Facebook launches video chat with Skype

Facebook CEO Mark Zuckerberg speaks during a news conference at Facebook's headquarters in Palo Alto, California, July 6, 2011.

PALO ALTO, California (Reuters) - 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 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 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 percent to $536.64.

(Reporting by Alexei Oreskovic, writing by Bill Rigby, editing by Gerald E. McCormick and Lisa Shumaker)