billion in cash and stock for the then two-year-old company. Four years later, the auction Website announced it would resell the majority of its Skype holdings to a team of private investors for $1.9 billion in cash. By the second half of 2010, Skype boasted an average of 124 million connected users a month, and was reportedly trying to raise money for an IPO. However, that offering was delayed after the company appointed Bates as CEO in October of that year.

Microsoft has previously indicated that it will continue to support Skype on non-Microsoft client platforms. The acquisition also places Microsoft on yet another collision course with Google and its own VOIP services. In May 2010, Google purchased Global IP Solutions, or GIPS, which makes software for processing high-definition auto and video over the Web, for $68.2 million. A few months later, the search-engine giant began offering its Gmail customers the ability to make phone calls via that service. By purchasing Skype, Microsoft also removed the company as a potential acquisition target for Google.

Microsoft’s Skype division could also challenge Apple, which offers video conferencing through its FaceTime service for iOS.

According to a 2010 survey conducted by the Pew Research Center’s Internet & American Life Project, the combination of Skype, Google and Apple has lifted the number of American adults participating in online video calls to nearly 20 percent.

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