Palo Alto: Facebook will add Skype video chat to its pages, aiming to spice up the appeal of the world's No. 1 Internet social networking service while fending off increased competition from Google.
The agreement, announced by Facebook Chief Executive Mark Zuckerberg at the company's Palo Alto, California, headquarters on Wednesday, deepens the company's cooperation with Microsoft Corp, which is in the process of buying Skype to build up its web presence.
Zuckerberg said Facebook has hit a record 750 million users. The new service, rolling out from Wednesday, could be a huge boost for Skype, which currently has about 145 million regular users.
The partnership comes as competition heats up in the Internet market, with Facebook and Google, as well as fast-growing companies such as Groupon and Twitter, vying for billions of dollars in online advertising revenue.
By incorporating free video chat directly into its service, Facebook will give its members another reason to use the site more often and for longer periods of time, said Gartner analyst Ray Valdes.
"They need to continue to keep their users engaged and coming back everyday," he said of Facebook.
Facebook's Skype service, initially limited to one-to-one video chat, will be free. Financial details of the deal, if any, were not disclosed.
Tony Bates, Skype's chief executive, said Wednesday's deal with Facebook is only the start of a potentially lucrative partnership.
"For us, this makes a lot of business sense," said Bates at the Palo Alto event. "We get huge reach. In the future we're talking about potentially also having Skype paid products available within the web format we saw here today."
In a phone interview later on Wednesday, Neil Stevens, the general manager of Skype's consumer business, said the company was planning on introducing a for-pay service that would allow users on Facebook to place calls to landline and mobile phones.
Stevens said he could not provide a timeframe for when such a service might be available, and said details about whether the service would work with Facebook's so-called Credits currency had yet to be worked out
.HITTING BACK AT GOOGLE
Facebook, which also unveiled a group messaging function, adding to its existing one-to-one text chat, is returning fire from Google, which last week turned up the competitive heat by introducing a social networking service dubbed Google+.
While many of Google+'s social networking features are similar to those already available on Facebook, Google is generating interest with its videoconferencing function, which allows up to 10 people on the service to participate in a video call.
Zuckerberg hinted that video chat for multiple people could eventually be available on Facebook. But he said that most video chats today occur between two people.
"We think this is awesome because we're using the best technology that's out there for doing video chat with the best social infrastructure that's out there to create some really cool new scenarios," said Zuckerberg.
Zuckerberg said Wednesday's announcements were the first of several to come in what he described as "launching season 2011."
Facebook's new video offering could benefit Microsoft, which owns 1.6 per cent of Facebook and announced its $8.5 billion purchase of Skype in May.
The world's largest software company is investing heavily to muscle in on Google's turf with its Bing search engine, and is hoping Skype - which it is buying for about 10 times its annual sales - will help it broaden its portfolio of Web-based properties.
"Clearly you will see more usage (of Skype)," said Sid Parakh, analyst, at McAdams Wright Ragen. "It makes Skype stickier in the consumer mind. That will help Microsoft as it starts to integrate Skype into its products."
Skype, which was founded in 2003, allows people to make Internet phone calls and video calls at no charge and has also developed premium services.
Microsoft shares rose 0.9 percent to $26.26 on Nasdaq, while Google's rose 0.87 per cent to $536.64.
Skype, a better match for Facebook than Google?
New York: As two Internet powerhouses slug it out to tie the knot with Skype, Facebook looks likely to be a more aggressive suitor than Google, and the world's largest social network may make for a better fit.
Reuters reported Wednesday that Facebook and Google are separately weighing partnerships with Skype, the popular web video telephony service used by millions around the globe for communication.
Talks with Facebook and Google are still preliminary, but any deal could involve an outright takeout or a joint venture partnership, two sources told Reuters.
A deal involving Skype, which is readying for an IPO, could be valued at $3 billion to $4 billion, the first source said. Skype's public offering is expected to raise about $1 billion, several other sources said.
Analysts and technology observers are betting on Facebook, in the belief the two make better companions and that Skype completes Facebook by providing assets it does not have.
"It's not surprising to me that both these companies are interested," said Eric Jackson, founder and manager of the investment firm Ironfire Capital. "It's a much more valuable asset to Facebook than to Google."
Google already has voice chat and video capabilities, though Skype is a more robust product, said Rory Maher, an analyst with Hudson Square Research.
It could incorporate Skype into Google Voice, and even get some social-media credibility after it failed in an attempt to do so with Buzz.
"There are benefits that Google has from combining Skype, but I think it's less clean than it is for Facebook," says Maher.
Conversely, Facebook has that much more incentive to snap up Skype because it would encourage people to spend more time on the site than they already do - virtually the social network's raison d'etre.
"Communication is core to what Facebook users do," said Mo Koyfman, a principal at the venture capital firm Spark Capital. "Owning that platform would be very interesting."
Google, Facebook and Skype declined to comment.
THE ART OF SKYPE
Skype is still on track for an IPO later in 2011, raising as much as $1 billion by some estimates. That it has become the belle of the ball, attracting the interest of the Internet's two most dominant powers, bodes well for its debut.
Last year, Skype boasted about 124 million connected users every month by the end of June. But just 8.1 million were paying customers, using Skype to make calls to traditional phones at discounted rates.
The company was founded in 2003 and bought by eBay two years later for $3.1 billion. Ebay then sold a majority stake in Skype to an investor group in 2009, while keeping about a third of the company.
Now, both Skype and Facebook could tap new users worldwide while Facebook stands to gain a new revenue stream, Koyfman said.
Facebook had net income of $355 million in the first nine months of 2010 on revenue of $1.2 billion. It is one of a handful of Internet companies including Twitter, Groupon and Zynga that have stoked interest from investors eager to jump on the social media bandwagon.
And it has also put the big Internet guns - including Google - on alert.
Indeed, some speculate that Google could be bidding for Skype just to keep it out of the hands of other companies.
Russian spy agency complains about Gmail, Skype
Moscow: Russia's domestic security service called for access to encrypted communication providers like Skype, Gmail and Hotmail on Friday, saying the uncontrolled use of such services could threaten national security.
"The uncontrolled use of these services could lead to a large-scale threat to Russian security," Alexander Andreyechkin, the head of the Federal Security Service's (FSB) special communications centre, was quoted by Interfax news agency as telling a Russian government commission.
Communications Minister Igor Shchyogolev said there were no plans to ban Skype, Gmail or Hotmail, a view echoed by a Kremlin source who told Reuters the FSB proposal was so radical that it did not even merit comment.
But such a strong statement from an official at the FSB, the main successor to the Soviet-era KGB secret police, is likely to raise concerns that some Russian officials would like to limit internet communications ahead of the 2012 presidential election.
Prominent hosting website LiveJournal fell victim to a cyber attack on Wednesday which crippled the blogs of both prominent opposition politicians and Russian President Dmitry Medvedev, who called the attack "revolting and illegal".