Analysis: Skype, better with Facebook than Google?

NEW YORK Fri May 6, 2011 7:33am EDT

Zubair Ghumro speaks to his friend Sheeraz Qazalbash using Skype software at an internet cafe in central London August 10, 2010.REUTERS/Paul Hackett

Zubair Ghumro speaks to his friend Sheeraz Qazalbash using Skype software at an internet cafe in central London August 10, 2010.

Credit: Reuters/Paul Hackett

NEW YORK (Reuters) - As two Internet powerhouses slug it out to tie the knot with Skype, Facebook looks likely to be a more aggressive suitor than Google, and the world's largest social network may make for a better fit.

Reuters reported Wednesday that Facebook and Google are separately weighing partnerships with Skype, the popular web video telephony service used by millions around the globe for communication.

Talks with Facebook and Google are still preliminary, but any deal could involve an outright takeout or a joint venture partnership, two sources told Reuters.

A deal involving Skype, which is readying for an IPO, could be valued at $3 billion to $4 billion, the first source said. Skype's public offering is expected to raise about $1 billion, several other sources said.

Analysts and technology observers are betting on Facebook, in the belief the two make better companions and that Skype completes Facebook by providing assets it does not have.

"It's not surprising to me that both these companies are interested," said Eric Jackson, founder and manager of the investment firm Ironfire Capital. "It's a much more valuable asset to Facebook than to Google."

Google already has voice chat and video capabilities, though Skype is a more robust product, said Rory Maher, an analyst with Hudson Square Research.

It could incorporate Skype into Google Voice, and even get some social-media credibility after it failed in an attempt to do so with Buzz.

"There are benefits that Google has from combining Skype, but I think it's less clean than it is for Facebook," says Maher.

Conversely, Facebook has that much more incentive to snap up Skype because it would encourage people to spend more time on the site than they already do -- virtually the social network's raison d'etre.

"Communication is core to what Facebook users do," said Mo Koyfman, a principal at the venture capital firm Spark Capital. "Owning that platform would be very interesting."

Google, Facebook and Skype declined to comment.

THE ART OF SKYPE

Skype is still on track for an IPO later in 2011, raising as much as $1 billion by some estimates. That it has become the belle of the ball, attracting the interest of the Internet's two most dominant powers, bodes well for its debut.

Last year, Skype boasted about 124 million connected users every month by the end of June. But just 8.1 million were paying customers, using Skype to make calls to traditional phones at discounted rates.

The company was founded in 2003 and bought by eBay two years later for $3.1 billion. Ebay then sold a majority stake in Skype to an investor group in 2009, while keeping about a third of the company.

Now, both Skype and Facebook could tap new users worldwide while Facebook stands to gain a new revenue stream, Koyfman said.

Facebook had net income of $355 million in the first nine months of 2010 on revenue of $1.2 billion. It is one of a handful of Internet companies including Twitter, Groupon and Zynga that have stoked interest from investors eager to jump on the social media bandwagon.

And it has also put the big Internet guns -- including Google -- on alert.

Indeed, some speculate that Google could be bidding for Skype just to keep it out of the hands of other companies.

"Any deal that takes a great asset away from Facebook is a win for Google," suggested Ironfire Capital's Jackson.

(Reporting by Jennifer Saba; