eBay to cut its losses on Skype gamble

eBay looks set to offload VOIP firm Skype for about $2bn - making it a very expensive mistake...

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Last Updated: 31 Aug 2010

The end may be nigh for eBay’s ownership of Skype: the auction site is apparently set to give the internet telephony service up as a bad job, and flog it to a group of venture capital firms. Rumour has it that the deal would be worth about $2bn – significantly less than the $3bn eBay paid for it back in 2005. At the time, most observers couldn’t see the point of the deal for eBay – and although the latter suggested it could use Skype’s technology to boost its auction business, these suspicions were clearly well-founded. But does this mean that Skype’s future is in safe hands?

According to a report in today’s New York Times, eBay is planning to sell Skype to a group of prospective buyers including Andreessen Horowitz, a new VC firm started by Netscape founder and all-round Web 2.0 guru Marc Andreessen (who just happens to be on the eBay board), US tech specialists Silver Lake Partners, and UK VC Index Ventures – which, as one of Skype’s original backers, has already made a killing on it once. After outbidding Google and Yahoo to get its hands on Skype back in 2005, eBay ended up having to write down its value by $900m, admitting that its efforts to integrate the business hadn’t worked. It then announced plans to spin the business off and list it separately, which basically amounted to hanging a ‘For Sale’ sign on the front door.

It’s easy to see why all the big online players have shown an interest in Skype. Over the last four years, its user base has soared from about 50m to almost 500m – so although most use the service to call each other for free (Skype only makes money from calls to non-Skype users), there’s a big potential upside for anyone who works out how to monetise it (it’s already on course to do a respectable $600m in revenues this year). The problem was, eBay never seemed to have much of a plan in that regard. It looked like an online land grab, without much strategic sense behind it – and unfortunately for eBay, that’s how it has worked out.

The other big question mark hanging over Skype has been the dispute with its original founders over the rights to its core technology: eBay said earlier this year that it might have to close the service down if it couldn’t reach agreement. However, it’s a bit hard to imagine all these savvy web investors stumping up $2bn unless they had a fairly good idea that the problem would go away. So the good news for Skype users is that they should still be able to make jerky video calls to their nearest and dearest for a while yet. At least until Andreessen and co find they can’t make it pay either...


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