Microsoft to buy Skype for US$8.5bn

10 May 2011

The world’s biggest software company Microsoft is understood to be close to a deal to acquire VoIP player Skype which was set up in Sweden in 2003 by Niklas Zennström and his business partner Janus Friis. Microsoft is believed to be willing to pay US$8.5bn for the company.

Microsoft, it is believed, may announce a deal today. If the acquisition proceeds, Skype may be integrated into Microsoft’s Live family of services and would give the software giant a much-needed brand with which to take on Google in the battle for online advertising.

The deal would represent one of Microsoft’s most strategic acquisitions yet and certainly would rank as the biggest acquisition in its history. In 2007, it paid US$6bn to acquire online advertising firm aQuantive Inc.

Microsoft walked away from a US$48bn plan to acquire Yahoo! three years ago.

Skype is a serious part of the internet’s ecosystem and around the world more than 600m people use the service to make free or inexpensive voice or video calls. In recent months, the company launched an advertising service on the platform.

Both Facebook and Google are also eyeing up Skype as a potential acquisition.

Before Skype, Zennström and Friis had run a peer-to-peer file-sharing company called Kazaa. After selling it, they started Skype in Sweden in 2003 and quickly realised that if they were to succeed they needed to go international first and not try to be a success at home. They sold Skype to eBay in 2005 for $2.6bn.

In 2009, Zennström was part of the consortium that bought Skype from eBay and he currently sits on the board of the internet telephone company. Zennström and Friis now run their own venture capital firm, Atomico, which has a fund of $165m and has invested in 30 companies, such as and Xobni.

As the worlds of mobile and internet converge via smartphone devices, Skype could play a key role in enabling Microsoft to charge ahead via its Windows Phone 7 and Bing strategies.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years