Tag Archives: Skype Technologies S.A.

The Fate of New Acquisitions: Whither or Wither?

By Jeremy Wagstaff

I’m writing this on a Windows PC using a great piece of Microsoft software called Windows Live Writer. And that’s only part of the problem.

As you no doubt know, Microsoft have announced they bought Skype, the Internet telephony company, for $8.5 billion. You’ll have to look under a lot of stones to find someone who thinks this is a good deal for Microsoft. Skype made $20 million last year on revenue of $860 million, posting a net loss of $69 million because of interest expenses. In short, this is not a company about to fill Microsoft’s coffers with dosh.

Whenever a big company goes on a buying spree I reach for my gun and head for the hills. These things never end well. A few weeks back we heard about Cisco buying and then killing Flip, those great little pocket cameras so simple to use people actually use them. I used to keep a list of these acquisitions, because I naively used to think that a big company buying a smaller one was a happy ending. I’ve nearly always been proved wrong.

Yahoo bought a browser bookmarking service called delicious that they parked in a siding until eventually selling it, a few weeks back, to someone who actually seems to understand the product. In fact a fun game is to quiz Yahoo PR people about the state of their company’s lesser known products and count how many “I’ll have to get back to you on that one” responses. I’ll give you a head start: Ask about Konfabulator, a sort of desktop widgets program which was excellent, but has quietly withered on the Yahoo vine. The developer’s blog hasn’t been updated since 2007.

Yahoo are probably the most egregious offenders but everyone does it. Google boughtJaiku, a twitter-like service that was better than twitter, but have done precisely nothing with it. Nokia bought dopplr, a social networking service for people who travel, and have done precisely nothing with it. (Product blog hasn’t been updated since September 30 2009, two days after Nokia bought it.)

So why do it? Buying companies makes people money, somewhere in the chain. It disguises ineptitude, or it is what is called a defensive play: I’ll buy it so you can’t.

The Skype deal neatly illustrates Microsoft’s problem is a simple one: It lacks direction. It doesn’t seem to know what it wants to do so it creates a new brand, a new product, a new division—often out of an old one. The product I’m writing this on is part of (frankly the only good part of) the Windows Live array of products—whatever that is; I’ve never quite figured that part out. (Type live.com into your browser and something different seems to happen each time; now it’s a sort of stream of consciousness page that’s more of a stew of Microsoft’s various offerings. ) Windows Live Writer was part of a product Microsoft bought called Onfolio; it has survived, somehow, though few people seem to know about it outside a very narrow group of enthusiasts.

And here’s the rub. Microsoft has no idea what to do with all these products it spews out or inherits, so it forgets about them. Most of you know that Hotmail and Bing are Microsoft products. But how about Lync? Or Kin? Anyone remember Zune? And what is the difference between Windows Live and Windows Live Essentials, for example? Or Windows Messenger, Office Communicator, Windows Live Messenger and MSN Messenger? Or Sync Center, Live Mesh, SkyDrive, FolderShare and Live Sync?

No, I’m not sure either.

Go to Windowsmarketplace.com and you’ll be told that “Windows Marketplace has transitioned from an ecommerce site to a reference site.” Confused yet? Go togetpivot.com, the website of what was billed a year or so back as “the most ambitious thing to come out of Live Labs” and you’ll get directed to, er, bing.com. Live Labs itself was disbanded a few months later. Now old links to Live Labs go to bing.com, which was where those members of the team ended up that didn’t quit. Out of the 14 projects initiated by the lab counted on Wikipedia, all but five are dead. Of those, only a couple seemed to still have any life in them.

When a company diverts a link from one of its own press releases barely a year old to, effectively, nowhere, it’s a pretty good sign that’s where the vision has gone too. This was after all Microsoft’s big research team—at least the most exciting one (Microsoft spends about $9 billion per year on R&D, according to Jean-Louis Gassée, a French analyst.) Microsoft products seem to get lost in a labyrinth of confusing branding, branching and segmentation tunnels, confusing and demoralizing the user to the degree they throw up their hands and go buy a Mac.

