Wall St warms to Skype buy

Wall Street is warming up to Microsoft's $US8.5 billion purchase of online chat service Skype. Afterwards initial shock at the price - more than double its expected public valuation - investors think Microsoft made a smart move buying advanced communications innovation it can put into its products along with a ready base of users.

Most expect Skype video chat and messaging will start to appear shortly on Xbox game consoles, Windows phones and Windows Live messenger, and later as an expansion to its Lync messaging and video chat service for businesses.

Skype, which popularized the VoIP - voice over Internet protocol - method of using a computer as a phone, is the clear leader in the market, with 145 million users who sign in for the time being once a month.

Its online chat service is free, however it has 8.8 million clients paying for premium services just as placing calls to mobile phones or landlines from a PC and video-conferencing, which it is pitching strongly to businesses.

"They are turning the Xbox form purely a gaming device to being a communications or entertainment console," said Mark Moerdler, senior innovation analyst at Sanford C. Bernstein. "You can sit at your Xbox and be able to talk to other people through the camera in Kinect."

Microsoft will at the time look to introduce Skype as an app on its Windows Phones and make it complementary to its PC software, analysts said, helping it battle rival services Google Talk and Apple Inc's FaceTime.

Way of bringing new innovation

Microsoft regularly buys small companies as a way of bringing new innovation and talent into the company. However it rarely makes big purchases.

Aside from its failed 2008 bid for Internet giant Yahoo Inc, the company tends not to venture into multibillion dollar deals.

The big acquisitions it has done

Of the big acquisitions it has done, the record is patchy in the best case. A decade ago it spent nearly $US2.5 billion buying business software firms Great Plains and Navision, which now form a central part of its offerings for corporations.

On the consumer side of the business, its record is as well unconvincing. Microsoft made a great deal buying video game maker Bungie on the cheap in 2000 and used its wildly popular Halo combat game to establish the Xbox as a power in the console market. In spite of that success, Bungie split from Microsoft in 2007.

The unpopular Kin phone

Its purchase of innovative phone-maker Danger in 2008 ended disastrously in 2011 with the unpopular Kin phone, now axed.

A recurring theme is Microsoft's difficulty in getting people who work for young, fast-moving innovation companies to adapt to being part of a 90,000-strong company whose revolutionary days are far behind it.

Although headquartered in Luxembourg, Skype's development hub - employing more than a third of its 900 or so employees - is in Tallinn, Estonia, where the research behind the company originated. It as well has a large sales and marketing office in the United Kingdom.

Although its employees will not be physically close, Skype will be part of Microsoft's entertainment and devices unit, which includes the Xbox and Windows phone teams.

The remainder of this fiscal year

Analysts expected Skype to add $US250 million to $US400 million to that unit's sales for the remainder of this fiscal year, pushing the total to about $US10.6 billion, about half what is expected for the Windows and Office units.