Microsoft has made a major play in video and voice calling by acquiring Skype for $8.5 billion in cash from its current owner, an investor group led by Silver Lake.

The news was first reported by The Wall St. Journal yesterday and has now been confirmed by Microsoft. By bringing aboard Skype, Microsoft is getting an established player in an increasingly competitive market. Skype has 170 million connected users and logged over 207 billion minutes of voice and video conversations in 2010.

Skype, based out of Luxembourg, has software for the PC, tablet and smartphone and can be integrated across all of Microsoft's platforms. Microsoft expects this to include Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities.

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

As part of the deal, Skype will become a new business division within Microsoft. Skype's chief executive officer Tony Bates will assume the title of president of the Microsoft Skype Division and report directly to Ballmer.

Microsoft and Skype share the vision of bringing software innovation and products to our customers, said Bates. Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate.

Skype was founded in 2003 and has since grown to become one of the largest providers of video and voice calling. Through its servers, it is able to connect people throughout the world without cost or for limited subscription rates. Last year alone, 13 percent of the calls made internationally were done through Skype. It was acquired by eBay in September 2005, and then sold to an investment group led by Silver Lake in November 2009 for a third of the $8.5 billion Microsoft has paid.

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