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Microsoft to buy Skype for $8.5 billion

Skype CEO Tony Bates will report directly to Microsoft boss Steve Ballmer, in a sign of the importance of the deal to the Windows developer.

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A Dec. 23, 2010 photo shows a page from the internet telecom site Skype, to be purchased by Microsoft for $8.5 billion. (Karen Bleier/AFP/Getty Images)

Microsoft is to buy the voice-over-internet company Skype for as much as $8.5 billion, reports confirmed Tuesday.

Microsoft, better known for its Office suite products, has lagged behind in getting its brand name in Internet services, despite heavy investment in its Bing search engine. Google accounts for 65 percent of all searches.

There had been reports last week that Skype was in acquisition or partnership talks with Cisco, Facebook and Google, according to Computer World.

The Luxembourg-based internet phone company, which made a name for itself offering free voice and video calls from PC to PC, began life as a venture capital start-up before eBay acquired it for $2.6 billion in 2005 then sold a majority stake to an investment consortium including its founders and Silver Lake in 2009.

Skype filed for a $100 million IPO last August. The company reported a $6.9 million net loss in 2010, and just over $1 billion in liabilities.

Skype will become a new business unit within Microsoft, run by current Skype CEO Tony Bates, who will report directly to Microsoft boss Steve Ballmer, a sign of the importance of the acquisition to Microsoft, Forbes reports.

Microsoft plans to add Skype support to its Xbox and Kinect gaming devices and Windows Phone mobile operating system, and to connect Skype users with its own Lync, Outlook and Xbox Live communications services, according to Computer World.