Microsoft buys Skype in $8.5 billion deal

Company acquires internet telephony company

The bidding war for Skype is over – and Microsoft has emerged victorious. The software giant has announced an agreement to buy the internet telephony company for $8.56 billion, beating out rival bids from Facebook and Google.

The all-cash deal’s price was even higher than early reports had speculated – and is Microsoft’s single biggest purchase in its history. Last night, the Wall Street Journal had predicted the price would be $7 billion.

Microsoft was a late entry into the race to acquire Skype, but the company hopes to be able to use the technology to increase its traction in the mobile market, an area where the company has been unable to establish a formidable presence.

Skype boasted revenue of $860 million in 2010, but was $7 million in the red overall – and it has substantial long-term debt of $686 million. The company was owned by eBay for two years, but the search giant, unable to generate substantial revenues from the unit, sold Skype to an investor group in 2007 for $1.2 billion.

As the mobile market has evolved, though, Skype has become a much desired chess piece for companies. While many of its services overlap with Microsoft’s own Windows Live Messenger, it differentiates itself in one notable way: Skype has a user base of 8 million paying customers.

The biggest question at this point is exactly where else Microsoft will incorporate Skype. A tie-in with its Kinect peripheral for the Xbox 360 seems an absolute certainty. And video conferencing technology being a part of the next iteration of the company’s Office suite of tools seems likely as well.

Reassuring existing Skype customers, Microsoft says it also plans to continue to support the service in non-Microsoft platforms, meaning Android and other mobile users will still be able to use it.

“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft CEO 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.”