Microsoft Corp. has entered into a definitive agreement to acquire Skype for $8.5 billion and further expand real-time video communications.

The deal will enhance Microsoft?s existing portfolio of real-time communications products and services such as Lync, Outlook and Xbox live by the giving the company access to real-time video and voice communications. Microsoft is getting the acquisition with help from investor group Silver Lake.

?By bringing together the best of Microsoft and the best of Skype, we will empower people around the world with new technologies that will bring them closer together,? said Steve Ballmer, CEO of Microsoft, during a conference call.

One of Microsoft?s primary goals will be to make everyday experiences such as business meetings, talking to friends or attending a lecture more connected using Skype?s rich text, audio and video services.

This will include creating new user experiences optimized for television, the Windows phone and Windows PC.

Microsoft, Redmond, WA, will also seek to extend the reach of Skype by connecting it with its own services such as Lync and Xbox Live.

Mr. Ballmer said he views mobile as one of the main areas of opportunity to come out of the deal, including partnering with mobile operators around the Windows phone. Skype has already started to focus on mobile, having introduced two-way video for Android and iPhone.

Video important to deal
Aapo Markkanen, senior analyst at ABI Research, New York, sees several implications for the deal in the mobile space.

?For handset makers, this might well make Windows Phone a more appealing operating system vs. Android, especially if Microsoft will use some type of tiered strategy for Skype?s mobile version,? Mr. Markkanen said.

?Specifically, I could quite easily see it keeping Skype available to all platforms while propping the in-house version with some exclusive features, such as video calling,? he said. 

Video is one of the key factors in the deal, per Mr. Markkanen.

?Skype?s video technology is quite advanced, and by putting it into good use Microsoft could well gain an edge over Apple?s Facetime or Google Voice,? he said.

Video is one of the fastest growing areas of business for Skype, with video accounting for more than 40 percent of all the traffic it delivers.

Skype sees video advertising as an important opportunity in the next few years and estimates 45 percent growth in video ads in the next few years.

The company plans to approach the market around rich media, with ads that consumers can click on and see a piece of animated video.

?Anything that can boost Microsoft?s mobile ecosystem can give it a larger share of the mobile advertising revenues,? Mr. Markkanen said.

?So if it integrates Skype well into its services it may mean more competition to Apple and Google on that front,? he said. 

Both companies will also be looking at how the deal intersects with social.

Skype has 170 million connected users and is adding 600,000 new registrations daily.

In 2010, it had 207 billion minutes of voice and video conversations. Silver Lake acquired Skype from eBay in November 2009.

Microsoft and Skype have worked together in the past and were in conversations earlier this year about possible partnership opportunities, including in advertising, when Microsoft decided to make an unsolicited bid for the company.

On May 9, the two companies signed the deal.

Once the deal is complete, Skype will become a division of Microsoft.

Tony Bates, chief executive officer at Skype, will run the division and report to Mr. Ballmer.

?Based on Skype?s innovation, it became clear to us that we had an opportunity to do even more as a single company that would benefit companies and consumers,? Microsoft's Mr. Ballmer said.