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Announcing the largest deal in its 36 year history, Microsoft said earlier today that it would acquire internet telephony firm Skype for $8.5 billion, all-cash.  The Redmond software giant will integrate Skype into Xbox, Kinect, and Windows Phone, along with its Outlook/Lync/Exchange enterprise platform.  The company is investing heavily in mobile technology, and integrating the world’s most popular VoIP voice/video chat service should give that effort a shot in the arm, while also further extending the company’s enterprise leadership.  Microsoft says Skype users who don’t run Windows or Windows Phone shouldn’t worry, as it will continue to “to invest in and support Skype clients on non-Microsoft platforms.”

Skype’s current CEO, Tony Bates, will head the new Microsoft Skype Division, reporting directly to Microsoft CEO Steve Ballmer.  Skype boasts 663 million users worldwide, and its users made 207 billion minutes of voice and video calls last year.  Most of these calls, however, were free, which has made it difficult for the company to make money since it was founded in 2003.

Rumors swirled over the last few weeks that Google was looking to buy Skype, but an IPO was the most likely option, so Microsoft’s offer had to be high enough to convice Skype shareholders that life in the Microsoft fold would be better– hence the hefty price premium.  Microsoft is an investor in Facebook, which may now be able to tap into Skype’s network via Microsoft. Apple appears to be building massive server capacity to make a big telecommunications play (perhaps by extending its current FaceTime video chat service), and Google of course has its Google Voice service, so we’re likely to see a three-way internet telecom battle between the Microsoft-Skype-Facebook combine, Apple, and Google.

eBay first bought Skype in 2005 for $2.5 billion, but having found little potential for synergies, it sold off most of the company to an investment group led by Silver Lake in 2009 at a valuation of $2.75 billion.  Microsoft’s purchase price today is over three times that.  With this deal, Skype will gain a permanent home and likely a central role in Microsoft’s bid to gain prominence in Internet services and the mobile arena.  Microsoft has an estimated $48 billion in cash reserves, and the Skype deal would be its largest deal in 36 years.  The operating system giant’s last big-ticket acquisition was its $6 billion purchase of online ad firm aQuantive in 2007.  The Skype deal has been approved by both companies’ boards of directors and is expected to close by the end of the year.

Press release after the break.

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