A week wouldn’t be complete in high tech without rumors that Google is going to buy some company or another as part of its quest for Internet data and service domination. So, have you heard the one about Google buying Skype?
Skype, owned by eBay, is essentially the Google of free PC-to-PC calling services. The company was overvalued in 2005 when eBay acquired it for $2.6 billion and as much as an additional $1.5 billion in performance-based payments.
This gross overpayment ultimately prompted a $900 million write-down, the exodus of CEO Niklas Zennstrom and speculations about a sell-off.
Skype has a pretty good track record for service, despite the massive network outage in August that denied calls to many of its 220 million users for a few days.
Here is where it gets interesting. Since August 2006, eBay and Google have been running “click-to-call” advertising using both Skype and Google Talk, Google’s VOIP application, in the companies’ respective shopping and search platforms.
Now, Google has a lot of ad deals with companies it doesn’t buy (such as AOL and Fox), but owning the Skype technology would allow Google to reach millions of Internet users with online ads.
Skype’s services are free for consumers, nominally priced for businesses. If Google does this, it would do so more for access to Skype’s network of millions of users than for its paying customers per se.
This would be another weapon Google could add to its vaunted Apps portfolio and would give the search giant a significant boost in its unified communications arsenal versus Microsoft, IBM and Cisco.
Moreover, combine the Skype assets with the Android mobile stack and Google would have some serious communications firepower with which to attack the knees of carriers AT&T and Sprint.
So, how much would Skype be worth to Google? Skype has run-rate revenue of about $400 million, but certainly eBay would want to significantly recoup its losses on the company. I could see Google shelling out whatever it needs to if it believes it can corner the VOIP market.
Despite all of these arguments for a deal, I’m not sure I buy it. What would happen with Google Talk? I suppose Google might port over Talk users to Skype’s network. That could annoy the millons of Talk users.
Also, I heard eBay CEO Meg Whitman tell hundreds of people at the Web 2.0 Summit in October that while eBay is disappointed with the $900 million write-down in the value of Skype, “the price of inaction is far greater than the cost of making a mistake. I feel like Skype has great potential.”
I got no indication that eBay is eager to part with the successful company, although it could be that the write-down left a sour-enough taste in eBay executives’ craws that they might want to wash it out.
Moreover, eBay and Skype is just a poor fit, and the company would be better served in more network- and enterprise-savvy hands.