The rumor mill has been running overtime this last week in the telecoms industry. Perhaps the most prominent, and certainly the most vocal are those claiming that Skype is about to be acquired – AGAIN!
You will remember back in October 2005 that Skype’s private shareholders enjoyed a big payout when Skype was first bought over by eBay in a deal worth approximately $2.6 billion, plus potential ‘performance-based consideration.’
In September 2009, in a deal that valued Skype at $2.75 billion, eBay sold 65 percent of its equity to a group of investors citing Skype’s incompatibility with the company’s online auction and payments businesses. However, the deal was stalled by Skype founders, Niklas Zennström and Janus Friis, who sued Skype, eBay and the would-be investors for copyright infringement. Zennström and Friis, emerged victorious and then joined the investor group, contributing software and making a ‘significant capital investment’ in exchange for a 14 percent stake in Skype in November 2009.
Since then, Skype has continued to grow becoming the world’s largest carrier of international voice traffic. Last year, Skype had revenues of $860 million on which it posted an operating profit of $264 million. TeleGeography Research estimates the company accounted for roughly one-quarter of the estimated 413 billion minutes of international voice traffic in 2010.
Skype also recently delayed its IPO which looked at raising $1 billion. This delay was viewed as being typical of a potential purchase move with Facebook and Google first mooted as suitors, and more recently Microsoft.
That’s all well and good but why would Google, Facebook and now Microsoft, be so interested in Skype? Facebook has been in discussions with Skype for some time regarding a linkup or joint venture that could see a combined Skype-Facebook client on the desktop taking attention away from other web services, such as Google. It would also add a much needed revenue stream to Facebook and make it the communications player it has aspirations of becoming. The Facebook deal was rumored to be between $3 and $4 billion.
Then there’s Google (isn’t there always?), which actually competes head-on with Skype and may be looking at improving its own VOIP technology, removing a competitor or simply preventing an even bigger monster from developing out of a new Skype-plus mega-player.
The latest news (at time of writing) is that Microsoft is eclipsing the others with an acquisition bid valued at a staggering $8.5 billion, by far the biggest it has undertaken. There is also considerable overlap of technology with Microsoft’s Live Messenger which has a much larger active user base, around 65 percent larger. However, about 8 million Skype users actually pay for their service where Skype integrates telephone connectivity.
Skype subscribers are able to make both outbound and inbound phone calls, locally and internationally depending on which plan is taken up, and while its online services are all free to use, the other services generate revenue. Skype also has points of presence across the globe, provides phone numbers in international markets to its paying customers and has an established international telepresence.
You will be hearing a lot more about this potential deal in the mainstream press but I firmly believes that it’s the telephony play that is most appealing to all the potential purchasers. Skype-enabled mobile devices that operate happily on most wireless protocols and a massive user base that has a Skype client open on PCs, tablets and mobile phones all day long is a very appealing target market. And that’s not including the corporate users tired of paying exorbitant roaming and international call tariffs for voice calls.
Make no bones about it, whoever buys Skype now has aspirations of becoming a fully fledged communications service provider without the burden if having to operate a network. Existing CSPs may soon be lining up hoping to provide termination for Skype originating calls. After all, it may be the only revenue they will see!