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. Paidcontent.org 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.

Buy it Now! eBay Considers Selling Skype to the Highest Bidder

All the major blogs are reporting the news that Financial Times broke yesterday Thursday, "Ebay considers sale of Skype subsidiary." Richard Waters wrote, "Ebay will consider selling off its Skype internet phone subsidiary at the end of this year if it fails to find ways to use the fast-growing service to support its core e-commerce business, according to (John Donahoe) the company's chief executive."

eBay bought Skype for $3.1 billion but wrote down the value to $1.4 billion after it failed to integrate it online markets. Waters added that, "While the acquisition of Skype has widely come to be seen as a blunder for Ebay, the phone service itself has continued to grow fast, adding another 33m registered users in the first three months of this year to reach 309m. Although most use it for free internet phone calls, the addition of extra paid services helped Skype to increase its revenues to $126m in the first three months of this year, up 61 per cent from the year before."

Om Malik, wrote an interesting post, eBay Snoring, Skype Roaring, pointing Skype's profitability which created some good discussion. A few comments suggested that Google purchase Skype and mash it up with it's telephone service Grand Central. Another reader recommended this link to the No Agenda PodShow where Adam Curry and John C. Dvorak have an interesting conversation about Skype.

Curry said that while on a 6-hour flight he had spied on a Skype marketing person in the seat in front of him who was working on a PR plan which stated, "email is becoming the snail mail of our age that is being replaced by the use of Skype." Curry said he had a perfect view her laptop through the seats and read along as she created the Powerpoint presentation. He added a few other bits of information, like Hearst media and Skype have struck a deal to make Skype the platform for the presidential candidates to speak with constituents; Skype was being hyped as a tool for TV producers to integrate into their programming; and Skype has deal with Harpo Productions and is now a regular feature on Oprah's show along A New Earth webcast series. Curry and Dvorak both agreed that eBay may be working on a plan to prop up Skype's value before it unloads it.

Anyone care to make a prediction on who will be the highest bidder?

I still think Google is the likely suitor. It could the blend of Skype with Grand Central, and take could take advantage of Skype's mainstream acceptance, in part thanks to Oprah, and the estimated 30 million Skype users. Just imagine the ad revenue alone if Google could introduce Adsense to Skype as it's done to YouTube.

Related news:

• FT.com: Ebay considers sale of Skype subsidiary
• GigaOM: eBay Snoring, Skype Roaring
  
• paidContent.org: eBay CEO: Skype Could Be Sold If Synergies Fail
• Skype Journal: Whither Skype? Definitely Not Withering!
• Techdirt: eBay Finally Gives Up Looking For Mythical Skype Synergies

UPDATE: (4/20/08)

• TechCrunch: Skype Reports 61% YOY Growth; All Quiet On Google Front
• TechCrunch Report: eBay Says It May Sell Skype
  

Here's another perspective on a Google owned Skype, tech-talk.biz » Blog Archive » Why Google should buy Skype, Blog writer Jose Miguel Cansado says, "Add GMail, Google Docs, Google Calendar, Salesforce.com and Skype in a package. Is there a better value proposition for SMEs and SOHOs for their IT and Communications infrastructure? Add a Linux distro for the business desktop, supported by Google, and you have a killing package for the small and medium business, with an unbeaten TCO..." (more)

Google to Buy Skype?

As I was writing my post the other day, about a possible Google Videoconferencing Killer App sometime in the future, news broke that Google was planning to buy Skype from eBay. I read a few news stories and I thought that it makes a lot of sense for Skype to be in Google's portfolio along with GoogleTalk and the already released Ajax Language API. It would make this videoconferencing killer app idea more of a reality with Skype's average of 12 million users online and Skype already on mobiles and the PSP and Google poised to release the Android handset .

Although Skype has been devalued since eBay purchased it Skype does have brand name recognition and has become a mainstream videoconferencing tool though the help of Oprah who uses it on her television show and her current A New Earth web cast series.

So I checked my RSS feeds and found a number of posts from the last two days to try to substantiate the rumors. Here's a sampling of the discussion:

• Google/Skype Acquisition or Partnership Imminent? from TechCrunch by Michael Arrington
  "Something big is brewing between Google and Ebay’s Skype, we’ve heard from multiple sources. Actually, for weeks now there have been low level rumors of the two companies talking, but nailing down any details was difficult. New information, however, suggests that they are in current talks and that a partnership or outright acquisition may be announced in the near future.
  
