No wonder eBay CEO John Donahoe says Skype’s $2 billion valuation by analysts is too low: eBay paid $2.6 billion for it in 2005 and took a $1.43 billion charge on it two years later. So right out of the box, Skype cost eBay $4.03 billion.
Though eBay didn’t reply to requests for comment by press time, Donahoe had previously told Bloomberg that the $2 billion price tag currently being tossed around by analysts was too low. “Two billion dollars would be a great steal,” he said in a Bloomberg Television interview at a retail conference in Barcelona. “Skype is worth much more than that. There aren’t that many properties with that kind of growth.”
eBay put Skype on the auction block in mid-April with the hopes of spinning off the VoIP service by 2010. Skype is a popular application on the iPhone, hitting 1 million downloads to the device in the first 36 hours after it became available, according to eBay. The VoIP service also generated $551 million in sales during 2008 and had 405 registered users – but does that justify a multi-billion dollar price tag?
Skype has posted healthy sequential growth and eBay expects the VoIP service to top $1 billion in sales in 2011. When used on smartphones, VoIP enables low-cost international calling and the technology is gaining market share in digital voice in the home.
So far, there haven’t been rumors of possible bidders, with two notable exceptions: Niklas Zennstrom and Janus Friis.
Zennstrom and Friis are the founders of Skype, the duo that sold the VoIP service to eBay at an inflated price back in 2005. The pair recently formed a venture capital fund called Atomic with a minimum investment of $13.3 million, leading to speculation that they may use the fund to buy back Skype.
If anything, the two are certainly shrewd businessmen. A recent lawsuit filed through the duo’s company, Joltid, seems to indicate that the pair never gave eBay the exclusive rights to the peer-to-peer technology at the core of Skype. Zennstrom and Friis recently terminated eBay’s license for the technology and the parties are currently duking it out in a British court. Still, what a remarkable feat: Zennstrom and Friis got $2.6 billion for Skype while retaining rights to the service’s core technology. Now, they are in a position to revoke eBay’s access to that technology and buy back the service as a whole.
So let’s take a bird’s eye view of the whole scenario: eBay overpaid for Skype, did not obtain the exclusive rights to the service’s core technology and could end up selling it back to the slick salesmen who sold it to them in the first place. By the end of this deal, the only things eBay might recoup are painful lessons learned.
Aside from being one of eBay’s less-savvy acquisitions, Skype also has been a thorn in the side of carriers. It has aggressively pushed for VoIP over wireless networks, and petitioned the FCC in 2007 to force carriers to unlock their data networks to third-party apps and hardware.
In 2008, Skype challenged the FCC over the definition of open wireless networks and again raised the ire of carriers that see the service as a threat to their business model. The company has taken several jabs at wireless network operators, suggesting their conduct is inconsistent with the consumer empowerment principles of the Internet Policy Statement.
Judging from their recent maneuverings, it’s looking like the brains behind Skype remain a calculating, prickly duo that isn’t afraid of making waves. If Zennstrom and Friis take over again, the battle over open networks could heat up once again.