The Financial Times has stirred up the blogs with their story regarding statements by Ebay CEO John Donahoe hinting that Skype may be sold off if they can’t find “synergies”. Gigaom suggests that a divestment is the right thing to do.
You may recall that the original “synergy” argument used to justify the phenomenal valuation was geographical, that Ebay was dominant in the U.S., but not so outside the US, while Skype was strong outside the U.S. but not so much within the U.S. I think Ebay mostly cared about the impact Skype could have on eBay’s market share of its auction business outside the U.S. (but they did give lip service to how eBay would also help Skype become more popular in the U.S.) In 2005, the brass ring was China – but ultimately Skype didn’t help and Ebay had to shut down in China and partner with a competitor. Valleywag said of this “Skype’s failure to strengthen eBay in China, more than anything, is why the company had to take a writeoff.”
I reviewed the progress towards Ebay’s goals for Skype fifteen months ago in the post “Skype luster fading” and concluded then:
At some point, for this deal to pay off, 2+2 has to equal a lot more then 4, and at this point, that’s not happening.
I stand by that statement today. Even with Skype’s healthy growth and real revenue, the “synergies” are not there and I think the CEO’s comments are preping Wall Street for a future sell-off of the Skype division.
The question then becomes, who will be interested, and at what price? Skype is a healthy business. By “normal” valuation, it is a half-billion dollar company, but I’m sure someone will pay a lot more than that for it. Everyone is pointing at Google, but I’m not sure it is a good fit for them – they would have to swallow some Gtalk pride and they may not be willing to do that. A telco could buy it to shut it down. Nokia could buy it – that would be interesting. Stuart suggested Apple, but that isn’t going to happen (too much NIH at Apple). Who do you think should buy Skype and what will the price be?
Nokia like Apple would be interesting. What I think is assumed but not understood is that Skype’s position is a “sure” thing. I don’t think it is. Any valuation assumes that Skype will keep growing. A few years ago I may have said the same thing about Yahoo Messenger or MSN messenger. There’s room for a new approach. Still anything that puts Skype (not some API substitute) on Mobile is interesting. They better not wait much longer.
are we ignoring one more player out there – Amazon? while i must admit, being no expert in valuation or whether eBay paid up right price or over blown price, the first point i\’d like to get straight – what\’s the problem? of course $4bn surely does sound expensive. nevertheless the business integration eBay must have thought about (or what must have been proposed to eBay) at that time must have made a lot of sense then. never saw it happening though. i do remember getting annoyed over the Skype being pushed through Kazaa dowloads and that\’s where they got it all wrong. you don\’t expect an user to pay once they get used to using it free, and at a very good quality. anyway it\’s a lost game now. but if somebody puts his feet down and hell decided to clear the whole mess, i\’d imagine good strategy to move on would be to – take little more pain and really integrate the Skype infrastructure into web-auctions, web-shopping, basically into eBay\’s main LoB.
.1 close down all Free candies – want service then pay for it
.2 use eBay web portal the only way to get into Audio (read Skype) serivice
.3 use Skype for the purpose it was bought for – audio support for web-auction/urchase/etc.
.4 to benefit customers offer coupons, points/credits to be redeemed across eBay transactions
.5 etc. 🙂
a group that includes handset makers and network operaotrs would be interesting. i see a day when mobile phones have two types of calls regular and VOIP(or skype) but i beleive that the operators will try very hard to make the VOIP calls limited to of VOIP destinations only. they will be sold at a flat monthly unlimited rate. skype is more attractive than something like SIP because of the fact that it is a closed system and therefore users would not automatically have very easy ways to use VOIP call functionality(built in and sold directly by the mobile carriers) to connect to the PSTN at discount rates. bassically i am thinking the 3 skypephone on a mass basis; and like the skypephone skypein/out would be disabled.
this is why the indea of someone like nokia(or symbian or andriod) incorporating skype deap into there arcitecture makes sense.
of course i personally will always much prefer a thrid party workaround solution that by pass carrier charges(except for data) completely and allows any termination destination.
@girish.gulawani: good points. It’s kind of funny for Ebay to question the “synergy” of Skype, when they themselves have never executed on plans to “synergize”. That, to me, even further confirms that these hints are to warm up Wall Street to the idea, and that they have already made the decision to sell Skype off.
@Tom: you’re probably right about what network operators would want – certainly walled-gardens are always more comfortable to them. But that doesn’t mean it’s ever good for us, their customers, as you note. That’s why, to me, it’s really far more interesting if Nokia owns Skype (without the operators).
@Stuart: I totally agree that Skype’s dominant position is not secured. Consider Netscape or Compuserve and countless other “sure thing” examples from the past.
it is clear they’ve perhaps made the decision and prepping the WS or market for that. or it appears so. there’re couple of players out there who might look like possible candidates to go into such deal. and may be just on this news that eBay seems to be picking (31.71 as now). i wonder if they’d be taking second opinion before going for the kill.
questions one might want to ask from other perspective is –
.1 who wants the VoIP infrastructure (those don’t haves, want to haves and already haves)
.2 who wants the customer base (debatable, already non-performing/paying mass)
.3 resulting brand integration and value proposition thereafter
.4 why now? one could always make the eBay wait and drop the pants down completely.
for instance in the land of rising sun Japan, Nokia seems a remote possibility. because the VoIP in deep design doesn’t really make a lot of sense here. the IP phones are offered right away by the network operators and already free as long as you are within. the cell-to-cell or cell-to-landline discounts/free-calls are practiced by network operators successfully here. handsets makers have very little room to maneuver or value addition of such a service. also with advancing generations 3G and so on the mobile phones already have enough mechanisms built-in.
at the moment if one clearly de-marks current usage patterns, Skype like IMs more or less enforce the need of the PC. when you are on move you have a mobile phone or PDA. mobile phones with their already small real-estate has big challenge, to offer the user with easy usability. as it is we got games, media players, TV channels, messaging and basic scheduling rather a tiny office (PC like desktop) in there. handling one more like VoIP, by virtue of network limitations/restrictions, would be really big challenge. the PC-Phone integration is happening at real good pace and closing the gap real fast. of course one might successfully argue there are so-many things missing from today’s functionality (audio-video chat for one – i tell you it sucks what is is right now)
well, i go back full circle here and say – eBay might be making a mistake yet again if they write Skype off without even exploiting its features. this is not the right time nor is the right way. one might take some clues from the AMD-ATI adventure.