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Microsoft has finalised the £5.3 billion acquisition of VoIP service Skype.The deal had to pass regulatory approval in several markets, with Europe being the biggest hurdle for Microsoft. The EU Commission has previously fined Microsoft for it’s antitrust behavior.

Under the terms of the agreement, Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of that division.

Skype was founded in 2003 by Niklas Zennström and Janus Friis.

It was bought by eBay in 2005, but eBay couldn’t find a way to integrate it into its business and subsequently sold it to an investment group led by Silver Lake in 2009.

The deal with Microsoft is a very profitable exit for that group of investors, which includes Index Ventures, Andreessen Horowitz and the Canada Pension Plan (CPP) Investment Board- as they paid £1.71 billion for Skype.

As for the future of Skype and the challenges Microsoft faces, the first and foremost will be the fact that Skype is not yet profitable. However, Skype’s huge user base (more than 663 million users, 170 million of which use the service monthly) and constant growth make it an appealing purchase for a company that knows what to do with it.

“Together, we will be able to accelerate Skype’s goal to reach 1 billion users daily,” said Bates in a statement.

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Facebook and Skype have announced a partnership to add video chat to the social networking site.

Facebook and Skype have teamed up before – they already share some instant messaging tools.

Skype is in the process of being bought by Microsoft- which is a major shareholder in Facebook.

The new video-call service was launched by Facebook founder Mark Zuckerberg, who also revealed that the site now had more than 750 million users.

However, he contradicted himself by saying that the total number of active users was no longer a useful measure of the site’s success.

Instead, the amount of sharing – of photographs, videos and web links – was a better indication of how people engaged with the site, explained Mr Zuckerberg.

Coming hard on the heels of Google+, Facebook’s Skype offering is likely to be compared to its rival’s Hangout feature. That product allows up to ten people to chat at any one time, while the Facebook/Skype video chat feature facilitates just one-on-one video chatting.

Skype did hint that there will be added features in future, but Google has stolen the lion’s share of the headlines and Facebook will not enjoy being seen as following in its footsteps.

At the launch in California, Mark Zuckerberg was reluctant to get involved in a tit for tat comparison but he did say that he saw such products as part of the narrative that in future companies which have not traditionally looked at social networking will be layering it on top of all their products.

Mr Zuckerberg said that it was likely that other “premium” Skype functions would be added in future.

He also appeared to offer a back-handed compliment to Google+, saying that its creation was a vindication of Facebook’s vision for the social web.

The free internet phone company Skype is being bought by Microsoft for £5.2 billion as the software comapnyincreases its battle with Google and Facebook in the rapidly evolving world of online communication.

The deal is the largest in Microsoft’s 36 year history and also represents a remarkable return for the group of investors who acquired Skype from eBay in 2009 in a deal that then valued the company at £1.83 billion.

The price for Skype, which lost £4.37 million last year and had revenues of £535 million, has raised eyebrows in Silicon Valley but also underlines the pressure Steve Ballmer, Microsoft’s chief executive, is under to secure a bigger share of online and mobile advertising revenues.

Mr Ballmer, who took over from Microsoft co-founder Bill Gates, is grappling with a market in which more advertising revenues are moving online but, critically for Microsoft, more basic computing services are too.

Microsoft said that Skype, which 170m people used last year to hold video conversations online, will be integrated into a variety of its products including XBox, its video game console, and Outlook, its email product.

Analysts said that Microsoft is also likely to integrate Skype into part of its next Windows 8 operating system, which is planned for release next year.

Mr Ballmer said he made the offer to Skype last month because the company “was on a path to [flotation] and I thought we’d be better off if we owned it… The number of Skype users is rapidly accelerating, which was really exciting to me.”

Microsoft is not the first corporate behemoth to try to ride the popularity of Skype, which, apart from 8m customers who pay to make cheap non-video calls, is a free service.

In 2006 eBay stumped up a then incredible £1.7 billion in the hope that its users would use the video service to help negotiate deals.

Three years later the auction site cut its losses, selling Skype to a group of investors including Silver Lake Partners, a private equity firm- who are the current beneficiaries. Although eBay kept a 30% shareholding.

Tony Bates, the British chief executive of Skype who was hired from Cisco only last October, said that the company will focus on generating revenue from video advertising as well as exploiting the growing use of video on mobile.

India may shut down Google and Skype messaging services over security concerns as the government threatened a similar crackdown on BlackBerry services.
The Financial Times quoted from the minutes of a July 12 meeting between telecommunication ministry security officials and operator associations to look at possible solutions to “intercept and monitor” encrypted communications.

“There was consensus that there more than one type of service for which solutions are to be explored. Some of them are BlackBerry, Skype, Google etc,” according to the department’s minutes. “It was decided first to undertake the issue of BlackBerry and then the other services.”

On Thursday, the Indian government became the latest of several nations that have threatened to cut off Research In Motion’s encrypted BlackBerry email and instant messaging services if the Canadian company does not address national security concerns.

India has set an August 31 deadline for RIM. It wants access in a readable format to encrypted BlackBerry communication, on grounds it could be used by militants. Pakistani-based militants used mobile and satellite phones in the 2008 Mumbai attacks that killed 166 people.

India’s demands follow a deal with Saudi Arabia, where a source said Research In Motion agreed to give authorities codes for BlackBerry Messenger users. The United Arab Emirates, Lebanon and Algeria also seek access.

Officials say RIM had proposed tracking emails without sharing encryption details, but that was not enough.

The Financial Times report said representatives from two of the telecom operator associations present confirmed the details of the meeting earlier this month.

“At the last security meeting, the agencies were talking about BlackBerry. They were also coming out heavily on Skype and Google,” said Rajesh Chharia, president of the Internet Service Providers Association of India.

A shutdown would affect one million users in India out of the smartphone’s 41 million users. India is one of RIM’s fastest growing markets.

RIM, unlike rivals Nokia and Apple, operates its own network through secure servers located in Canada and other countries, such as Britain.

In a matter of a few weeks, the BlackBerry device – long the darling of the world’s CEOs and politicians, including US President Barack Obama – has become a target for its sealed email and messaging services with governments around the world.

Internet phone firm Skype has filed for an Initial Public Offering (IPO) in the US as the Luxembourg based company hopes to raise up to $100m (£63m) in a stock market flotation.
Skype will sell American Depositary Shares (ADS) – which represent shares in foreign companies – and expects to trade on the Nasdaq index.

Skype’s software lets computer and mobile phone users talk to each other for free and make cut price calls to mobiles and landlines.

The company did not specify when its shares would go on sale, or at what price- or what the total comapny valuation might be.

According to the regulatory filing, in the first half of 2010 Skype had 560 million registered users, who logged 95 billion minutes of voice and video calls.

Online auction site eBay bought Skype for $2.6bn in 2005, but sold 70% of the company for $2bn last year.

A group of private investors made up of private equity firm Silver Lake, the Canada Pension Plan Investment Board and Andreessen Horowitz bought a 56% stake.

Joltid, a firm controlled by Skype founders Niklas Zennstrom and Janus Friis, owns a 14% stake.

In its filing, Skype said it made a net profit of $13.1m in the first six months of the year, but warned that it “may not maintain profitability”.

The company reported a loss of $417.5m in 2009, thanks largely to legal costs in settling a dispute about the ownership of the technology it uses.

“We may incur net losses again and cannot assure you that we will be profitable in the future or that, if we are, we will be able to maintain profitability,” the filing said.