Should Facebook Buy Skype?

58 Comments

Photo of Skype CEO Josh Silverman By Phil Wolff via Flickr

Ever since Skype was freed from the shackles of eBay (s EBAY), I’ve marveled at the company’s management team led by its CEO, Josh Silverman. Sure, it has a whole lot of powerful backers, but in the end, it’s the team and their strategy. For now, Skype’s strategy is very simple: omnipresence.

As we’ve outlined before, Skype is trying to embed itself in every conceivable connected device. Whether it’s an LG television or an iPhone (s aapl), the new team wants Skype’s IM, voice and SMS services to be embedded as an API, a strategy they successfully learned from my other favorite company, Netflix (s NFLX). More Skype in more places means more opportunity for them to capture dollars from folks looking to make calls to traditional phones.

Skype Pokes Facebook

Last month, for instance, the company announced Skype Connect (Formerly Skype for SIP), which would allow it to work easily with other PBX systems. This technology will bear fruit with Skype’s partnership with Avaya, which will be announced today. There’s also news that the company is working closely with Facebook and integrating with the social network’s experience. (It has a similar arrangement with MySpace.)

Kara Swisher reports that the deal involves integration of Facebook Connect, SMS and Voice Chat:

  • You can call and SMS Facebook friends from Skype
  • Skype is building Facebook Connect into its system.
  • You can videochat with Facebook friends.
  • It will be part of Skype 5.0 beta, likely to be released in a few weeks.

Facebook, Buy Skype. Seriously!

Facebook wants to mesh communications and community together, which explains why Facebook Phone is in the cards. Skype has become a dominant force in Internet telephony over the years, and if it wants to become the communication console of tomorrow, a vision outlined by CEO Silverman, then it needs to embrace newer forms of communication such as Facebook and Twitter.

It’s logical for Facebook and Twitter to come together.

I propose Facebook should just pony-up and buy Skype, even before they go public.  There have been rumors that Skype might be up for sale. Skype and Cisco (s CSCO) have been mentioned in the same breath, but to me, a Facebook-Skype deal makes more sense, considering both are software-driven, social-centric, communication utilities and not hardware-centric like Cisco.

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 (s GOOG).

To be honest, for our readers, this marriage won’t be a new idea. In 2008, Dan Berninger, one of our guest writers, proposed the need for a social directory:

The social directory represents a far more elegant solution than that of spamming friends with requests to update contact information through services like Plaxo. The social directory could make a social circle accessible via clickable links while hiding the actual contact information. Rather than giving out a telephone number or email address to a new acquaintance, users of a social directory would associate their listing with keywords (such as “plumber” or “dog lover”).

As the number of communication options increases, so does the burden of managing contact information, yet Internet-enabled directory options remain lacking. Riches await the infocom company that achieves gatekeeper status for the Internet’s communications applications.

Need we say more?

2+2=22

With over 560 million folks who’ve signed up for Skype, and revenues touching nearly a billion dollars, Skype is nearly as big as Facebook itself, though its value is less than Facebook, mostly because it’s monetized its vast base of users poorly in the minds of some. Facebook has over 500 million members, and is said to be doing a billion dollars in sales every year. How much should the deal be worth — no idea, but say if its five times next 12-month revenues, Facebook, which is a valued at $33 billion should pony up around $7 billion-to-$7.5 billion in its stock for Skype.

Now if the two companies come together, that would be one intimidating combination. Given that Marc Andreessen sits on the board of both Skype and Facebook, thanks to his investments in the two companies, he may get them talking!

Related research from GigaOM PRO (subscription required):

58 Comments

Junio Branco

If facebook actually bought skype I think it would create a bridge that will connect even more people.
Almost everyone has skype these days and almost everyone has facebook as well.. merging them together in my point of view it will just bring a positive outcome!

brett

Fundamentally these two systems (FB and Skype) are opposed. One, i.e. FB wants to ring fence the web and bring all that you need into one application and trap as many eyeballs on adverts as possible. Skype enables you to reach out, its about openness and not behind walls. FB is in real danger of alienating people like myself who value the openess of the web and can handle “living” in more than one application and pref to do so…nobody should rely on just one system of communication.

