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Over the weekend, The New York Times reported that Skype founders Niklas Zennstrom and Janus Friis were in talks with private equity groups to raise about $1 billion and buy their Internet calling service back from eBay (s EBAY). They sold the company to eBay in 2006 for $2.6 billion and later got another $500 million as a final settlement. To say that the eBay-Skype merger was royally botched would be a bit of an understatement. It’s hardly a surprise that eBay CEO John Donhaue is looking to get rid of the $3.1-billion noose put around eBay’s neck by his former boss, Meg Whitman. Whitman signed off on a deal that essentially allowed Niklas and Janus to walk away with the core P2P technology that makes Skype work. Joltid, a holding company controlled by Niklas and Janus, sued eBay earlier this month, and Skype has in turn sued Joltid. I can’t help but notice this paragraph in an eBay 8-K filing.
Although Skype is confident of its legal position, as with any litigation there is the possibility of an adverse result if the matter is not resolved through negotiation. In such event, Skype would be adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.
With this litigation hanging over its head, eBay’s hands maybe tied when it comes to Skype’s future. For instance, it can kiss a spinout offering on the stock markets goodbye. With the exception of Google (s GOOG) and Microsoft (s MSFT), there aren’t any serious buyers who have deep enough pockets to pay eBay the cash and keep Skype going. And with this litigation, who would take a flyer on Skype? The buyout offer from the founders might seem like an episode of the hit British series “Hustle,” but it could be a good offer nonetheless.
I spoke to a few ex-Skypers, and they tell me if the dynamic duo did buy the company, they would love to go back to work for the startup that changed the phone landscape. As I have said previously — somewhere around $1 billion is actually a fair price for Skype. According to analysts, eBay wants about $1.7 billion for Skype.
Skype has about 405 million subscribers, and it now accounts for about 8 percent of international long-distance traffic. It had $550 million in revenues for 2008. It has started to expand into business markets, and the company has finally started to take the mobile opportunity seriously. It’s also one of the fastest-growing apps on Apple’s iPhone/iPod touch platform. A version for WiFi-enabled BlackBerrys is coming in May. The bad news is that, sooner rather than later, Skype’s growth is going to hit a ceiling.
At that point, Skype needs to start thinking beyond offering cheap calling and transform itself into a more innovative service that leverages the 400-million-strong installed base. For instance, it could easily become a content distribution service. It would also need to figure out how to work with other, more modern communication platforms such as Twitter and Facebook.
If Niklas and Janus do indeed pull it off, I would have one piece of advice for them: keep Skype CEO Josh Silverman around, preferably in the current role. They should focus on technology, vision and strategy for the company. What advice would you give Niklas and Janus? What do you think Skype can do to evolve and adapt for the future?