eBay hangs up on Skype
By siliconindia   |   Wednesday, 02 September 2009, 15:12 IST   |    11 Comments
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eBay hangs up on Skype
Bangalore: The online auction giant eBay has decided to sell 65 percent shares of the Skype internet calling service to a group of investors for $2 billion in cash and debt. The San Jose online auction company will retain 35 percent of the shares in Skype as it has sold the remainder to a consortium led by Menlo Park private-equity firm Silver Lake. "This is a great deal, unlocking both immediate and long term value for eBay and tremendous potential for Skype," said John Donahoe, CEO, eBay. ebay's purchase of Skype for $3.1 billion in 2005 defeating Yahoo and Google was regarded as a mistake by Meg Whitman, the company's then CEO. The company bought Skype to enhance its core online auctions business, making it easier for buyers and sellers to communicate. John Donahoe, who took over from Whitman as eBay's CEO early last year, had indicated to shed Skype if he fails to find any greater strategic logic for keeping it. Skype is fast growing, profitable and is the largest international voice carrier, with 405 million registered users, recorded an expansion of 47 percent previous year adding millions of users a month. It brought revenues worth $550 million last year, up by 44 percent as compared to the previous year. ebay had asserted its expectations of Skype's revenues doubling to more than $1 billion by 2011. Many private equity firms have shown interest in purchase of Skype in recent months, while the company's Founders, Niklas Zennstrom and Janus Friis, have also shown interest in backing a deal. Zennstrom and Friis continue to own rights to the technology in the voice over internet protocol service (VoIP), whose dispute is due to come to court in the U.K. next year. Analysts expect that Skype has the ability to thrive on its own. "eBay had no growth strategy or long-term vision for Skype. Skype's new backers, in contrast, will pour resources into the company, possibly in preparation for an initial public offering. Newly incorporated VC firm Andreessen Horowitz Ventures likely views Skype as a "statement acquisition" and will make sure it succeeds," said Vanessa Alvarez, Analyst, Frost and Sullivan. Some industry trends like the increase of Wi-Fi enabled cell phones can benefit Skype by making mobile access of the service more convenient. Skype has a popular iPhone application and a deal with Nokia that embeds its service in some handsets. Skype allows the users to make free video and voice calls between computers, or inexpensive calls to mobile phones and landlines, by routing traffic online using voice over internet protocol (VoIP). According to research firm TeleGeography, it is already the undisputed leader in the sector, claiming 33 billion minutes of international calls last year, or eight percent of the total market.

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