Microsoft and Skype have confirmed days of industry speculation after announcing that Redmond is to buy private-equity backed VoIP specialist Skype for $8.5bn (£5.2bn).
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The agreement, which has already been approved by both boards of directors, will see Skype become a new business division within Microsoft and CEO Tony Bates assuming the title of president of Microsoft Skype.
Skype currently has over 150 million connected users and is thought to account for 25% of international phone minutes. It made sales of $860m last year and posted a small net loss of $7m.
Although created and marketed primarily as a consumer-oriented service it has been gaining traction in the business world and Microsoft plans to connect Skype users to both Lync and Outlook, as well as the Xbox Live community.
Redmond has also pledged to continue to invest in and support Skype clients on non-Microsoft platforms.
Microsoft CEO Steve Ballmer was customarily gushing in his praise.
"Skype is a phenomenal service that is loved by millions. Togther 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," he said.
It was previously thought that Skype was trying to boost its business credentials by filing for an IPO, having bought itself back from former owners eBay in 2009. At one stage it appeared as if it might even be bought by networking kingpin Cisco.
The emergence of Microsoft, however, changes the game for other providers. Analysts say Skype's acquisition would give Microsoft a recognised brand name in the online world as the company seeks to shift away from its core Windows business, according to our sister publication ComputerWeekly.com.
They say Skype will give Microsoft a boost in the enterprise collaboration market through Skype's voice, video and sharing capabilities.
Others are speculating that Microsoft is planning to integrate Skype with Windows Phone 7 to compete with Google's internet telephony service, Google Voice.