35 Comments

Summary:

Looks like Skype is in play, again. Unlike last time, both the suitors have good business reasons. Between Google and Facebook, the social networking giant makes perfect sense. We actually suggested this deal six months ago. Question is: why does Skype want to sell?

markzuckerberg

Did you hear that both Google and Facebook are looking to either partner with Skype or simply buy it? Funny, because back in the day when Skype was in play (before it was acquired by eBay), Google had a chance to buy it, but Larry Page and Sergey Brin nixed the idea.

Today, some are speculating that Facebook might be a better suitor than Google, though I bet none of the sources quoted in the Reuters story  have any first-hand knowledge of any deal. Reuters pegs the price of Skype at between $3 and $4 billion, roughly three to four times Skype’s annual revenues, which are in the $1 billion range.

Here Is Why Facebook Should Buy Them

People laughed at me when I suggested back on September 29, 2010 that Facebook should buy Skype. Here’s what I wrote then, and I still think that is the real reason for a Skype-Facebook deal:

Sure, this would be a big, hairy merger, but look at it this way: In one swoop, Facebook would dominate what I’ve maintained is both the new age and classic social networking. They have people’s credit cards; they have their real-world phone information; and in the end, they have a better, more useful, social graph than Facebook itself.

The Skype-Facebook client on the desktop would mean both Facebook and Skype will be jointly in people’s faces, and take time away from other web services, such as Google. A simple search box inside the Skype client, and the two companies are starting to take attention away from arch-nemesis, Google.

Since then, Skype is much bigger, has more revenues and has a lousy new desktop client. Facebook has taken huge strides towards owning “communications” and online “interactions.” When Facebook launched its Social Inbox, I pointed out:

For the first three years of its life, the company was merely a social network, but then it transformed itself in quick succession into a social web platform and then a social aggregator of the web. Today, the company launched its “social inbox,” a new kind of messaging system that is the first public manifestation of the new new Facebook. Facebook’s newest core competency is communications — a way to become even more indispensable in our daily web lives.

There are many other reasons why this deal makes sense, the biggest being Marc Andreessen, the web wunderkind turned über-VC who sits on the board of Facebook and has investments in both companies. It would be Christmas in summer for his fund if this deal goes through.

Is Skype Crazy to Sellout?

What isn’t clear to me is why Skype wants to sell. Sure, everything has a price, but boy, if there’s one company that can go public, it’s Skype. Frankly I am surprised that Skype would settle for such a low number. Why sell for four times their revenues? Is there something that doesn’t meet the eye? Has the juggernaut slowed? Six months ago, I suggested that Facebook should pay between $7-to-$7.5 billion.

I am even more surprised that Skype would not shoot for a public offering — which is crazy because it is precisely the kind of company which can go public.

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  1. StatSpotting Friday, May 6, 2011

    Also remember the Marc Andreessen connection.

    1. Actually that is in the story.

      1. I did see that you referenced that , Malik.

  2. Lucian Armasu Friday, May 6, 2011

    Would you rather have Facebook completely dominate the social aspect of technology, or have them compete with Google in a more equal way?

    I think if Google buys Skype and integrates it into Galk, we’ll soon have Android phones that use only data instead of Voice. We would be moving closer to that future where carriers are just dumb pipes.

    1. I’m with you – we need competition for social networking, and Google can (but might not) do a better job at giving us telecoms alternatives with Skype.

      A couple of nagging concerns:
      1) Having Google take Skype will let abusive surveillance efforts find even more about us from a single point.
      2) Google may actually restrict Skype to curry favor with carriers. Should we read Gizmo’s demise as a warning here? Of course, they way Skype offers better features to Verizon customers shows a company already partly co-opted by carriers (though it’s hard to tell with Skype what is incompetence and what is craven behavior).

      Here’s to hoping that Skype doesn’t wind up with either Facebook or Apple.

    2. I disagree. With Facebook, there is an outside chance that service is going to improve and become more useful.

      At Google, despite all the hoopla, it is going to languish and suffer as that company has a N-I-H syndrome and clearly won’t know how to leverage this. I think they are so beholden to carriers now that this is going to be a bad call for them.

  3. Does Skype make any money? That surely must figure in the price, no?

  4. I told you so few weeks ago, Facebook will buy or do kind of partnership with Skype. http://www.beansight.com/prediction/skype-and-facebook-will-do-a-partnership-to-launch-skype-call-inside-facebook

    1. I thought a partnership had been in place for months. Only that Skype was using Facebook as part of its client offering.

