Cisco Eyes Skype Acquisition: Reports

Cisco reportedly is considering buying Skype before the VOIP and video conferencing vendor enters into its planned IPO later this year. It would continue Cisco's push into video.

Skype officials are in planning stages for their expected IPO, which they announced Aug. 9. But reports are circulating that Cisco Systems may derail those plans by buying the VOIP vendor.

IT blog TechCrunch reported that according to "one of our more reliable sources," Cisco officials have made an offer to Skype to buy the company before it completes the IPO process, and that people inside Skype are looking at a $5 billion price tag.

There's no indication whether Cisco's initial offer was anywhere close to that figure.

Cisco officials have been vocal about their interest in increasing the company's video communications capabilities. The company sees the potential for a $30 billion communications and collaboration business, with video being a significant part of that space. Executives have predicted that by 2014, video will account for more than 90 percent of all Internet traffic.

Video has been a focus of many of Cisco's recent acquisitions, including Flip video camera-maker PureDigital last year, the $3.4 billion the company paid for videoconferencing equipment vendor Tandberg, and the proposal Aug. 26 to buy ExtendMedia, which specializes in managing online video content.

Such a deal also would come at an important time for Skype. The company has grown rapidly over the past few year, to the point that it now reportedly has 560 million registered users. However, because most of its services, including video chat, are free, it continues to struggle to make money. Skype officials hope the IPO, which would enable the company to be listed on the NASDAQ, would help turn that around.

However, Skype is not getting some serious competition from Google, which last week announced a VOIP (voice over IP) services that integrates directly into a users Gmail account. Google officials said Aug. 27 that the service had wracked up more than 1 million calls during the first 24 hours of operation.

According to TechCrunch, Google also was interested in acquiring Skype, but backed away due to possible antitrust issues.

It would be left to see whether Cisco could turn Skype into a money-maker, something that eBay couldn't do before selling most of its stake in the business last year.

Skype officials have been working to build up the company's user base and to extend its reach into the corporate world. In May, the company started testing a service that would enable Windows users to conduct a conference call with up to four other people.

In addition, Skype announced Aug. 30 that Skype Connect 1.0, which has launched out of beta, will connect with businesses' existing UC (unified communications) systems or existing IP-enabled PBX systems.

Using Connect 1.0, business can make outbound calls from desktop phones to traditional landline or mobile phones and be billed at Skype's standard per-minute rate, receive calls from Skype users, and manage Skype calls using existing PBX and UC features, such as voice mail and conferencing.

"Since its inception, Skype has been used by many businesses wanting to reduce communications costs," David Gurl??«, vice president and general manager of Skype for Business, said in a statement. "In fact, based on internal research, in the first quarter of 2010, approximately 37 percent of Skype users reported that they use Skype for some business or business-related purposes."