A few years ago, Skype co-founders Niklas Zennstrom and Janus Friis were persona non grata in the United States, scared to enter the country in case they were arrested for unleashing file-swapping Kazaa on the internet.
This week, they were glowing in the limelight as they sold their second venture to eBay for $3,2-billion to $4,1-billion, depending on financial results in the next few years. The irony is that the technology that underpins Skype — direct connections between two computers, called peer-to-peer or P2P — is what drives Kazaa and allows millions of people to swap music and video files.
Now, instead of having to base themselves in Luxembourg to avoid the Recording Industry Association of America’s legal threats and accusations that Kazaa has undermined CD sales by allowing copyrighted music to be shared, Zennstrom and Friis were fêted by eBay CEO Meg Whitman.
Skype’s extremely profitable sale had to happen sooner rather than later. While eBay ultimately took it, there has reportedly been interest from Rupert Murdoch’s News Corp; the poster child of internet telephony was too rich a jewel not to be added to someone’s web crown.
Analysts have been puzzled by the size and rationale of the deal, although there were concerns that eBay’s purchase of PayPal three years ago for $1,5-billion was a bad move as it was not their core business. Now PayPal is used by millions of people every day and is close to a $1-billion-a-year business.
Whitman says Skype will add value for buyers and sellers to communicate and increase the level of trust. These buyers and sellers already email each other before concluding transactions, with eBay estimating five million such messages are exchanged every day.
Skype offers a growth opportunity for eBay, which is nearing saturation in the United States where most of its customers are based; while half of Skype’s users are in Europe and only a quarter in the US.
Skype has 52 million registered users that make free calls to each other, and another two million who make paid-for calls to traditional land lines using the SkypeOut service.
Wall Street watchers are crowing that this sale shows that IPOs are back in business, recalling the halcyon days of the dotcom bubble of the late 1990s, or at least Google’s triumphant listing last year.
Not everyone is thrilled, though. Some Skype users have posted comments fearing their free service might see charges in the near future, or other encumbrances that will decrease its usefulness.
Financially, it hardly seems to make sense.
“This is an incredible price for a company with $60-million of revenue this year. Skype technology does not justify the high price. There are other, far cheaper ways to buy into voice-over-internet technology from wholesale providers,” Rod Hall, of Dresdner Kleinwort Wasserstein, told one British paper.
A South African ICT watcher says, “At the full purchase price you are looking at R500 per subscriber.
“That is a lot to pay even for a cellphone company with massive capital in the ground, or for an ISP with debit orders from each customer. And don’t give me the future-growth story — at least two viable clones already exist and a single slip could see Skype’s customers migrate in a couple of days. A slip like allowing inter-operability. Or a slip like ‘not’ allowing inter-operability. Those dirty little consumers are fickle.”
Either way, it is a success story for two of the internet’s one-time villains and now unlikeliest heroes.