• by Thom Forbes  @tforbes, May 10, 2011

Reuters says the deal is just about done and will be announced as early as this morning: Microsoft is buying the Internet telephone service Skype for nearly $8.5 billion, most of it in bills so large they haven't been invented yet. It will also assume Skype's debt. Representatives for Microsoft and Luxembourg-based Skype have declined to comment.

Skype was founded by two software developers in 2003 and was acquired by eBay in 2005 for $2.6 billion in cash and stock. EBay sold about 70% of the company to private investors in 2009.

"If you consider [it] was just valued at about $2.5 billion 18 months ago when a chunk was sold off, then $8.5 billion seems generous and means Microsoft has a high wall to climb to prove to investors that Skype is a necessary linchpin for the company's online and mobile strategy," Shanghai-based Michael Clendenin, managing director of consulting firm RedTech Advisors, tells Nadia Damouni and colleagues.

Om Malik's Gigaom blog apparently had the scoop on Microsoft's late entrance into the game. Malik perversely points out, though, that it was essentially bidding against itself despite the fact that Facebook and Google were there before it.

Google doesn't really need the technology (it has its own Google Voice) and Facebook doesn't have that kind of cash lying around. In fact, he says, Facebook may be the biggest winner this morning in that it "gets access to Skype assets (Microsoft is an investor in Facebook) and it gets to keep Skype away from Google."

As far as Microsoft goes, Malik says the biggest reason for the acquisition 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." But it also helps Microsoft in the enterprise collaboration market, gives it "a working relationship with carriers as they start to transition to LTE-based networks," and provides it with a "must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system."

Microsoft CEO Steve Ballmer sees the "Internet as an essential battleground," write the Wall Street Journal's Anupreeta Das and Nick Wingfield. It still makes most of its profits from Windows and Office software systems, and investors "have become increasingly concerned about Microsoft's ability to squeeze continued growth out of those businesses, as rival technologies from Apple, Google and others put more pressure on profits."

The deal could also help Microsoft's Bing search engine, according to the New York Times' Andrew Ross Sorkin and Steve Lohr. "Skype has some 663 million registered users," they report. "Although most of its services are free, Skype makes the bulk of its profits from a small fraction of its users who pay for long distance calls to telephone numbers. Despite its popularity, the service has struggled to maintain profitability; in 2010, Skype made $859.8 million in revenue but recorded a net loss of $7 million," according to a recent filing.

The subhed on Kari Lipshultz' brief in Adweek reads "Industry shocked by massive price tag," as if the deal were a fait accompli and as if the industry hasn't been shocked by what observers have been calling Internet Bubble 2.0 for years.

The Wall Street Journal has a profile today on someone who is considered by competitors in the funding game to be a big-time enabler of the bubble, tech wizard Marc Andreessen. The co-founder of Netscape is now 39 and head of the venture capital firm Andreessen Horowitz.

Last August, he and his partners -- Ben Horowitz and John O'Farrell -- constructed a "harpoon" list of whale-like companies to target, Pui-Wing Tam, Geoffrey A. Fowler and Amir Efrati report. They have subsequently taken costly stakes in such behemoths as Facebook, Twitter, Groupon, social-game developer Zynga and -- you guessed it -- Skype.

Its aggressive offers are further driving up an overheated market, spiteful critics charge. "Hate away," responds Andreessen. "When push comes to shove, would you rather be in [with] the winners?"

Ah, yes. Today's winners, of course, have a nasty habit of becoming tomorrow's also-rans rather quickly. Just give me a minute here to fire up my Netscape Navigator and do a search on my Alta Vista search engine to give you a few examples. Oh, look, there's RealPlayer, and the Osborne portable PC and ...