Alec Saunders SquawkBox

The rumours have been flying for a week or so that Skype was to be sold.  Yesterday the rumour became fact, as eBay unloaded a 65% stake in Skype to a consortium of investors, including some of the original Skype investors like Index Ventures.  eBay gets to keep a 35% stake in Skype, and gets out of what was arguably a bad marriage from the beginning. Skype, on a path to do a cool billion in sales next year, gets to be an independent entity once more.

So why now?  Why not just wait it out until next year when the prospects of a Skype IPO might be better, and shoot for a public offering?

It’s all about risk mitigation.  Skype’s IPO could have been torpedoed by any number of factors including a downturn in the market, the failure to resolve the JoltID licensing dispute with Skype co-founders Zennstrom and Kase, or even the remote possibility of a new competitor devaluing Skype.  eBay’s management prudently took $2.1 billion off the table, but preserved their ability to participate in the upside of an IPO.

Should eBay shareholders be angry?  Perhaps some will be.  The more risk averse, however, are surely relieved.

Yesterday EBay reported their numbers.  Skype's revenues grew by $11 million from Q1 to Q2 2007, from $79 to $90 million. Skype-out minute volume, however, was flat, at about 1.3 billion for the quarter.  This morning Jim Courtney, and Om Malik are both asking how Skype manages to grow revenues without increasing minute volume. 

The answer is pretty clear friends.  Skype raised their prices in January. 

• Skype Pro replaced their previous premium bundle of Skype-In and voicemail with an upgraded bundle.  While Skype Pro includes a lot more, it also costs 24 euros per year rather than 15 euros. 
• They added a connection charge of 3.9 euro cents per call, which previously didn't exist.  The impact of this cannot be understated.  Take the previous quarter, with 1.3 billion Skype-Out minutes used.  VoIP service providers assume an average call duration of between 7 and 11 minutes, so let's say the average Skype-Out call is 10 minutes in duration.  That's 130 million potential connection charges, and a cool 5 million euros (just shy of $7 million US) in revenue. 

Om also notes that registrations were in a slight decline for the quarter too — down from 25 million to 24 million.  Don't forget that Skype ran a campaign late last year, and into the early part of January offering unlimited calling to North American's for $15 annually, if customers signed up before the end of January.  Now the price is $30.  It's likely there was a rush to sign up before the end of that campaign.

Skype is an interesting company to watch because it's a hybrid blend of Voice 2.0 economics and old-style telco minute charges. The combination of flat rate economics and service charges plus the relatively low penetration rate into their install base would suggest that with clever marketing to the Skype install base, EBay can turn Skype into a money machine.  With a 200 million strong install base, EBay is right to focus on making those loyal users more profitable, which is what this quarter's numbers are showing.

One of the more lurid stories of the VoIP business has come to a close, as U.S. District Court Judge Florence-Marie Cooper has dismissed the $4.1 billion antitrust lawsuit filed by StreamCast Networks against VoIP service provider Skype, eBay and more than a dozen defendants.  It certainly made for great reading with allegations of racketeering, antitrust and all the imagery that goes along with.  It even had an intrepid sleuth in Andy Abramson, digging through court filings to grab a copy of the suit before the news broke.

The story broke at the end of March last year.  Later in May, StreamCast amended their complaint, adding eBay to the suit, and demanding $4.1 billlon in damages. The core of StreamCast’s complaint was a claim that they had right of first first refusal in the event that the Skype technology was sold elsewhere. In effect, they were asking the court to undo the Skype sale to eBay.

It had us all asking how much due diligence eBay had done on their purchase.  After all, these were pretty heavy duty allegations!

Is the story over now? The judge rejected all the claims, but StreamCast’s attorneys have said they may appeal.  Andy Abramson, who broke the story originally, certainly doesn’t see this as the end, but it seems an up-hill battle from this point forward.  

Sometimes spin is pretty obvious, ain’t it?

There’s been a bit of a management shakeup over at Skype.  The EBay crew is out, and Dr. Z (Niklas) is back in charge.  Om Malik has the inside story as, in true investigative reporter fashion, he’s been reporting the juicy tidbits as they leak out.  Jaanus has the sanitized version of the story on the Share Skype blog.  And, of course, there’s the press release. 

It’s spun as a promotion from CMO to President for EBayer Henry Gomez.  But then in the next sentence, Gomez is positioned as an advisor to Niklas…

With Kazim’s departure, Henry Gomez, Skype’s Chief Marketing Office and Director of Country Operations, has been named President. In his new role, Gomez will serve as an advisor to Zennstrom and the principal liaison with eBay and PayPal.

Correct me if I’m wrong, but President is usually an operational role, is it not?

Will Google really abandon Click-to-Call?  It’s doubtful. More likely is that the Google blog was hacked. 

1. The hard part about click to call is not the telephony piece.  The technically hard piece is the advertising and targeting engine.  The hard business piece is building the relationships with the advertisers and the publishers. Google has already done the heavy lifting.  They can go to anyone for the telephony piece. 
2. GTalk needs a telephony partnership to be competitive against MSN, AOL, Yahoo and Skype.  They need to provide terminations on the PSTN as part of the package.  Google’s going to be buying PSTN terminations no matter what.
3. The post cited by Om references anti-competitive concerns.  Horse hockey!  There’s a healthy market for both context-driven advertising, and for telephony terminations.  Combining them makes sense for the advertiser, the customer, the network operator, and Google. 
4. Some have speculated that Google’s recent deal with EBay might be a reason for abandoning click-to-call.  The deal changes nothing.  There’s a lot of potential there, to do be sure, but there just isn’t a large market of Skype enabled EBay sellers yet.  Why would Google abandon their click-to-call ambitions to partner with Skype and sell to EBay sellers?  If Skype / EBay were going to be the partner  for Google on Click-to-Call then why do the deal only in Europe?

Nope.  This dog don’t hunt.