Microsoft buys Skype for $8.5bn

Microsoft has confirmed that it will buy internet telephony service Skype for $8.5bn (£5bn).

The acquisition will see Skype established as a separate business division inside Microsoft, called Microsoft Skype, alongside XBox Live, Kinect and Windows Phone.

The deal, which had been widely rumoured since late on Monday, has been approved by both boards and will benefit consumers and enterprises, according to Microsoft.

"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft chief executive Steve Ballmer.

"Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

Tony Bates, the Skype chief executive, will become president of Microsoft Skype and report directly to the technology giant's chief executive, Steve Ballmer.

Microsoft's instant messaging and voice communications product Lync could eventually be phased out or rebranded as a result of the deal.

Skype was purchased by eBay in 2005 in a deal that valued the company then at $2.6bn (£1.6bn). However, the auction site sold the majority of its stake in 2009.

Some commentators have argued that Microsoft could see Skype as a way of gaining traction in the mobile phone market, with its Windows Phone 7 offering still struggling for market share.

Watch Computing news for a more in-depth analysis of the deal tomorrow.