Microsoft Corp. (Nasdaq: “MSFT”) and Skype Global S.à r.l today announced that they have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype.

The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities. The combination will extend Skype’s world-class brand and the reach of its networked platform, while enhancing Microsoft’s existing portfolio of real-time communications products and services.

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Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.

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Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

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The acquisition is subject to regulatory approvals and other customary closing conditions. The parties hope to obtain all required regulatory clearances during the course of this calendar year.

Om Malik has some perspective on why Skype’s owners were anxious for it to be sold and suggests that if Microsoft does not botch the acquisition, the big winner could be Facebook (who already has a relationship with Microsoft) and that a joint announcement could be expected shortly. Still, the big question is how the acquisition will work out, including how much of the Skype team will stay with Microsoft and the basic economics of the Skype service which has already suffered through a failed acquisition by eBay:

Despite its popularity, the service has struggled to maintain profitability. Since most of its services are free, Skype makes much of its income from a small group of users who pay for long distance calls to telephone numbers. In 2010, Skype recorded $859.8 million in revenue but reported a net loss of $7 million, according to a filing.

Microsoft’s deal-making history is mixed. The company has often been an smart acquirer of start-ups and smaller companies, analysts say, picking off technical teams that are then folded into products likes Windows, Office and Internet Explorer. But during Mr. Ballmer’s tenure as chief executive, beginning in 2000, the company has also made far larger, riskier bids, most of which have been viewed as unsuccessful.

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In 2005, eBay bought Skype for $2.6 billion with hopes of tightly integrating the service as a sales tool. But the deal never lived up to its promise and eBay took a $1.4 billion write-down on its investment.

I’m frankly a bit dubious about the success or at least profitability of this acquisition since Skype doesn’t even seem to be a side dish, but more of a garnish on Microsoft’s plate and a very expensive garnish at that.

Related posts:

1. eBay Buys Skype
2. Skype Joins Wednesday’s IM Party
3. Microsoft in talks to buy eBay?

Bob Muglia, head of servers and tools, is leaving Microsoft this summer.

In a memo to employees, Steve Ballmer says he’s conducting a search internally and externally for a replacement.

He also says, "I have decided that now is the time to put new leadership in place for STB," which makes it seem like he’s tossing Muglia.

Server and tools is Microsoft’s third biggest businesses. It generated $4 billion in revenue last quarter.

Click through for the full text of Ballmer’s memo but here’s the pertinent clip:

The best time to think about change is when you are in a position of strength, and that’s where we are today with STB – leading the server business, successful with our developer tools, and poised to lead the rapidly emerging cloud future. Bob Muglia and I have been talking about the overall business and what is needed to accelerate our growth. In this context, I have decided that now is the time to put new leadership in place for STB. This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles. Bob has been a phenomenal partner throughout this process, and he and his leadership team have the right strategy in place.

In conjunction with this leadership change, Bob has decided to leave Microsoft this summer.

Sounds like he was definitely pushed. I have often said that Server and Tools gets no respect at Microsoft while it has built success after success in a much more competitive environment than that facing the other Microsoft cash cows of Windows (client) and Office and this is apparently just more of the same. One surely has to wonder what Ballmer is thinking since there are numerous other areas in Microsoft that could really use a shakeup. Anyhow, Muglia gets to run the operation until a new leader is found and then bring him/her onboard before departing.

Related posts:

1. Bob Muglia promoted to president of Microsoft’s Server and Tools Business
2. Microsoft merges Server and Tools into Office
3. Microsoft combines Windows Server and Azure organizations

To drive the point home:

Microsoft demonstrated the next version of Windows running on new SoC platforms from Intel running on x86 architecture and from NVIDIA, Qualcomm and Texas Instruments on ARM architecture. The technology demonstration included Windows client support across a range of scenarios, such as hardware-accelerated graphics and media playback, hardware-accelerated Web browsing with the latest Microsoft Internet Explorer, USB device support, printing and other features customers have come to expect from their computing experience. Microsoft Office running natively on ARM was also shown as a demonstration of the potential of Windows platform capabilities on ARM architecture.

“Windows will continue its industry-leading support across the widest possible set of devices, delivering the breadth and choice that customers demand. Intel and AMD continue to evolve and improve the x86 platforms, including new low-power systems, and advance new designs such as the recently announced 2nd Generation Intel^® Core™ processor family and AMD’s Fusion accelerated processing units (APUs). NVIDIA, Qualcomm and Texas Instruments are joining Microsoft to provide ARM-based designs for the first time.

To those with long memories, Windows NT supported other processor architectures besides Intel, but that support disappeared over time due to lack of market interest. Now the situation is reversed with the mobile market compelling “light” architectures and operating systems that have the traditional Wintel players scrambling. Windows 8 is unlikely to arrive before 2012, but the real question though is whether a full-fledged Windows OS is really the right fit for the mobile market and when touch enabled apps will arrive to run on it.

Related posts:

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With our progress in services and the cloud now full speed ahead in all aspects of our business, Ray and I are announcing today Ray’s intention to step down from his role as chief software architect. He will remain with the company as he transitions the teams and ongoing strategic projects within his organization – bringing the great innovations and great innovators he’s assembled into the groups driving our business.

Woody Leonhard at Infoworld says "Ray Ozzie’s leaving Microsoft: What took him so long?" and Joe Wilcox opines that the problem was that Ozzie really wasn’t one of Steve Ballmer’s boys. Take the money and run, Ray – there are lots of places where you can do interesting technical work.