Not I. I know about Microsoft products because I use them. A lot. And the more I usemy Mac the more impressed I am with parts of Windows 7.  The problems with the operating system could be fixed in an afternoon: Watch a couple of users try it out and then ask them what was missing. Build those bits into a new version, ditch the trash and you’re good to go. (Some clues: something like iPhoto but better than Photo Gallery for handling photos. Something like iMovie but not Movie Maker. Apple’s products all come pre-installed. Microsoft’s are a confusing, lengthy and intrusive download and reboot away. Oh, and something half way between Microsoft Word ($200 or thereabouts) and the freebie WordPad; Apple’s equivalent Pages costs $20. It’s not as good as Word, but it’s a 10th the price.)

So where is Skype going to fit into all this? Well, the problems start with Skype itself. Since eBay bought it in 2005 it has been something of an orphan, passed around with little idea of what its future might be. It wasn’t always thus. I drank the Kool-Aid back in 2005, and thought like others it was going to change the way we communicated and did business online. I joined the vision of a world where everyone from clairvoyants to business consultants (ok, that’s not such a wide swathe) would offer services over Skype. Audio, text, video, you name it.

That hasn’t happened. For most people it is just a way to avoid paying rip-off phone charges and do the odd video call. Everything else is marginal. The most recent Extra—the add-ons that were supposed to be part of this new Skype ecosystem–is dated January 2010 and that’s just an update on an old program. One guy I interviewed in 2005 had set up a network of 30,000 experts in 50 countries on a website called Jyve.com that was going to piggyback this new Skype-connected world. He’s nowhere to be found now and Jyve.com is an empty page.

eBay didn’t get it, of course, but that’s only part of the story. About a year ago I wrote a piece calling on Skype to realize that it was at heart the world’s most effective social network tool. I wrote:

If Skype dovetailed with Facebook, twitter and LinkedIn it could position itself at the heart of social media. After all, it’s probably the only application that most Internet users have installed, loaded and [have] active on their computer. Unlike Facebook et al, Skype is there, right in the moment. It’s the ultimate presence app.

Indeed, it’s much more like an instant Rolodex (remember those?) than all the other networking services we use. If I want to contact someone the first place I check is Skype—if they’re online, what’s the point of contacting them any other way?

In other words, Skype offers a granularity that other social networking tools don’t: Not only is it comfortable with one to all (the status update message), it’s also comfortable with the one to several (add people to a chat or call), it’s also great at instantly connecting one on one. You can even reach people offline via it, if they have call forwarding enable, or you have their SMS details stored.

No other social network offers that.

Skype sits on every computer (and most smartphones.) By definition all the people the user is connected to are people he wants to actually communicate with—rather than just ‘friending’ or ‘ ‘connecting to’. It’s an easier way to share stuff—photos, files etc–and it’s now pretty easy to set up groups and stuff (In Afghanistan we used it as a way to share security updates; people could see the information in real time or catch up on messages when they got online. In Singapore I use it to talk to my students via teams and the whole class.)

Unfortunately Skype may have read my piece, or they may not. Either way, they half went down this road by trying to throw in lots of things that people didn’t need—including an annoying Firefox extension that turned every number on a webpage into a phone number, including bank accounts. Now Skype is so big and clunky it crashes on my Android phone and my Windows computer.

But in a perfect world Skype works. It’s simple. For many people it’s a telephone. For others it’s a presence indicator: I’m online, I’m not. My computer is connected to the internet (green button showing) or there’s a problem with the connection (grey downer button showing). For some people it’s become a very useful way to organize teleconferences (though don’t talk to my colleagues on an Indonesia project about this; they spend hours trying to get a connection going.)

Skype wasn’t first but it worked better than others, which is why everyone has a Skype account, and why asking for someone’s Skype ID is almost as natural as telling asking for their email address.

But unfortunately I’m not sanguine about a Microsoft/Skype future. Either they integrate the technology behind it into their other smorgasbord of products, in which case you wonder why they didn’t develop the technology themselves, or they leave it as it is. Either way it’s not good: While analysts have focused on how Skype might fit into Microsoft’s non-PC products like Kinect and Xbox, it’s hard to imagine that Microsoft won’t try to shoehorn Skype users into one of its misbegotten sub-brands, losing non-Windows users along the way.