Email is universal, it does everything I need it to and unless FB and other closed networks up their contact systems and allow me the same functionality, FB messaging will remain a plaything that simply means no spam [or so I used to think].

There may be a culture clash or infact some degree of synergy between a possible pairing…but the two demographics are possibly very different.

Is the “Grand Unified Model” of social networking doomed?

David Mullings

At first I thought this was a great idea. I use both Skype and Facebook and already have my REAL friends from Facebook on Skype as well.

It would be much easier to connect with my other Facebook friends if Skype was integrated. For those people who are concerned about their number being accessible to so many people – I assume you all are not listed or have ever been listed in a phone book. If people want your number, they can find it.

Where the deal fails for me is:

1) Facebook Connect alone would solve the integration problem so there is no need to own Skype

2) You make acquisitions to increase revenue and allowing 500 million people to call each other for free seems a good way to not generate much more revenue from Skype.

Yes, some of the people will spend money to be able to call land lines but that is a bet that I personally would not take if it was my call, as tempting as it is.

I use Skype on my iPhone and I rarely spend any money on minutes since I just call other Skype users. Adding all of Facebook to that only makes it even easier for me to not have to spend money.

anon

om, not sure if this makes too much sense. the younger demographic does not use voice, migrating them to voice and figuring out how to monetize seems hard. there are lot of old foggies on FB too these days (like me) who do you voice and FB, but not sure how that can be monetized. skype’s s1 shows that there is a lot of p2p voip and video traffic but not much revenue. maybe ad supported voip/video, though i doubt it….

ebay history may repeat here – i am told before they bought skype, ebay thought (thanks meg) that this will be a cool way for buyer seller to interact, till they realized that voice and video communication can cut them out. similarly all demographic info that FB users provide may be lost….

Shawn

Skype offers a great service but their longevity is questionable because they are dependent on the pipe. Both facebook and skype have been effective at evolving and staying alive in an industry that rapidly changes. That could make for a good partership, however it is also a risky investment for facebook.

However, they still depend on the pipe, which means they are all vulnerable. It took Google way too long to realize they needed to begin investing in fiber, white spaces, etc.

TechClicker

I think another interesting reason why Facebook may want to acquire Skype is because of Skype’s huge international presence – its piece of the international calling market continues to grow.

Facebook, although enormously popular in the US, isn’t necessarily the most popular social network in other countries (http://www.businessinsider.com/chart-of-the-day-facebook-not-popular-in-countries-2010-9). By uniting with Skype, it could capture a lot of Skype’s international users and buttress its international reach.

Sayem Islam

Completely agree, Om; we’ll see some voip integration with Facebook at some point for sure – it’s the #1 mobile app across all platforms globally. I commented about this on an earlier post of yours, which was also spot-on, “The Slow Death of a Social Network” – http://bit.ly/9J5paC

Seth Weintraub

“As we’ve outlined before, Skype is trying to embed itself in every conceivable connected device.”

Are you kidding Om? Skype signed an exclusivity contract with Verizon making it impossible for them to be installed on any other Android OR Blackberry device in THE WORLD.

That blows your whole argument out of the water unless I am mistaken?

