Microsoft to acquire Skype for $8.5 billion

At the 2010 Electronic Entertainment Expo, Microsoft put Kinect's video chat capabilities front and center with a demo of Video Kinect. During that demo, connectivity between Kinect users and those using Windows Live Messenger on other devices was promised, and it now looks like there is going to be another option added--popular voice over IP service Skype.

Microsoft today confirmed that it has reached an agreement to buy Skype for $8.5 billion (£5.2 billion). Skype is the leading provider in the consumer VoIP space, with 170 million users worldwide. Services include free standard and video calls between Skype users on home computers, the ability to call any phone number from Skype for a fee, and the ability to generate a phone number that can be reached from a standard phone.

Skype will now support the Xbox platform, including Kinect, though no time frame has been outlined as to when the new services will become available. Microsoft also said it would connect Skype users with its platforms and communities, such as Xbox Live. Notably, as part of Xbox Live's 2010 fall update, the publisher updated the service's voice chat audio codec.

Microsoft also confirmed that it would continue to "invest in and support Skype clients on non-Microsoft platforms." That will likely be good news for Valve, which just recently integrated Skype functionality into its online platform, Steam.

Skype's applications currently run both on home PCs and mobile devices, and they use a peer-to-peer network for voice and video traffic. The company was founded in 2003, before being bought by eBay in 2005 in a transaction that was eventually worth around $3 billion. Four years later, it was mostly sold to a venture capital group called Silver Lake in a deal that valued Skype at $2.75 billion. Skype will now become Microsoft Skype Division, with its current CEO, Tony Bates, as president. Bates will report directly to Microsoft's current CEO, Steve Ballmer.

While the deal has been approved by the boards of both Skype and Microsoft, the acquisition is still subject to regulatory approval and "other customary closing conditions." Microsoft says it hopes all such clearances should be granted during the course of 2011.