Skype Messenger anyone? Live Skype? Skype Office? Skype Explorer? I shudder to think what will happen. I may be wrong—I’ve been plenty wrong about Skype before—but my fear is of a Skype that gets as clunky and overloaded as MSN Messenger, as bewildering as the Live family of products, as impossible to separate from other Microsoft products as Microsoft Word, as doomed as Outlook Express and anything from the Live Labs mob.

I do hope I’m wrong because of all the networks I have on my computer and cellphone, Skype is still the one I actually need. Skype: whither or wither?

Skype, PayPal and eBay

There’s quite a bit that’s interesting in all this Skype/eBay business. I know others have raked over all this before, but now it’s official I’ll weigh in too.

The release is quite informative. It says “Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.” How, exactly?

Well, “Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles.”

That’s straightforward enough. Buyers and sellers can hook up via a SkypeMe button which lets them instant message, or talk to one another, presumably for free. Or does it?

“The acquisition also enables eBay and Skype to pursue entirely new lines of business. For example, in addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype. Pay-per-call communications opens up new categories of ecommerce, especially for those sectors that depend on a lead-generation model such as personal and business services, travel, new cars, and real estate.” This, I take it, means that beyond merely providing a market-place of sellers and buyers of goods, eBay hopes to become a market-place of services, whether they’re pure consulting, travel agencies, or selling things that require a degree of expertise (cars and real estate are mentioned, but they could as easily be careers.

Then there’s paying for Skype’s services. “PayPal and Skype also make a powerful combination. For example, a PayPal wallet associated with each Skype account could make it much easier for users to pay for Skype fee-based services, adding to the number of PayPal accounts and increasing payment volume.” True: Skype’s payment system is awkward, if not disastrous for many folk living off the beaten track. But PayPal’s isn’t much better. Both services need to get with the program on that, or face the growing wrath of people in the world’s more interesting regions.

I won’t get into the extraordinary cost of buying a company that made only $7 million last year. There’s no question there’s wonderful synergy to be had here. But there’s also the caveat that eBay should not underestimate the other lesson that the Skype revolution has taught us. People were willing to overcome all sorts of technophobia when they realised the enormous cost and social benefits of installing Skype. Now they’ve done so, they will more easily than ever before switch elsewhere if the appeal of Skype diminishes, either because of sneaky advertising, sneaky fees or if the remaining drawbacks of Skype — most particularly, but not exclusively, its payments system — are not tackled quickly.

Ebay to buy Skype: It’s Official

eBay Inc. has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration.

Here’s the rest of the release:

The acquisition will strengthen eBay’s global marketplace and payments platform, while opening several new lines of business and creating significant new monetization opportunities for the company. The deal also represents a major opportunity for Skype to advance its leadership in Internet voice communications and offer people worldwide new ways to communicate in a global online era. Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.

“Communications is at the heart of ecommerce and community,” said Meg Whitman, President and Chief Executive Officer of eBay. “By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”

“Our vision for Skype has always been to build the world’s largest communications business and revolutionize the ease with which people can communicate through the Internet,” said Niklas Zennström, Skype CEO and co-founder. “We can’t think of any better platform to fulfill this vision to become the voice of the Internet than with eBay and PayPal.”

“We’re great admirers of how eBay and PayPal have simplified global ecommerce and payments,” said Janus Friis, Skype co-founder and senior vice president, strategy. “Together we feel we can really change the way that people communicate, shop and do business online.”

Zennström and Friis will remain in their current positions. Zennström will report to eBay CEO Whitman and join eBay’s senior executive team.

Online shopping depends on a number of factors to function well. Communications, like payments and shipping, is a critical part of this process. Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles.

The acquisition also enables eBay and Skype to pursue entirely new lines of business. For example, in addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype. Pay-per-call communications opens up new categories of ecommerce, especially for those sectors that depend on a lead-generation model such as personal and business services, travel, new cars, and real estate. eBay’s other shopping websites – Shopping.com, Rent.com, Marktplaats.nl and Kijiji – can also benefit from the integration of Skype.

PayPal and Skype also make a powerful combination. For example, a PayPal wallet associated with each Skype account could make it much easier for users to pay for Skype fee-based services, adding to the number of PayPal accounts and increasing payment volume.

