Update: Microsoft agrees to buy Skype for $8.5 billion

Microsoft has agreed to buy Skype for $8.5 billion, the companies announced Tuesday.

The companies' CEOs, Steve Ballmer and Tony Bates, will host a press conference later Tuesday to give details of the acquisition.

The boards of both companies have agreed to the deal, which will see Bates reporting directly to Ballmer as president of the Microsoft Skype division, illustrating the importance of the deal to the company.

Once the merger is complete, Microsoft plans to add Skype support to its Xbox and Kinect gaming devices and Windows Phone mobile operating system, and connect Skype users with its own Lync, Outlook and Xbox Live communications services.

Over the last week, the voice and video communications company had been rumored to be discussing an acquisition or partnership with Cisco, Facebook and Google.

Founded by Niklas Zennström and Janus Friis, Skype was bought by eBay in 2005. After that company failed to figure out how to integrate it with its online auction business, it sold a majority stake to an investment consortium including its founders and Silver Lake in 2009.

Skype made a name for itself offering free voice calls from PC to PC, charging to connect calls between PCs and the public telephone network. Later it added video chat and, more recently, software clients for smartphones.

Microsoft offered a similar PC-to-phone service for consumers under the Windows Live Call brand, and continues to offer PC-to-PC text, voice and video chat with its Windows Live Messenger service.

Skype and Microsoft also target businesses with their communications offerings. Microsoft has a server-based unified communications tool that connects PCs to a PBX to offer VoIP calling, instant messaging and videoconferencing.

Previously called Communications Server, it is now branded Lync, while Lync Online is a cloud-based service offering similar functionality.

Skype Connect, meanwhile, is a service that allows businesses to connect their PBX to Skype to handle incoming and outgoing calls. A management tool, Skype Manager, allows businesses to control call costs.

Microsoft May also be Interested in Skype

Rumor has it that Microsoft is in talks with Skype. The software giant is interested in either acquiring the Luxembourg-based company, partnering with, or at the very least investing in it.

Apparently we will find out more details very soon: corporate attorneys and other senior managers are said to be working late this weekend. In fact, an announcement may be made later this week, according to sources cited by GigaOm, which also gave three reasons as to why Microsoft would be ideal for a Skype partnership:


* Skype would give Microsoft a big boost in the hotly contested enterprise collaboration market places, thanks to Skype's voice, video and sharing capabilities. It would be particularly useful for competing against Cisco and Google, two of its main rivals in the collaboration business.
* It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
* It would give Microsoft an outside chance of working with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.

Unsurprisingly, neither Skype nor Microsoft are commenting on the rumor and speculation. This happened earlier this week as well: neither Facebook nor Google wanted to comment either.

That's right: Microsoft is the third company to show interest in either partnering with Skype or buying the company. Out of the three, I would argue that Facebook makes the most sense.

Both Microsoft and Google currently have VoIP technology as well as both software and web services that provide it. Facebook does not, but it does have 600 million users on its website that would probably be very interested in making voice and video calls with their friends.

Seeing as we don't know what will happen yet, this is a perfect time to ask our readers what they would like to see. Would you prefer that Skype partners with one of the aforementioned tech giants, or gets bought out? If it has to be an acquisition, which company would you want to see buy Skype?