Telecom & Wireless

eBay (EBAY) Sells Skype

TVeBay (EBAY), which had planned offer shares in its VoIP business Skype though an IPO, has sold it to private equity interests instead. Netscape co-founder Marc Andreessen, Index Ventures, and Silver Lake Partners are part of the buyout group according to a report in The New York Times.  The purchase price is apparently about $2 billion.

Skype has been an albatross of eBay, which paid over $3 billion for the service. The auction company was never able to integrate its technology into eBay’s core e-commerce operations.

The investors buying Skype may end up bemoaning the acquisition as much as eBay did. According to the company’s 10-Q, Skype transaction  revenue in the quarter ending June 30 was $135 million, but that rose only 20% from the year before. The Skype service has 481 million registered users, so the yield per customer is very small.

The problem with Skype’s revenue is simple. The great majority of people who use the service use it for free. Skype has tried to sell paid versions of the product for years, but that effort has only been modestly successful. Converting more free users to paid, especially after the effort has largely failed, will be difficult. The people willing to pay for Skype products almost certainly already do so. Skype paid services are also up against formidable competition from large cable companies including Comcast (CMCSA), Time Warner Cable (TWC), and their peers abroad.

The management at eBay has decided not to go the route of an IPO, which means it probably believes that Skype will not be well-received in the stock market. That is another odd reason that private equity interests would be attracted to the VoIP firm.

The buyers clearly think that they will be substantially better managers of the Skype assets than eBay was. The auction company certainly had enough time to apply every theory it had to make Skype more successful, without much success. There is no reason to believe that anyone else can do much better.

Douglas A. McIntyre

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