Rumours surfaced last Friday about a group of private investors who were pooling resources to buy Skype from eBay. Today, more reports are emerging that eBay may be only moments away from confirming the sale – at a much smaller figure than it originally paid. But what’s the history behind this deal, and why is eBay selling?
Skype – the most popular Voice over IP service in the world, Skype is present on pretty much any platform with an internet connection. It has official (and unofficial) versions for pretty much every smartphone OS or device platform. We have seen SIM cards and entire devices released just for Skype us. During the year, Skype faced off against some of the most powerful mobile operators in the world… and won. Skype is used by enough people that analysts say its current yearly revenue (from various sources) is around $600 million.
eBay – one of the most successful sites on-line. eBay is an auction and shopping site that allows users to put items up for public bid, or buy at a set price from established retailers.
The buyers – the group of potential buyers is remaining low-key. It is rumoured to consist of various private equity firms, but sources also claim that Marc Andreessen, one of the co-founders of Netscape, is on board.
eBay bought Skype for $3.1 billion back in 2005 – and this has gone into legend as one of the worst purchases so far this millenium. It has been pretty much trying to sell Skype off ever since – however this works out, it’s not going to be profitable for eBay as it’s only asking for $2 billion.
Why is trying to sell Skype? eBay quickly realised that there wasn’t much it could really do with Skype. There were some fuzzy ideas about allowing the buyers and sellers to talk to one another, but people tend to prefer to keep things anonymous over eBay. The company itself described this as “limited synergies”.
How come the asking price is so low? There are more problems to a Skype purchase than meets the eye. Top of the list would have to be that the technology that powers Skype might just disappear next year. Skype is a great service, but it doesn’t own it’s own communication platform. A company called Joltid created the peer-to-peer technology that Skype runs on, and Skype just licenses it. The problem with this is that the eBay deal for Skype didn’t include the Joltid license! Patent and licensing issues caused Skype and Joltid to go to court, as Joltid attempted to terminate the license. Skype managed to get the entire process delayed until June next year.
It’s like buying a car and being told the engine might just drop out of the bottom in a few months. If it comes to the worst, Skype will just stop working. A huge amount of expense and time will have to come from whoever owns it to get a new engine in there. eBay has claimed that it is developing a new technology to power Skype.
What we think?
This really has just been a complete disaster for eBay. First of all, it bought something they couldn’t use. Then it discovered it was kind of broken. Now it has to develop new technology to run it, which is just FURTHER expense. And the people who are buying it are fully aware of all of these things, and are using them to drive the price down. It’s painful to watch, really.
The question is, what is this group of private buyers going to do with it? eBay couldn’t figure out a way to make it particularly profitable, even with its predicted$600 million revenue a year. With more investors there’s less risk, as the price of purchase is spread around. But that also means less individual profits. There are going to be big moves to boost revenue from Skype in the near future. We might see advertising on the Skype user-interface yet.