Refreshed Skype Could Rekindle Acquisition Talk

By Clint Boulton  |  Posted 2008-06-19

Refreshed Skype Could Rekindle Acquisition Talk

Updated: VOIP detractors who felt Skype wasn't ready for prime time can stop naysaying.

Released for your beta-testing pleasure June 18, the new VOIP (voice over IP) platform is packed with video, ease of use and call quality enhancements that lets users move easily from PC-to-PC audio, video and instant messaging calls.

Skype claims 309 million users, but the improved service is sure to attract additional users in 2008 and may make Google, Yahoo, Microsoft or other Web service and unified communications providers leap at the chance to take it off owner eBay's hands for a cool few billion dollars.
Industry watchers think Skype will attract users because of gas. That's right, gas.

Enderle Group analyst Rob Enderle told me the video enhancements, in which a big old button can be clicked to trigger an instant video chat between Skype users, will be well-received for those wanting to communicate over long distances and avoid travel.   

"With gas prices going up at an astronomical pace, there is a massive increase in people wanting to do video calls instead of travel, and the combination of products like this and that high gas price may fundamentally change how many do business," Enderle said.

Escalating fuel prices could indeed be a factor in users' decisions to get on the VOIP bandwagon.

Yankee Group analyst Patrick Monaghan told me that Skype has been pushing its product hard in North America over the last year even though it's been a hard sell because many U.S. consumers don't have large long-distance bills now that mobile minutes are cheap and land-line long distance is usually unlimited.

The new, easier-to-use video calls button should help. Moreover, Monaghan said Oprah's endorsement of Skype for a book campaign is already helping.

"This has opened Skype to demographics who wouldn't normally be drawn to Skype," he said. "All the new features that make it easier to install and use video will help these people simply use these features, especially video. People do what Oprah does, and if it's free, that's even better.

However, some are finding the new video and consolidated management tools invasive instead of useful. One reader commented on eWEEK that Skype 4.0 is awful.

"If you have plans to use your computer for anything other than Skype, don't touch it with a 10-foot pole," the reader wrote. "It is perpetually in the way. It starts in full-screen mode, and can not be reduced enough to get it out of the way. The user interface is awful, ugly, and generally insulting. Contacts are arranged in some bizarre fashion [that] makes it difficult to find any particular person."

Is Skype Ripe for a Buy?

Two things here. First, I believe the reader/Skype user needs time to adjust to the new user interface and he or she will come around.

Second, I believe the emphasis on easier video chat and conversation management is proof that Skype is mature enough for a number of companies to make a run at. An acquirer could bolster efforts to sell it to business users, who would also benefit from the finer management tools.

Google and Microsoft leap immediately to mind as the obvious possibilities, but Yahoo should pick up the company from eBay, which is choking on a $900 million-plus write-down on Skype from 2007.
Google, which is on a Web services tear, might be best positioned to propel Skype (and TechCrunch has had Skype headed to Google for months), but Yahoo almost needs a property like this to get some momentum.

With Skype, Yahoo would not only add $500 million a year in revenues but provide the company another Web service weapon to wield against Microsoft or other acquirers.

While it's tough to predict how investors will react, a purchase of Skype could quell investor concerns that the company is in shambles.

Yahoo, which lost a half dozen executives within the last week, including network head Jeff Weiner and Flickr founders Caterina Fake and Stewart Butterfield, could use the boost. See this spanking new ex-Yahoos list on TechCrunch.

Enderle also agreed that the enhancements could make this "property much more attractive to another firm willing to acquire it and treat it more strategically than eBay has."

As to the thought that Yahoo might be that company, Enderle said that it fits with Yahoo's model, but the fact that it is hemorrhaging people at the moment throws into question whether it can pull off the deal.

Monaghan added: "If eBay decides they want to unload them-the more users the better. However, as the Skype and eBay relationship has proved, there needs to be a clear synergy between them and any acquirer-something that was missing from Skype's current relationship with eBay."

IDC's Rebecca Swensen threw cold water on the notion that Google, Yahoo or Microsoft would buy Skype.

"Skype is a money maker for eBay and even if eBay sold the company, I imagine there's a better change of either Skype being it's own entity or an investment firm buying it, than someone like Google," Swensen told me.

Moreover, she said Google wouldn't buy Skype because it would nullify its investment in GrandCentral. I disagree. GrandCentral could become part of the Skype offerings for consumers looking to aggregate phone numbers.

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