Related posts:

1. Microsoft snags IBM’S Chief Software Architect
2. Ray Ozzie speaks
3. Ray Ozzie does Wall Street

In a statement this morning, the company said it is naming Kurt DelBene to head the Microsoft Office Division, Don Mattrick to head the Interactive Entertainment Business, and Andy Lees to head the Mobile Communications Business, effectively leaving things as they have been following the departure of Stephen Elop (who was named Nokia CEO last month) and the announced retirement of Robbie Bach.

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DelBene’s group, which is focused on the Office set of products, is somewhat narrower in focus than the one vacated by Elop, which also included the Microsoft Dynamics line of customer relationship management and enterprise resource planning products for midsize businesses. The Dynamics business will continue to be headed by Kirill Tatarinov, who will report to Ballmer.

The moves essentially leave all of Microsoft’s businesses in largely the same hands they have been in. Lees and Mattrick have been running their units since Bach announced plans to retire in May. Following Elop’s departure, DelBene has been jointly running Office with fellow executives Chris Capossela and unit CFO Amy Hood. Capossela, the longtime head of Office marketing, and Hood will remain in their roles, reporting to DelBene.

And even more evidence that there is less here than meets the eye: the five business unit financial reporting structure will stay the same.

Related posts:

1. Robbie Bach and J Allard out as Ballmer takes over Microsoft’s Entertainment Division
2. Nokia grabs Microsoft’s Stephen Elop as President and CEO
3. Microsoft reorganizes Entertainment and Devices Division

Upgrading a Windows Live Spaces blog to WordPress.com

There are 30 million people who are actively using Windows Live Spaces and have been eagerly awaiting the next set of new blogging features. For these customers, Windows Live and WordPress.com have worked together to build a simple way to move your blog posts, comments, and integrated photos right over to WordPress.com and start taking advantage of all their new features. And we’ll also redirect all your old Spaces URLs to your new blog, so you don’t lose any visitors along the way.

Windows Live Spaces users have 6 months to make the switch. Users of Microsoft’s very capable Windows Live Writer blogging client (which supports many blog types besides Live Spaces including WordPress) don’t have to worry (yet) because Microsoft says there is no plan to phase it out and it will remain part of the Windows Live family, but one can’t help but wonder which other of the multitudinous remaining family members will be shown the door.

Related posts:

1. Blogging dustup over Windows Live Spaces
2. Windows Live Spaces launch has some rough going
3. Windows Live Spaces goes gold

While this is certainly hard cheese for the PC makers, there is someone else who is taking it on the chin: Microsoft. Almost all of those laptops PCs that didn’t move were running the Windows operating system and many would pick up some version of Microsoft Office as well. Those sales have now vanished and when the Microsoft Windows and Office cash cows stumble, so does Microsoft. Stand by for some interesting earnings reports from Redmond.

Update: There’s a lot of skepticism about Best Buy CEO Brian Dunn’s statement and he’s now backpedaling rapidly without denying he said it. I tend to think it was simply a misstatement since the implied hit on notebooks sales is so much larger than the Morgan Stanley report would require. Speaking of which, a comment from the author of the Morgan Stanley article says that the sales figures showing the decline include netbooks. That is better news for traditional PC makers, but since most netbooks these days run Windows, it is cold comfort for Microsoft.

Related posts:

1. Is the iPad a PC or not?
2. I confess, I bought an iPad too
3. Videogame sales down in May

As for Microsoft, no replacement has been named and now Steve Ballmer has two major Microsoft businesses reporting directly to him, the Business Division and the Entertainment & Devices Division.

Related posts:

1. Microsoft’s Raikes retires, replaced by former Macromedia CEO Stephen Elop
2. Microsoft Business and Entertainment Divisions fracture with 3 new presidents
3. Windows Live Search to be available for Nokia phones

Despite positive feedback from customers like you over the course of Vine’s private beta, Microsoft has made the decision to discontinue Microsoft Vine effective October 11, 2010. After this date, you will no longer be able to access Microsoft Vine. We suggest that you record any contact information currently stored in Vine, prior to October 11th.

I frankly found the concept more than a trifle dubious at the time it was announced, but chalked it up as some sort of public service and public relations effort. That has now been ended.

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1. Microsoft Vine: A subscription meta social network for emergencies, mostly
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Today is the day that the Windows Phone team has been driving towards, and we’re very excited to say that we’ve reached the biggest milestone for our internal team – the release to manufacturing (RTM) of Windows Phone 7!  While the final integration of Windows Phone 7 with our partners’ hardware, software, and networks is underway, the work of our internal engineering team is largely complete.

Windows Phone 7 is the most thoroughly tested mobile platform Microsoft has ever released.  We had nearly ten thousand devices running automated tests daily, over a half million hours of active self-hosting use, over three and a half million hours of stress test passes, and eight and a half million hours of fully automated test passes.  We’ve had thousands of independent software vendors and early adopters testing our software and giving us great feedback. We are ready.

Now the question is when partnering cell phone hardware vendors and service providers will be ready to launch some Windows Phone 7 phones. The consensus is before the end of the year and perhaps as soon as October. Early reviews range from the dismal to mildly favorable although the missing features enumerated in the latter are a trifle disconcerting.

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1. Windows 7 and Windows Server 2008 R2 released to manufacturing
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