Microsoft Corp is acquiring internet phone firm Skype Technologies for around $8.5 billion, including long-term debt, which according to analysts, marks the most aggressive acquisition move by the software giant to gain a hold on the increasingly converged worlds of communication, information and entertainment.

''Microsoft Corp is close to a deal to buy Internet phone company Skype Technologies SA for between $7 billion and $8 billion,'' The Wall Street Journal reported - though some commentators like Om Malik of GigaOm networks asserted the deal had already been sealed for $8.5 billion and a publich announcement was round the corner.

The report said the deal could be announced as early as today. It cited people familiar with the matter.  

Skype, was launched in 2003 by Niklas Zennstrom and Janus Friis. The latter also developed a file-sharing technology called Kazaa came to be associated with music piracy. Zennström and Friis, with their 14-percent stake, are expected to make about $1.19 billion out of the deal.

While Skype initially gained popularity with techies, it gradually gained a foothold into the mainstream with free to cheap phone calls, that appealed mostly to international callers.

Online market place eBay Inc in a 2005 acquisition paid $2.6 billion for the company and in 2009, sold a 70-per cent stake in Skype to an investor group that included Silver Lake and Andreessen Horowitz for nearly $2 billion. while retaining a third of the company. eBay is expected to make about $2.6 billion by divesting its remaining 30-per cent stake, while Silver lAke will make $4.76 billion for its 56-per cent stake.

Skype last year, posted revenues of $860 million and $264 million in operating profits, but still incurred a loss of $7 million. The company had $686 million in long-term debt as of December.

Though Microsoft has made heavy investments in  marketing and improving the technology of its Bing search engine, not withstanding some gains, it is Google Inc which still dominates the search market with more than 65 per cent of US searches originating through its site.

Microsoft has traditionally not favoured big buys. In 2007, the software giant had paid around $6 billion for its acquisition of online advertising firm aQuantive Inc.

However, many current and former Microsoft executives view the deal as rather expensive but at the same time they are relieved that Microsoft did not go for the unsolicited $48 billion offer for Yahoo Inc nearly three years ago. Yahoo valuation stands at half that sum today.

Microsoft chief executive Steve Ballmer, however, sees the internet as the next battleground for the company, which makes the vast bulk of its profits from Windows and Office software systems.

Investors are growing increasingly concerned over Microsoft's ability to continue to make money out of those businesses, as rival technologies from Apple Inc, Google and squeezing profits.

The division that created Microsoft's hugely successful Office suite of applications also makes a product called Lync, which integrates email, instant messaging and voice communications into a single application. Experts say with the Skype acquisition that offering could be strengthened.

According to Malik,  there are four distiinct advantages for Microsoft to acquire Skype:

• Skype gives Microsoft a  boost in the enterprise collaboration market, thanks to Skype's voice, video and sharing capabilities, especially when competing with Cisco and Google.
• It also gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.
• It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
• However, the biggest reason for Microsoft to buy Skype is Windows Phone 7 (Mobile OS) and Nokia. The software giant needs a competitive offering to Google Voice and Apple's emerging communication platform, Facetime.

However, it is Facebook that would emerge the biggest gainer ffrom the deal, writes Mehta. "The Palo Alto-based social networking giant had little or no chance of buying Skype. Had it been public, it would have been a different story. With Microsoft, it gets the best of both worlds - it gets access to Skype assets (Microsoft is an investor in Facebook) and it gets to keep Skype away from Google.

"Facebook needs Skype badly. Among other things, it needs to use Skype's peer-to-peer network to offer video and voice services to the users of Facebook Chat. If the company had to use conventional methods and offer voice and video service to its 600 million plus customers, the cost and overhead of operating the infrastructure would be prohibitive," says Mehta.