Microsoft readies for market battle after $8.5-bn Skype buy

Microsoft has agreed to buy Internet telephone company Skype for $8.5 billion in cash in its biggest deal ever. Buying loss-making Skype would have no immediate impact on Microsoft’s finances, but would make clear its intention to compete with rivals such as Apple and Google. Reuters first reported about the deal earlier on Tuesday. [caption id=“attachment_7647” align=“alignleft” width=“380” caption=" Skype would give Microsoft a foothold in the potentially lucrative video-conferencing market. Sean Gallup/Getty Images"]  [/caption] Microsoft already has video chat as a function in its Windows Live Messenger service, but it is not available on its Windows Phone 7 software. Skype also makes versions of its own service which can be used as an application on the iPhone and iPad, Research in Motion’s BlackBerry and Android phones. It cannot be used on Microsoft phones. Investors have expressed skepticism over the deal. “It doesn’t make sense at all as a financial investment,” said Andrew Bartels, an analyst at Forrester Research. “There’s no way Microsoft is going to generate enough revenue and profit from Skype to compensate.” The sale marks a big payday for Skype’s owners, online auction site eBay Inc and a group of investors including Silver Lake, the Canada Pension Plan Investment Board and Andreessen Horowitz. Skype delayed plans for an initial public offering that was expected to value the company at more than $3 billion. It had been looking at other options, including tie-ups with Facebook and Google. Such a deal was expected to value Skype at $3 billion to $4 billion. The Luxembourg-based company, which allows people to make calls at no charge but has also developed premium services, would give Microsoft a foothold in the potentially lucrative video-conferencing market as businesses shift to lower-cost ways of communicating. Skype could be combined with Microsoft software such as Outlook to appeal to corporate users, while the voice and video communications could link to Microsoft’s Xbox live gaming. Longer-term, Skype would offer Microsoft another route to develop its mobile presence, an area it has already put more energy and resources into as PC usage comes under threat. Skype is set to become a new business division within Microsoft with Skype Chief Executive Tony Bates in charge and reporting directly to Microsoft CEO Steve Ballmer, Microsoft said. Reuters