      1. Arnold Waldstein Om Malik Saturday, May 7, 2011

        The rumors started last October I believe with some partnership deal announced soon afterwards. I heard about it then and it spurred similar discussions to this one @ http://bit.ly/jin0w9

  5. Michael Cerda Friday, May 6, 2011

    Fb + Skype would seem inorganic to me. They are very different businesses and very different product-user-experience psyches.

    1. Michael

      True if you just look at the front end products on both sides. What essentially I am saying — P2P network + social directory. It can be used to build any and every kind of client. It is Facebook Connect for Communications.

      1. I buy that – in fact I’ve been swinging at elements in that direction for years now. (And btw, end users haven’t proven yet that they want all their fragmented comms consolidated, but perhaps in time). I think the inorganic nature goes beyond the front end product and right into the core emphasis of the business though, i.e. monetizing eyeballs vs monetizing minutes…very different things to the company and end user.

        I do think it could be both more natural and cost effective for FB to build out deeper comms over time, with contextual emphasis.

  6. If the Board of Directors, Shareholders and related powers that be allow Skype to be acquired by Facebook – I will discontinue my use of Skype.

    I have been using Skype for three years and have been extremely pleased. I have six accounts for my company, Skype phone numbers, subscriptions, SpinVox access. I love Skype. It is a value added service to the nature of my business operations. Once again, I love Skype. I admire Skype.

    But if suddenly this VOIP service is integrated with the AC/DC, Cyndi Lauper, like/dislike, fist pump, foot stomp, tag a picture of a night on the piss drinking nickel drafts, bump and grind, useless wall broadcasts that Facebook is. With absolutely NO INFORMATION PRIVACY CONTROL.

    I will utilize the many open source SIP, SIP Trunk and VOIP modules available.

    Skype. Stand alone. Do not succumb. Please do not disappoint us.

  7. Hopefully this will produce better synergy than Skype-eBay?

    1. Anything will have better synergy than that disaster :-)

  8. Niall Harbison Friday, May 6, 2011

    I agree with nearly everything here and think it would be a super move for Facebook except for this “Skype have a better, more useful, social graph than Facebook itself.” There is no doubting that many use skype for calls and chat but most do it with 10 to 20 people who are usually very close family or for work reasons. The real skill would be trying to integrate the 2 social graphs. The credit card argument is a very good one though and a lot of it comes down to Facebook’s own plans with credits etc.

    The other thing is if you are right and they are talking about 7-8 billion thats about 1/10th of Facebook’s current valuation. IS it really smart for a company like Facebook to be making that big a bet?

  9. Forget about Google or Facebook. I’m still stuck to OM’s question: Why Skype wants to sell? I still can’t figure it out. Somebody help me!

  10. There are problems with this deal.

    For facebook:
    They will be happy to get a new communicatons layer like Skype for all its users. But the problem for them would be what it might cost them. If Skype is already 1billion in annual revenues, then 4x that is too little a price, as you pointed out.

    Skype:
    It might be a great deal for Skype if Facebook agrees to the proposed valuation. But Skype is heads-down communications company and a pretty good one at that. A merger with the facebook social graph sort of mitigates that image and focus.

  11. Ian Andrew Bell Friday, May 6, 2011

    Not crazy to sell out.. some boards just loathe the hassle and drag of being public. And public markets are still fairly weak and increasingly fickle. Attaching to Facebook might represent a proportionately greater IPO, anyway, someday down the road.

    Although I love Skype I think they have a weakening proposition down the road as an independent. They’re just not keeping pace with mobile, their “social” network is weak, and the number of minutes of voice across the globe is declining and will slide much further. It’s not their fault, there are systemic and behavioural reasons for this, but one operating thesis might be that a closer tie-in to a qualitative social network might drive minutes within Skype up substantially.

    They will still need to execute on mobile, but as a duo they have a better chance of breaking the cabal in telecom that has held Skype back.

  12. Richard Thomchick Friday, May 6, 2011

    I would be pleased to see Facebook and/or Google acquire Skype as long as they don’t gut it. It’s a blessing that Skype survived eBay intact; let’s not ruin it now, eh? Facebook has amazing potential as a platform for unified communications (video, chat, email, presence, etc.), but right now FB’s built-in A/V experience is terrible to non-existent…and it is hard to trust third-party FB apps, given the sordid practices of some of the FB app devs out there (no offense, just sayin’).