Om Malik

I am not sure if you use iPhone on AT&T, but Skype does work. It works on many Nokia devices as well. If you think Verizon/Android/Blackberry — yup, they have a tactical exclusivity. Look at the devices they are currently aiming it.

eric Chan

a simple question was never asked

what percent of facebook users communicate with each other regularly through voice??? (and vice versa)

without knowing this, you can determine the overlap in the REAL use base (not just accounts but people who actually talk to each other)

you cant figure out whether you can get skype users on FB, or vice versa to increase the traffic/usage

you cant determine the incremental revenue of any said merger

Shaa Linar

Time flies by; days are short; I have lots of phone calls to pass and no time to spend polishing up my profile on social networks. Give me Skype on any platform: Skype on Android, on Windows mobile, on iOS, on Blackberry or Symbian. But I’d stop using it the day it’s bought by Facebook.

guest22

Clearly, @om, you believe that Facebook will evolve and succeed. Some of us would prefer if the FB one-trick-pony died an early death. They grew based on timing, white college kids anti-Myspace prejudices etc. – It was serendipity, not strategy.

If FB bought SKYPE, I’d delete my SKYPE account. Dead simple.

Google acquired Gizmo5 and will more deeply integrate VOIP and free messaging on Android, which will clearly be the leading OS on mobile in the near future and could hit 80% penetration of the smart phone and tablet market. I’ll side with that solution over a FB/SKYPE structure.

Ultimately, FB wouldn’t know what to do with SKYPE except nab more personal data, not enhance the service or figure out what they’re going to do once GOOG decides to make their real move in VOIP.

Jamie Siminoff

Agree 100%. I keep hearing people say that Facebook just build the technology in house or buy a small company with it. At the size Facebook is now I do not think anything would work for them in the voice/video space except for something as large and with as much momentum as Skype.

Om Malik

Finally someone who agrees with me. I have been surprised by the negative reaction to the idea. Not surprising considering how much all of you love Skype and the service they offer.

babyis60

Jamie, I agree that in a lot of ways this makes sense, it would counter Google very nicely, I also agree that it would be very tricky for facebook to buy or build a 500kuser voice and video network from a standing start. But, I do have an ebay feeling about this, the company cultures are too different. Skype is careful, slow moving and (so far) trusted. Facebook is quick, not afraid of making mistakes and untrusted. That’s a recipe for a clash and very mixed messages to the users.
I guess that’s why you are hearing such consternation from skype users.

You might see Skype doing a split in a year or two, jettisoning the P2P part and holding on to the profitable next gen centralised SIP telco they are becoming.

sarah

If I were Skype, I wouldn’t be acquired for anything other than cash, or publicly available stock. Facebook’s stock valuation is aggressive, and who knows what an IPO would hold (and when).

Plus, my friends are using FB less and less these days…kinda like the reunion is over and we’re all going home now. Not that we’ll abandon it completely, but my wall is not the place it was a year ago.

Brian McConnell

There is an essential difference between the two companies. Skype is a utility (as in an essential tool for the people who need it to communicate). I use it every day to do voice and video calls with people worldwide for work. It is not a recreational tool. I don’t use it to kill time, play FarmVille, etc, not that there is anything wrong with that.

Facebook, while it is a great service, could disappear tomorrow, and the world would not end. It fulfills more of an entertainment desire than a real need. I need a service like Skype to communicate with people overseas in a cost effective manner (or do a video call that will save me a thousand dollars in travel costs). Facebook doesn’t do any of that.

I guess my point is that Skype could quietly work on non-visible improvements like voice/video codecs but otherwise not change their service much for ten years, and still be successful. Facebook has to compete with whatever hot trend the next batch of teenagers latches onto. Very different focus and priorities.

Skype is a phone company. Facebook is a media company. Previous attempts to combine the two have fared very poorly.

Gautam Tambay

It’s unclear what incremental benefit either party would get from a merger (as against just a deep partnership like the one to have forged). Seems to be that a well-crafted partnership can help them both realize most (if not all) of the benefits of working together without any of the potential pitfalls (post-merger integration, management distraction, etc.)

Frank

To improve the depth of the social graph and interaction, there are much better buys out there that will drive revenue and margin growth much more significantly. Thumbs down on Skype.

Paul

No, Facebook should not buy Skype. What looks superficially strategic would probably turn out to be a quagmire.

First, Skype would add few, if any, new users to Facebook.

