Wednesday, September 2, 2009

eBay Finally Sells Skype (at least 65%) to Private Investors

The inevitable finally happened and just as everyone in the technology space expected, eBay sold Skype to the highest bidder, well at least a 65% stake for $1.9B to a group of investors which was valued at $2.7B and that's a lot higher than some Wall Street analyst predicted. eBay had originally bought Skype for $3.1B in 2005 with plans to integrate in into an auction communications channel but that never came to fruition. I wrote several articles on the subject here and here as it had been speculated that Google would buy Skype. But Google backed out of the offer due to the current legal war with Skype's founders and if it's acquisition of On2 goes through Google would already own the video codec on which Skype's video compression algorithm is based which is bound to cause disruption. According to digital media verteran Peter Csathy, CEO and President of Sorenson Media and former CEO of Sightspeed a Skype competitor, that Skype should be afraid, very afraid, of Google's deal to buy On2.

In April 2009, eBay announced plans to separate Skype from the company, beginning with an IPO in 2010. The decision followed a year-long review of Skype within eBay’s portfolio. As it prepared for an IPO, the company said it would naturally consider bids for Skype that offered an attractive valuation.

There are numerous stories about this all over the web with many collected on Techmeme. put together Skype’s Troubled History With Ebay, in Links. Om Malik who has done extensive reporting on Skype says, "If you’re an eBay shareholder, it’s time for you to get mad about the sheer incompetency of the management." While On Techcrunch, Michael Arrington looked at the numbers and said eBay actually did Ok with Skype,

On the Skype blog, CEO and President Josh Silverman described the deal as a new chapter. He said:

"A small group of venture capital funds have agreed with eBay to acquire a majority stake in Skype. The group is led by Silver Lake Partners, joined by Index and Andreessen Horowitz Ventures. You may recognize some names – for example Danny Rimer and Mike Volpi (both at Index Ventures) who were some of the earliest Board members and supporters of Skype. The new investors will buy approximately 65% of Skype, with eBay continuing to own 35%, in a deal valuing Skype at $2.75 billion US. It means we’re back to being a fully independent company again, but with a new group of owners who believe passionately in our mission and in the ability of our team to deliver on it. I can’t wait."

In 2008, Skype generated $551M in revenues, a 44% increase compared to 2007. Total eBay Inc. revenues were $8.5BM. Registered Skype users reached 405 million by the end of 2008, a 47% increase from 2007. Skype is attracting hundreds of thousands of new users each week. Skype grew in popularity over the last year with mainstream audiences through news agencies using it connect with reporters in the field and Oprah evangelising Skype on her TV show and big 10-week web cast event "A New Earth" with Eckhart Tolle.

The one snag in all this the legal issues which Skype co-founders Niklas Zennstrom and Janus Friis have sued eBay over over the use of its P2P technology. which Om says may put the kibosh on Skype's IPO plans. Stay tuned for more on that as the saga unfolds.