  13. Facebook is becoming (or became) a platform. It is essentially selling its user-base to developers and other companies to build social apps. If you notice most of Facebook new offerings are geared toward “Facebook being a platform”.
    Having said that, Skype is rather a different story (at least for now). I think it makes sense for Facebook to acquire Skype if Skype starts opening up APIs (or partner with a third company that does it) for integration with Facebook apps. Skype just as a voice application/feature does not add that much to Facebook (and in fact it might be a better acquisition for Google at this point).

  14. I, along with many business users of SKYPE, will cease using it if it is owned by Facebook.

    It’s a matter of trust with transferring files and communication; I simply do not want Facebook anywhere near my business dealings.

    I trust SKYPE as is. I would probably trust a GOOGLE/SKYPE world. Honestly, I think SKYPE’S revenues would plummet if FB took a controlling position as many business/paid services would migrate off in a heartbeat.

    What I do find curious is the recent tech-blog love of Facebook (here, TC, etc.) and a constant needling of Google? Objectivity anyone?

  15. Arnold Waldstein Friday, May 6, 2011

    I agree that the Facebook/Skype merger makes sense on a lot of levels for Facebook.

    I’ve been thinking this for awhile. Your post made me think of my post from last year when these rumors first surfaced. It made sense then; still rings true now:

    Facebook and Skype…bringing community and communications together @ http://bit.ly/jin0w9

    As an aside Om, is there any reason you haven’t rolled in Disqus comments to your portal. Better in many ways from my opinion.

  16. Do Not Want Saturday, May 7, 2011

    Facebook buys skype… forces skype to communicate friends and other private information to facebook WITHOUT users permissions. Like other updates forced on facebook users throughout the years, amid privacy concerns, it won’t get any better once facebook owns skype. In fact, if Facebook and Skype merge in ANY way, I am uninstalling skype AND deleting facebook.

  17. Jan Simmonds Saturday, May 7, 2011

    Such a deal would be the pin to finally burst the trust bubble imho. It is the one constantly underplayed elephant in the room. I think Skype would be mad to sell now, when potentially they have the best graph of all and a two way financial relationship with all users already established.

  18. If Facebook buys Skype, I’ll be closing and permanently removing any accounts I have with Skype.

  19. edwardstv90 Saturday, May 7, 2011

    If I were Mark I’d certainly come with the deal.

    1. I saw this article after reading this one on why Skype is evil, suspecting a connection with the NSA: http://ultraparanoid.wordpress.com/2007/06/19/why-skype-is-evil

      The thrust of the article is that it doesn’t make sense for eBay to buy Skype, and that the NSA may have partially/fully funded the purchase to maintain an open backdoor to all Skype conversations…

      But here it’s suggested that the purchase price by eBay should have been higher! Who’s got the right info here?

      1. yah, but now microsoft is going to buy skype for over 7 billion, so google missed its chance and so did facebook! how much do we worry now that micorosoft is buying it?

  20. Skype is also good for online marketers if they want to create their .pdf e-books really quick, and add their affiliate links. Same thing with Google Buzz, but Buzz is scratchy. Savvy online publishers can use Skype or Google Buzz to create 300-800 word articles, blog posts, forum posts, e-books, or whatever kind of content they’d like in less than 5 minutes. How cool is that in being overly productive? Can you say —> Yesssssssssssssiiiiiiiiiiirrrrrrrrrrrr? And, that’s called getting that long $ gUaP $ ! =)

  21. Muyiwa Saka Monday, May 9, 2011

    Would it make sense to assume that it might be connected to some sort of FBPhone later on? probably buying skype would allow them to get at the team behind skype and use that to further become more of a tech giant.

    My 2kobo(cents)

  22. Cranston N. Tuesday, May 10, 2011

    so how much more do you think Skype could have gotten by going public instead of the sale to Microsoft? More than $8.5B? I guess we’ll never know for sure, but it’s interesting to speculate…

    1. Most people think Microsoft over-paid for Skype, especially based on its earnings, but Microsoft must have some big plans in place, or else was doing this to prevent Skype from falling into Google’s hands (although that’s an expensive way to block)!

  23. It will be exciting to read and see in the months to come how Skype will present new , unique business opportunity on the world wide web to others…

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