Microsoft Is Buying Skype for $8.5 Billion [Updated]

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Photo: Mario Tama/Getty Images

Microsoft is in advanced talks to acquire Internet phone company Skype for around $8.5 billion, including assumed debt. The deal is expected to be officially announced Tuesday morning, and, if completed, would be the largest acquisition in Microsoft's history. Microsoft is likely hoping to leverage Skype's 600 million users into consumers for the company's other goods and services, in an effort to go toe-to-toe against Google. “This is part of the strategic fight between Microsoft and Google,” said independent technology analyst Rob Enderle. “Microsoft is backing Facebook’s play, and to some degree entering this fight on Facebook’s side of this strategic confrontation with Google.”

This is Skype's second time being acquired by a major company: In 2005, eBay purchased the video-calling company for $2.6 billion with the intention of looping it into its online auction property. Two years later it dumped Skype — which admittedly struggles to maintain profitability — and sold it to a consortium of investors.

Microsoft in Talks to Acquire Skype for $8.5 Billion [DealBook/NYT]

Update: It's official! For $8.5 billion, Skype will become a new business unit within Microsoft, run by current Skype CEO Tony Bates, who will report directly to Microsoft chief executive Steve Ballmer. [Fortune]