From humble beginnings in Estonia to more than 405 million users around the world, Skype is moving even further from the dorm room to the boardroom.
Developed by a group of Estonian entrepreneurs, Skype – a popular voice over Internet protocol service – helped to boost the global profile of the country more than any other business in its history when it was bought by eBay Inc. EBAY-Q for $2.6-billion (U.S.) in 2005.
A few days after its sale to eBay, typing “Estonia” and “Skype” into Google yielded 326,000 hits, while punching in Estonia and the country's former president, Lennart Meri – one of the leaders of its independence movement – netted just 79,000, according to the official Skype blog a few days after the sale in 2005.
it's clear that Skype has limited synergies with eBay and PayPal. — EBay CEO John Donahoe
Now, just four years later, eBay has revealed plans to spin off the company in an initial public offering, tentatively slated for the first half of 2010, as it looks to shed non-essential businesses to focus on its core auction sites and its expanding PayPal online business.
For Skype, the pending IPO could prove to be a coming-out party for the company as it takes its Internet phone service into the mainstream and onto mobile devices, potentially creating new challenges for traditional long-distance and cellular carriers along the way.
“Skype is a great standalone business with strong fundamentals and accelerating momentum,” eBay president and chief executive officer John Donahoe said in a statement. “But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a standalone publicly-traded company is the best path for maximizing its potential.”
Skype allows users to make free video and voice calls to other Skype users over the Internet. Users can also send instant messages, photos and other files over the service. Users who call land lines or mobile phones from Skype are charged a fee for the service, at rates that are typically below those of traditional carriers.
The software created a significant amount of buzz in the North American technology community and throughout Europe after it was launched in 2003 by a group that included developers of the widely-used file-sharing software Kazaa.
Skype has since become particularly popular with travellers and students who are increasingly opting to ditch land lines in favour of Skype.
The service boasted more than 405 million users at the end of 2008 with revenue in excess of $551-million. Executives at eBay said the company expects Skype to top more than $1-billion in revenue in 2011.
At the time of the sale, eBay said the addition of Skype to its growing portfolio of companies would allow buyers and sellers in its online marketplace to discuss their transactions in real time, but the plan never panned out. Ebay took a $1.4-billion writedown on Skype in 2007, admitting that it overvalued the company and would be open to selling it if the right offer came along.
The Wall Street Journal reported on Tuesday that two of Skype's co-founders as well as a foursome of private equity firms were readying a bid to repurchase Skype.
But the next evolution of Skype could be just around the corner, as the company rolls out new versions of its software that run on mobile phones. More than a million people downloaded a recently-released mobile edition of the software designed for Apple Inc.'s iPhone in the first 36 hours it was available. Versions that will run on Research In Motion Ltd.'s BlackBerry devices as well as other mobile platforms are in the works.
Skype's migration to mobile devices has raised some concerns with carriers, however, who worry that instead of using more expensive, high-margin voice-calling plans, users will opt to use Skype through their data plans instead. Analysts say Skype's mobile push may be the beginning of a larger power shift in the smart phone world away from carriers towards software makers who build services that work outside or above the carrier networks.
Skype's plans will also be a big shot in the arm for the moribund IPO scene. Worldwide IPOs so far in 2009 totalled a scant $1.7-billion (U.S.), That's down 96 per cent from 2008, according to Thomson Reuters, in what wasn't exactly a gangbusters year.
The IPO has become an endangered species because companies have been unwilling to sell shares when valuations are so depressed. Also, for much of the past year, stocks were all but guaranteed to fall in value after an offering, which meant that companies risked alienating new investors.
Now that markets are on the rebound and the S&P 500 has climbed by about 25 per cent from its bottom, a company with a big brand name going public may inspire other companies to make the leap.
Ebay's plans to spin off Skype came just one day after the company unloaded StumbleUpon, another company that observers said didn't mesh well with its core business. Developed by Canadian entrepreneurs Garrett Camp and Geoff Smith, StumbleUpon was sold to eBay for $75-million in 2006, but was sold back to its founders this week.
With files from reporter Boyd Erman
