Microsoft Buys Skype for $8.5 Billion

Microsoft has agreed to buy Internet telephone company Skype for $8.5 billion U.S. dollars in cash.

The deal is Microsoft's biggest ever, as the technology giant seeks to plug a hole in its mobile offerings.

The deal was announced on Tuesday by the CEO's of both Microsoft and Skype in San Francisco.

For Microsoft, buying loss-making Skype makes clear its intention to compete with rivals like Apple and Google. 

[Steve Ballmer, CEO, Microsoft]:

"This is a big day for Skype and this is a big day for Microsoft. We are adding a new division and a new promise to our customers. The promise of universal, next generation communications."

Microsoft already has video chat as a function in its Windows Live Messenger service, but it's 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, as well as BlackBerry and Android phones. 

[Tony Bates, CEO, Skype]:              

"Skype is focused on mobile, it's focused on video, it's core communication services and how that intercepts with social is really, really exciting for us."

But Skype cannot be used on Microsoft phones. This new deal is poised to change that.

[Tony Bates, CEO, Skype]:

"We think there is a tremendous amount of opportunities as we look forward. We think this allows us to extend, not from hundreds of millions, to literally billions. We believe that this is a platform and a set of services that can reach everyone on the planet."