NEW YORK (CNNMoney) -- Microsoft has agreed to buy Internet phone service provider Skype for $8.5 billion in cash, the companies announced Tuesday.
The deal gives Microsoft (MSFT, Fortune 500) access to the market for real-time video and voice communications. The software maker said it plans to use Skype to support such products as the Xbox gaming system and Windows Phone.
It is the largest acquisition in Microsoft's history.
"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft chief executive Steve Ballmer.
Behind the deal
In 2010, Skype had 170 million connected users who logged over 207 billion minutes of voice and video conversations in 2010. The company reported a $6.9 million net loss in 2010, on nearly $860 million in revenue. It reported $686 million in long-term debt, and slightly more than $1 billion in liabilities.
Skype will become a new business unit within Microsoft, to be run by current Skype CEO Tony Bates, who will report directly to Ballmer.
"Tony Bates has a great track record as a leader and will strengthen the Microsoft management team. I'm looking forward to Skype's talented global workforce bringing its insights, ideas and experience to Microsoft," Ballmer said.
Skype filed for a $100 million IPO last year. But the actual offering was delayed, and rumors surfaced last week that the company was in talks with Microsoft and Facebook.
Google is killing the voice plan
Founded in 2003, Skype was bought by Ebay in 2005 for $2.6 billion. But the partnership did not work out and eBay sold its 65% stake in Skype to an investor group for $1.9 billion in 2009.
The group was led by private equity firm Silver Lake, but eBay retained a small stake in the company. 
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