Now that eBay has put Skype up for sale, it's an intriguing question to ponder whether an IPO or acquisition makes the most sense. I think a better question would be to reconsider what's going on.
Skype is a poster child for how successful -- and misleading -- technology hype can be.
It was the brainchild of the folks who gave the world KaZaA, which was a fast-follower P2P file sharing application right after Napster created and broadened the marketplace for illegally swapping media files (Napster was shut down in 2001). Calling the demand for such services a "marketplace" is a bit wobbly, as nobody was paying for any of it, so there was no actual market. The brillance of KaZaA was that it got gobs of people to do something for free, required no effort, and had no real-world consequences.
The founders went on to invent Skype, which was conceived as a KaZaA-like P2P app for swapping voice. Utilizing Voice over Internet Protocol (VoIP), it was able to let people use their computers like phones and, better yet, do it for free. It had 100 million registered users within its first 3 years of operation, which helped inspire eBay to pay $2.6 billion for it.
And then eBay promptly forgot about it.
I guess the rationale, if there ever was one beyong the giddy nonsense of we'll figure out how to monetize it later on, was to let eBay's customers use Skype as a tool to communicate with one another. But I couldn't find a Skype icon anywhere on eBay this morning, and it's not even offered as a way to contact eBay customer service.
When eBay's boss claims that "...separating Skype will allow eBay to focus entirely on our two core growth strategies..." I don't think he's being terribly honest. eBay has spent no obvious time, nor made any significant public gestures, evidencing even the slightest focus on Skype. Similarly, Skype has introduced some pay services (like calling out to real phones), and grew revenue to $145 million in 4Q08, but continues to operate and appear as a spunky, inconsistently reliable, free-standing start-up.
(Disclosure: I use Skype occasionally. My name is "baskinjs")
So what's going on? Well, I think Skype is a perfect candidate for a dim bulb plan, so here's the skinny:
- VoIP is cool. With the advent of ubiquitous hot spots, and various technologies (like 3G) to get Internet stuff on mobile devices without having the wait for the paint to dry, means that there's a viable network on which to conduct conversations (and any other data transactions)
- VoIP is cheap. It'll always cost less than a proprietary network. Being generic is also a drawback, as Skype (or any VoIP provider) is trying to make money offering bathers voluntary help stepping into a free ocean
- VoIP isn't a business. Put aside all the poetic blather about networks and systems and glorious misrepresentations of reality found in slide presentations. The only reason Skype was worth anything a few years ago was because the context around it was nuts. Remember, eBay wrote off pretty much all the price it paid for it only a few years later. Can anyone say "bubble hangover?"
- Skype is a community. Forget for a moment all of the entertainment-based communities we normally celebrate, like Facebook and YouTube. People use Skype for a specific, purposeful reason: to talk to one another. So it has a real-world utility, by definition and, accordingly, its users have something in common other than a shared interest in Susan Boyle's singing debut. Further, the very use of Skype creates and supports community; it enables communities every time people reach out to one another
- Skype is a service. Well, it doesn't understand that, but it is. The service available to users now is embarrassingly inadequate (i.e. there is none). Skype operates as a technology, and it's supported as one, with all the requisite FAQs and outsourced responsibilities. But with 370 million registered users, and nearly 8% of the world's total voice minutes originating with it, you'd think it would be something more (see Community above)?
- Skype needs a purpose. Or purposes. Big, bold, hairy ones the change the world..like being the best voice app in existence, and offering the service to support it. Donating x% of every call to fighting global warming, so users become true eco-warriors. Becoming the only viable alternative to business travel. Establishing real communities of users (around geography, topic, or interest), so that each use is a dip into community, and the communities get smarter, more relevant, and bigger.
Or all of the above.
Figuring out how to make money giving something away for free is a crappy business model, all of the happy new media prognosticating aside. Skype has zillions of users with at least something meaningful in common. Its strategy should be based on defining purposes, not just technoology, services, or even the faux appearance of community that's so in vogue these days.
This would raise really intriguing options for an IPO or acquisition, wouldn't it? I'd love to help write that offering prospectus for a newly-envisioned Skype, based on the promise of tangible user interests. You can just imagine how boring the plan for the business as currently configured would look by comparison.
Potential acquirers could be businesses that need to establish (or attach) purpose-driven communities to their brands. So it's not just telecos in the bidding anymore. Think oil company. Commodity consumer product, like Coke. Maybe a CE product manufacturer or, gulp, even Microsoft.
None of these opportunities will ever see the light of day unless the management at eBay and Skype come to terms with what's really going on. No dim bulb is bright enough to illuminate it for them.