eBay has shed its biggest mistake: acquiring Skype for what resulted in $2.6 billion after bonuses were paid. Don’t get me wrong: Skype is a terrific service that improves and expands month after month. But eBay wasn’t the right firm to buy it, and it did so at the wrong time.
The auction company bought Skype for a hefty premium because eBay thought Google would otherwise acquire Skype and tie it into Google Checkout, creating an integrated phone and electronic order processing system. In 2005, this seemed like a plausible scenario; in 2009, Google Checkout ranks far behind eBay’s smartest big acquisition – PayPal – in online transaction processing.
But eBay’s former CEO, Meg Whitman and the team structuring the deal made an unpardonable error: Skype’s core connection technology, which allows peer-to-peer routing of control messages and data, wasn’t part of the deal. Skype founders Niklas Zennstrom and Janus Friis own the firm that controls that technology, and they are now in British court in a dispute over eBay’s rights to distribute and use the patents and code. (The Skype founders reportedly tried to raise funds to purchase Skype back.)
The Skype software for desktops and phones allows Skype-to-Skype calling at no cost, with the peer-to-peer component allowing the system to scale by distributing control messages and data flow among Skype users. Skype released an iPhone app earlier this year that can place calls only via Wi-Fi (see “Skype Coming to iPhone,” 2009-03-30.)
The sale transfers 65 percent of the ownership to several private firms for $1.9 billion; Skype brings in $600 million in revenue each year. This unties Skype from eBay’s apron strings, which in turn allows Skype to form deals with previously off-limits firms, or companies that might not want to form a relationship with eBay because of the complexity involved. That could include Google, which has its own voice and chat products, but which might benefit from arm’s length arrangements with Skype.
Google apparently turned down a chance to buy Skype, possibly due to the conflict between working with cellular carriers on its handset platform, Android, and Skype’s no-fee intra-network calling. Skype generates its cash from calls placed to the public switched telephone network (PSTN), subscriptions that give users incoming phone numbers on the PSTN, voicemail, and a handful of other services. Skype recently added per-minute access to hotspots worldwide. (See “Skype 2.8 Adds Screen Sharing, Per-Minute Wi-Fi,” 2009-07-24.)
The private firms that are putting up the money – nearly $1.8 billion in cash, with the rest coming in the form of a loan from eBay – include Netscape co-founder Marc Andreessen’s new Andreessen Horowitz venture capital fund and the Canada Pension Plan Investment Board. These aren’t fly-by-night operators taking over Skype on the cheap.