Microsoft has announced it has bought internet telephone company Skype for £5.2bn.
The deal, one of the biggest in Microsoft's history, gives it a foothold in the internet market, where it has lagged behind rivals Google and Apple.
"Skype is a phenomenal service that is loved by millions of people around the world," Microsoft chief executive Steve Ballmer said in a statement.
"Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.
Microsoft said Skype will become a new business division within Microsoft with Skype CEO Tony Bates assuming the title of president of the Microsoft Skype Division, reporting directly to Ballmer.
Microsoft has struggled to hold an internet presence in recent years.
It invested heavily in marketing and improving the technology of its Bing search engine.
While it has made some market share gains over the past year, Google has dominated the market with a 65% share of the search engine market.
Microsoft paid for online advertising company aQuantive in 2007.
One of the world's most popular online programmes, Luxembourg-based Skype has 663 million global users. In August last year it announced plans for a share flotation, but this was subsequently put on hold.
Internet auction house eBay bought Skype for $2.6bn in 2006, before selling 70% of it in 2009 for $2bn.
Skype is now majority-owned by a group of investors, led by private equity firms Silver Lake and Andreessen Horowitz.
Skype uses a technology called voice over internet protocol, which treats calls as data like email messages and routes them over the internet, rather than a traditional phone network.
Skype's software, which can be downloaded free, allows users to call other Skype users on computers or certain mobile phones for free.
Skype users can also call land lines for a fee and conduct video calls.
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