In addition, Skype can help expand the eBay and PayPal global footprint by providing buyers and sellers in emerging ecommerce markets, such as China, India, and Russia, with a more personal way to communicate online. And consumers in markets where eBay currently has a limited presence, such as Japan and Scandinavia, can learn about eBay and PayPal through Skype. Skype can also help streamline cross-border trading and communications.

With its rapidly expanding network of users, the Skype business complements the eBay and PayPal platforms. Each business is self-reinforcing, organically bringing greater returns with each new user or transaction. The three services can also reinforce and accelerate the growth of one another, thereby increasing the value of the combined businesses. Working together, they can create an unparalleled engine for ecommerce and communications around the world.

Transaction and Financial Information

eBay will acquire all of the outstanding shares of privately-held Skype for a total up-front consideration of approximately €2.1 billion, or approximately $2.6 billion, which is comprised of $1.3 billion in cash and the value of 32.4 million shares of eBay stock, which are subject to certain restrictions on resale.

The maximum amount potentially payable under the performance-based earn-out is approximately €1.2 billion, or approximately $1.5 billion, and would be payable in cash or eBay stock, at eBay’s discretion, with an expected payment date in 2008 or 2009. Skype shareholders were offered the choice between several consideration options for their shares. Shareholders representing approximately 40% of the Skype shares chose to receive a single payment in cash and eBay stock at the close of the transaction. Shareholders representing the remaining 60% of the Skype shares chose to receive a reduced up-front payment in cash and eBay stock at the close plus potential future earn-out payments which are based on performance-based goals for active users, gross profit and revenue.

The above-mentioned dollar and eBay share amounts are approximate, based on the Euro-Dollar exchange rate and eBay’s stock price as of September 9, 2005. The final value of the stock component of the consideration may vary significantly from this estimate based on the value of eBay stock at closing.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. For Q4-05, eBay expects the acquisition to be dilutive to pro forma and GAAP earnings per share by $0.01 and $0.04 respectively. For the full year 2006, eBay expects the transaction to be dilutive to pro forma and GAAP earnings per share by $0.04 and $0.12 respectively, with breakeven on a pro forma basis expected in the fourth quarter of 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20% to 25%.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.

Was the News Corp Offer for Skype Real?

Was the story that News Corp nearly bought Skype for $3 billion really true? British paper the Independent on Sunday seems to think so:

 According to well-placed sources, Skype entered into talks with News Corp over a potential $3bn sale. This would have made a massive profit for the two founders and their backers – Hotmail investor Howard Hartenbaum and four venture capital firms – which together put just $20m into the business.

However, talks fell apart last month, just before Rupert Murdoch’s son Lachlan quit his father’s empire. Skype would have fitted in well with News Corp’s satellite TV interests, which include controlling minorities in DirecTV in the US and BSkyB in the UK.

This was originally reported a week or so ago by the PBS’ Bob Cringely, but lacked sourcing and was knocked down by several folk, including Techdirt.

Unfortunately The Independent’s sourcing is not much clearer than Cringely’s:

Rupert Murdoch’s News Corporation is understood to have made a bid approach to the fast- growing internet phone group, Skype, which may have valued the two-year-old operation at almost $3bn (£1.7bn).

Talks have broken down and Skype has denied it is for sale. But sources in the telecoms industry say they expect it to be taken over shortly.

Anyway, one potential clue about the sourcing is in the last paragraph:

Bob Cringely, a US technology expert, said: “What’s most interesting about News Corp and Skype isn’t that the deal fell through, but that News Corp even knew Skype was available.”

So, was Bob a well-placed source for this story, or just a commenter?

UK WiFi Users Get Free Skype Calls

Skype is moved into wireless telephony by announceing that a deal with UK wireless provider Broadreach, the BBC reports.

People using wireless net hotspots will soon be able to make free phone calls as well as surf the net.

Wireless provider Broadreach and net telephony firm Skype are rolling out a service at 350 hotspots around the UK this week.

Users will need a Skype account – downloadable for free – and they will then be able to make net calls via wi-fi without paying for net access.