Microsoft sees opportunities for integration

Skype is now officially a division of Microsoft, after the two firms closed an $8.5B cash deal yesterday. The Internet communications firm is known for its software applications that allow users to make voice and video calls over the Internet for free.

The acquisition was originally announced on May 10, but faced regulatory hurdles from the United States and the European Union. The European Commission’s decision to approve Microsoft’s acquisition of Skype last week was the final obstacle.

“Skype is a phenomenal product and brand that is loved by hundreds of millions of people around the world,” said Microsoft CEO Steve Ballmer. “We look forward to working with the Skype team to create new ways for people to stay connected to family, friends, clients and colleagues — anytime, anywhere.”

There were 663 million registered Skype users as of September 2011, with as many as 30 million users online at once.

Skype was founded in 2003 by Niklas Zennström of Sweden and Janus Friis of Denmark. Its growth was fuelled by the lure of unlimited free international calling, which was the traditional purview of phone companies.

The company soon grew to become the world's largest international voice carrier, offering calls to landlines and mobile phones for pennies per minute. The promise of profits was so great that eBay bought Skype in 2005 for $2.6 billion.

Skype evolved with technology, adding free videotelephony as bandwidth got cheaper. As webcams improved, Skype added support for HD video. The software was developed for smartphones, TVs, and other consumer electronics such as the iPad.

eBay sold 70% of Skype to a consortium for $1.9 billion in cash and a note for $125 million in November 2009, placing its valuation at $2.75 billion. Today's sale means that eBay has more than doubled its original investment.

Microsoft sees the Skype acquisition as being key to its future growth. Skype CEO Tony Bates will assume the title of President of the Skype Division of Microsoft immediately, reporting directly to Ballmer.

Skype software will be integrated into Microsoft's Xbox 360 video game console, Windows 7 phones, and the upcoming Microsoft Office 2012. It may also be offered as part of the Windows 8 operating system, set for release late next year.

Technology from Microsoft's Lync (formerly Office Communicator) may make its way into corporate versions of Skype. Google has begun offering Google Voice as a part of Gmail, and Microsoft could counter that threat by integrative Skype into Hotmail.

“By bringing together the best of Microsoft and the best of Skype, we are committed to empowering consumers and businesses around the globe to connect in new ways,” Bates said. “Together, we will be able to accelerate Skype’s goal to reach 1 billion users daily".

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