Software giant Microsoft buys Skype for €5.9bn

MICROSOFT has agreed to buy internet telephone service Skype for $8.5 billion (€5.9bn) in the biggest deal in the software maker’s 36-year history.

Buying Skype would give Microsoft a potentially valuable communications tool as it tries to become a bigger force on the internet and in the increasingly important smartphone market.

Following the cash purchase, Microsoft said it will marry Skype’s functions to its Xbox game console, Outlook email program and Windows smartphones.

The company said it will continue to support Skype on other software platforms.

The sellers include eBay and private equity firms, Silver Lake and Andreessen Horowitz.

About 170 million people log in to Skype’s services every month, though not all of them make calls. Skype users made 207bn minutes of voice and video calls last year.

Most people use Skype’s free-calling services, which has made it difficult for the service to make money since entrepreneurs Niklas Zennstrom and Janus Friis started the company in 2003. An average of about 8.8m customers per month, or a little more than 1% of the user base, pay to use Skype services.

Skype lost $7m (€4.9m) on revenue of $860m last year, according to papers the company has filed.

The Skype takeover tops Microsoft’s biggest previous acquisition, a $6bn purchase of the online ad service aQuantive in 2007.

Although it makes billions from its computer software, Microsoft has been accustomed to losing money on the internet in a mostly futile attempt to catch up to Google in the lucrative online search market.

Microsoft made a $47.5bn bid to buy Yahoo three years ago, but withdrew the offer after Yahoo balked. Yahoo is now worth about half of what Microsoft offered.

EBay bought Skype for $2.6bn in 2005, but its attempt to unite the phone service with its online shopping bazaar never worked out.

It sold a 70% stake in the firm to a group of investors for $2bn about 18 months ago.