  Skype, acquired in late 2005 for $3.1 billion, has been a financial albatross around Ebay’s neck. eBay removed Skype co-founder and CEO Niklas Zennstrom in October 2007, reportedly due to frustration at the financial performance of Skype. Ebay also negotiated down the huge earnout due to Skype stockholders and took a $936 million one-time loss around the transaction. It’s clear that eBay wants to either unload Skype, or significantly drive performance.
  
  What does Skype bring to the table? Scalable technology and a proven platform in the VOIP, VOIP2POTS and P2P Video, to start - 100 billion VOIP minutes have been logged on Skype to date. At any given time there are 10 million simultaneous users on Skype. Skype is the glue that can pull all the nascent Google products together."
  

• eBay Selling Skype to Google? Let Us Pray* from Silicon Alley Insider by Henry Blodget
  "As we've argued here ad nauseum, eBay (EBAY) has no reason to own Skype and every reason to sell it. Skype, meanwhile, would fit nicely within the communications platforms of Google, Microsoft (MSFT), or Yahoo (YHOO).

  With its strength in mail, Yahoo would be the best fit. Alas, Yahoo can't afford Skype anymore (except by using Microsoft-bid-inflated stock, which, for obvious reasons, eBay would probably be unwilling to take). Microsoft has its hands full with Yahoo, although one imagines that it could find room to at least take a peek at this one. And that leaves Google...
  
  ... Once integrated with Gmail, contacs, etc., Skype would give Google the most complete all around communications platform on the web. Google's global dominance, meanwhile, would provide an awesome distribution platform for Skype. Sounds like a match made in heaven. (Unlike eBay-Skype, which has always been a match made in delusion)."

• eBay's power sell: Skype to Google? from c|net news.com by Caroline McCarthy
  "There was very little detail to the rumors, except that Google's "core team" for voice operations is reported to be suspiciously absent from this week's CTIA Wireless trade show in Las Vegas. So at this point, it seems to be Valley gossip at its finest...

  ... But a Google-owned Skype would make a whole lot of sense. Google already operates a voice over Internet protocol (VoIP) service through its Google Talk messaging client and purchased communication management start-up GrandCentral last year. With its open-source initiatives like Android for mobile phones (especially considering Skype's vocal desire to make a splash in the mobile market) and OpenSocial for social networks, Google would be in a much more ideal position than eBay to turn Skype into a "hackable," developer-friendly product."

• If Google Acquired Skype… from CyberNet Technology News by Ashley
  "What does this mean for Google? Well, we already know that they have big plans for voice communication. They already offer GOOG-411 for free which we know is used for their speech-to-text model, and then they acquired GrandCentral back in June last year. Clearly Google is interested in voice and Skype could help them do big things. Our other thought was that they could integrate Skype into Google Talk... A Google acquisition of Skype makes a lot of sense and we’re thinking Skype would love to be under new leadership with a company who could devote the time and resources to make them profitable."
  
  
• Google Rumors Re Skype: Maybe Josh Found the Agreement from Skype Journal by Jim Courtney
  "TechCrunch today posted a story speculating on some new arrangement between Google and Skype, even going so far as to suggest that Google may acquire Skype. Having been involved at a senior executive level in the re-org of a NASDAQ-listed company several years ago, I would suspect a new CEO should be looking at any contracts, agreements, press releases and other commitments. etc. sitting around in filing cabinet drawers, etc.

  So here's an outstanding, previously announced agreement that maybe Josh has uncovered with the result that Skype, eBay and Google are finally looking to execute on it."

• Reading Techmeme Outloud from A VC by Fred
  "Google Might Take Skype Off Of eBay's Hands - Awesome news, if true. Skype is a fantastic property owned by the wrong company. I've said that since the news of the eBay purchase first came out. Skype has languished under eBay's ownership. I can imagine all kinds of great things Google (which I own) can do with Skype."

Here's a few more sources:

• Google-Skype: planned engagement? from Skype Numerology by Jean Mercier
• Google-Skype Marriage on the Cards? from Techtree News
• Google to Buy Skype? from Team Think by Dave Greenfield
• Rumors hint of Google eyeing Expedia, Skype acquisition? from TechSpot by Justin Mann