Facebook CEO Mark Zuckerberg speaks during a news conference at Facebook's headquarters in Palo Alto, California, July 6, 2011.
Credit: Reuters/Norbert von der Groeben By Alexei OreskovicPALO ALTO, California | Wed Jul 6, 2011 4:20pm EDT
PALO ALTO, California (Reuters) - Facebook will integrate free Skype video chat into its service as it looks to cement its role as a communications hub and drive back Google Inc's foray into online social networking.
The agreement -- announced by Facebook Chief Executive Mark Zuckerberg at the company's headquarters in Palo Alto, California, 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.
"This is opening up a whole new user base for Skype," said Kim Caughey Forrest, senior analyst at Fort Pitt Capital Group. "The core of Skype users are people that have extraordinary circumstances -- they have a computer but no money, or they have friends and family on a different continent. This could ultimately grow the number of Skype numbers that use it within the United States."
The 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," Bates said 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."
HITTING BACK AT GOOGLE
Facebook -- which also unveiled a group messaging function, adding to its existing one-to-one text chat -- is returning fire at 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.
"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.
Facebook's new offering could benefit Microsoft, which owns 1.6 percent 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 Skype's 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 1.15 percent to close at $26.33 on Nasdaq, while Google's rose 0.55 percent to $535.36.
(Reporting by Alexei Oreskovic, writing by Bill Rigby, editing by Gerald E. McCormick, Gary Hill)
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