As Skype Technologies SA faces growing challenges and growth, its future was cast into doubt yesterday after reports surfaced that online auctioneer eBay Inc is looking to buy the peer-to-peer VoIP pioneer for as much as $3bn.
Neither company would comment on the reports, which were sparked by a Wall Street Journal article that cited unnamed sources claiming the pair were in discussions over a $2bn to $3bn price tag for Skype. Other reports said $5m.
Seems Skype is shopping itself around; previous reports said the company also was holding acquisition talks with Microsoft Corp and Yahoo Inc. Yet, just a week ago, Skype categorically told reporters that it wasn’t for sale.
Yesterday, Skype also launched its Skype Voice Services Program, which boasts features that may make it even more attractive to eBay and others. The program opens Skype’s VoIP architecture to enable content providers to develop voice applications for Skype users, such as live traffic reports, horoscopes and delivery tracking systems that callers may be charged a fee for.
VoIP industry watchers agree Skype has some work to do on a sustainable business strategy, but are collectively scratching their heads over the potential eBay-Skype partnership.
Of course, even $2bn is a very attractive exist strategy for Skype founders, said Kate Griffin, senior VoIP analyst at the Yankee Group.
But, privately held Skype, which raised $18.8m in second-round funding last August, is hardly cash starved, said Andrew Davis, analyst at Wainhouse Research.
[Skype and eBay] are in totally different businesses and I don’t see any synergy from an operating level, Davis said. The real question is whether a capital infusion in Skype will take Skype to the next level.
While Skype would give eBay click-to-talk voice capability for its online sellers and buyers, there seems little advantages of the deal to Skype.
eBay, which the market currently values at about $55bn, could readily relieve Skype’s trouble-shooting and customer-support problems, Griffin said. It certainly could be benefited by an established company that has those processes and available resources, such as trained staff, she said. At the end of May, Skype had just 130 employees, Griffin said.
But Skype is under no pressure to sell, said Jon Arnold, principal of analyst firm J Arnold & Associates. And eBay doesn’t need Skype to be successful, he said.
However, Skype must begin to develop a sustainable business model, Arnold said. While the company has about 2 million users for its paid PC-to-phone SkypeOut and phone-to-PC SkypeIn services (in addition to about 53 million users of its free PC-to-PC voice service), this doesn’t add up to much revenue.
Arnold reckons the average revenue per user is about $3 per month, which gives a $72m ballpark annual revenue figure for Skype. So it’s not big bucks, he said.
To build long-term revenues, Skype could partner with a company that has access to traditional PSTN phone lines and build a VoIP service similar to Vonage’s, which seeks to replace existing telephony.
A more likely scenario, however, would be for Skype to emulate Google Inc’s directory-based business model: A free online service with advertising, according to Arnold.
A potential technical hurdle facing Skype is its proprietary-based software architecture. Increasingly, the open SIP standard is becoming the dominant standard for multimedia and there is a small risk that Skype would become marginalized, Arnold said.
However, rather than be acquired, Arnold said he believes Skype would instead opt to re-architect its platform to become SIP-based.
For sure, Skype needs to continue to evolve because tech heavyweights AOL, Microsoft, Yahoo and Google now all have VoIP strategies of their own.
The Skype team’s thinking is they don’t need help, Arnold said. They’ve got the best product and the market will come to them.
But Skype needs to move fast, because with their much-deeper pockets, The Google’s of the world are the guys that are going to make the game, not Skype, Arnold said.