Second, there would be little revenue. For the way most of them would use it, Facebook’s users would expect Skype services to be free, and joining Facebook could make it more difficult for Skype to win more valuable business users.

Third, it would be expensive when Facebook could easily sew together a solution from the corpses of Skype’s competitors.

Fourth, Skype’s foreign-based teams seem pretty proud of themselves, as does Facebook’s local team. The combination is a recipe for conflict.

ronald

Are you hinting at a modified version of Metcalfe’s rule (besides notes being organized around people, therefore limiting the number of connections), with the added modifier that the (social) net becomes more useful with the number of ways to communicate?
When does over communicating/multi-tasking, kick in?

Ben Ortega

Who would you call when your phone calling services goes down? Skype or Facebook? This is more than a marrying of technology and user bases; it would make Facebook a service provider. You know what happens after that…meeting FCC requirements.

Also wasn’t Skype’s valuation when eBay jettisoned it at like $1.5B. Where did you come up with $7 – 7.5B in valuation?

Brian McConnell

I am skeptical of this one. Skype’s strength is that it has a simple focus on communication, a business model that is not ad driven, and is heavily used for business communication.

I don’t have anything against Facebook, they’re both great companies, but they’re each viable independently of the other, so why try to cram them together. A partnership that makes posting updates from Skype to Facebook easy, or making Skype calls from within Facebook, would have the same benefits in terms of incremental revenues, without all of the risks and costs of a full merger.

I’d like to see Skype remain independent for a long time, and ideally, for them to start buying mobile telcos and make some serious change to the way the telecom industry operates.

Alexander Straub

Clearly skype is a jauggernaut, but they are Not alone anymore… Little truphone has more to offer than only IP Voice, Video and IM Communication . It is also a growing and powerful global Carrier, with some signifikant advantages. Facebook got the 500m Users truphone has the Way to monetize them….

crimson

I disagree, Skype is in a semi-mature business more or less its integration with the web is secondary and leverage is uncertain fruition wise. Assuming they make a profit of around 150(ultra generous on my part) before taxes paying over 3 bil is insane. Skype is not as big as Facebook users have to actually use the service for it to be valuable.

My feeling Skype will go public and slowly collapse valuation wise, due to debt overhang. Maybe even bankrupt in the future.
Best guess is they get valued at 1.5-2.5 bil on market cap + debt and go down from there.

Anvarzon Zurajev

I guess that 500+ million Facebook users and 500+ Skype users mostly correlate. Now, if we are in the mood of marrying companies, let’s make a hypothese of Apple shelling some of its cash on buying out Skype. They would integrate their FaceTime to Skype and suddenly they would penetrate desktops of millions PC users. And sell mad amount of iAds.

Skypefan

Skype has great prospects and probably most Skype combinations make sense
Skype + Cisco
Skype + Facebook
Skype + Google
Skype + Apple

I don’t understand why carriers are aggressively pushing for LTE. It’s is going to bring IP to the mobile handset and give an opportunity for Skype or Google to eat their voice business.

Skypefan

Bandwidth is one the most difficult thing to price-up. Ask Level3, GlobalCrossing etc..Mobile carriers will be soon dumb(wireless)pipes providers.

They are just killing they business with LTE. In few years I will have to chose between a Google / Apple /Skype mobile subscriptions. I won’t even know who is the pipe provider.

Erik Bigelow

I think Skype is great right now, but I’m not so much a fan of Facebook. Personally I’d quit using Skype if it became part of Facebook. I’m not sure what privacy setting I’d have to opt out for if they acquired them, and I’d rather not be surprised to find out later.

EntrepreNerd

This is a horrible idea until Facebook cleans up there contact system, or lack of a contact management system. As it is now it is deliberately difficult to manage those people Facebook forces upon you as “friends”. The last thing I want is a ton of strangers having direct line access to me. That would be like giving all your Twitter followers your cell phone number. Why the heck would I do that? Why would I even enable a service like that? Well, look at the bright side, chances are if Facebook purchased Skype that direct line of access would be on by default until I was able to navigate the maze of settings to turn it off.

