Microsoft buys Skype for $8.5 billion in cash

Microsoft Corporation is purchasing internet phone company Skype for a whopping $8.5 billion. The cash deal was finalized this morning.

What do they see in Skype that others don't? A brand name to add to its already impressive consumer product stable that will probably make the TV in your home even more important.

The Wall Street Journal:

About 170 million people log in to Skype's services every month, though not all of them make calls. Skype users made 207 billion minutes of voice and video calls last year. Microsoft said it will marry Skype's functions to its Xbox and Kinect game consoles, Outlook email program and Windows smartphones. The company said it will continue to support Skype on other software platforms.

The Skype deal ranks as the biggest acquisition in the 36-year history of Microsoft, a company that traditionally has shied away from large deals. In 2007, Microsoft paid approximately $6 billion to acquire online advertising firm aQuantive Inc. Many current and former Microsoft executives believe Microsoft significantly overpaid for that deal. But they are also relieved that Microsoft gave up on an unsolicited $48 billion offer for Yahoo Inc. nearly three years ago. Yahoo is valued at half that sum today.

Mr. Ballmer, though, sees the Internet as an essential battleground for Microsoft, a company that still makes the vast bulk of its profits from Windows and Office software systems. Investors have become increasingly concerned about Microsoft's ability to squeeze continued growth out of those businesses, as rival technologies from Apple Inc., Google and others put more pressure on profits.

The division behind Microsoft's hugely lucrative Office suite of applications also makes a product, known as Lync, which ties together email, instant messaging and voice communications into a single application. Skype could strengthen that offering.

Yes, but $8.5 billion? Skype's real value is in how it will connect to other, profitable Microsoft platforms. It is a versatile program, easy to use, and hopefully, will continue to be recognized for its 1st class customer service.

The "battlefield" as the WSJ calls it is indeed changing and MS appears to be positioning itself nicely to compete.