Microsoft's acquisition of Skype, its biggest ever, is an $8.5bn (£5bn) gamble to try to catch up with Apple and Google.
The software company, once so dominant, has been left behind by its more fleet-footed competitors as the pace of technological change – especially in mobile telecoms – has outstripped its ability to innovate.
Analysts saw the deal, which edges out the $6bn it paid for online advertising company aQuantive in 2007, as a sign of Microsoft's ambition to become a bigger force in the consumer and smartphone market. They also interpreted it as a sign that Microsoft intends to broaden its appeal to businesses by using Skype to offer cheaper services than existing phone companies.
Skype, which has 663m people across the world registered to use its Voice-over-Internet-Protocol (VoIP) communications, is available on personal computers and mobile phones – though not yet on Microsoft's new Windows Phone operating system. That is expected to be remedied soon.
The deal will see it established as a separate business inside Microsoft, dubbed Microsoft Skype. Tony Bates, the Skype chief executive, will become president of Microsoft Skype and report directly to Microsoft's chief executive, Steve Ballmer.