God I miss the old Facebook!

Om Malik

Look at it the other way: how about this is an opportunity for them to create a better contact system based on what Skype has learnt in the past. I guess, Skype can impose a layer of “privacy” on the so-called FB friends.

PS: What do you mean by Facebook?

Martin Suter

Three years ago (12/2007), when Skype was languishing with eBay, I suggested Facebook should acquire Skype (http://www.martinsuter.net/blog/2007/12/facebook—uc-for-the-web-20-crowd.html), building a unified communications platform on top of Facebook…

“….Isn’t Facebook really the communications portal for kids today? I’m guessing most kids today have never used Outlook, and why would they?

Facebook contains their contacts, admittedly the “social” subset of what would be in my Outlook contact cards, but it is moving towards providing different views/access levels by categories. It offers “Presence”, rudimentary today, but that will change. Kids don’t use email anymore, they send Messages in Facebook. It’s similar to email but different, with real time notification (find me, follow me) and with the ability to respond via SMS. It has asynchronous chat via Wall postings and video communications (non-real time) through SuperWall. It allows me to stay on top of my communications via RSS feeds and SMS notifications.

Facebook is a social unified communications platform….

However, for all of its considerable strengths, Facebook’s biggest shortcoming today is real time, or synchronous communications, which is where my epiphany comes in.

Facebook should buy Skype…

…Email is dead.

Telephony is dead.

The transport layer is irrelevant.

Facebook + Skype is UC for Web 2.0.”

That’s my .02!

Martin Suter

Erik Bigelow

I don’t think you give kids enough credit. I’m guessing those kids will grow up one day and get a job and at that job probably use Outlook. Also email is one of the biggest uses of mobile. I think kids will learn to use whatever medium they need to to get the message across. That’s their benefit of growing up now. Digital adaptability.

I’m so tired of hearing sensationalistic things like “Email is dead”. You predicted that in 2007 and it still seems to be doing just fine. Facebook has 500+ million accounts. How many email accounts are there? At the minimum one for every facebook account. Anyone that thinks email is dead should stop using it and see how well they can conduct their life. I guess you’ll have to stop using facebook too though since you need that email account. I’m not trying to attack you personally, people have been saying email is dead for ten years now and it’s still flourishing.

Martin Suter

Erik – I appreciate your comments, and won’t take them personally. Yes, I agree that the number of email accounts > Facebook accounts, but the point I was making is that email, for the younger generation, is no longer the go-to, de facto messaging tool. The volume of messages that are being sent using modalities other than email appears far greater than those sent via email (excluding Spam).

I realise it’s dangerous extrapolating from a small sample size, but my 2 sons (16 & 18) send thousands of SMS messages/month, yet use < 60 mins each of voice minutes/month. Yes, they both have email accounts, but I have never received an email from them, other than a Facebook generated email advising me that I have a Message.

Of course email has a place in the corporate world, but I find it fascinating to see the evolution that's underway in communications, both realtime and non-realtime, and I look to today's "kids" for clues on where things are going…

Erik Bigelow

@Martin Suter – I think the use of email for younger people is changing to more of a consumption tool instead of 2-way communication. I too send 1000’s of text messages and don’t really like talking on the phone. I don’t send as many emails as I did 5-10 years ago because there are other (better?) means of communicating. I do, however, use email daily, mostly to see when someone DM’s me on twitter or friend’s me on facebook or updates to linkedin. (After people friend me on facebook I’ll usually send them a message saying if they want to talk to me send me an email or call cause I never check facebook) I also use email for newsletters, registering to sites, and to get deals online. And again email works really great on mobile. While I can see email dying a slow slow death in the future it’s not in the foreseeable future to me(at least 5 years-ish+). There’s nothing acceptable for me right now to replace it. I don’t like or trust facebook, which is also why I hope they don’t buy Skype.

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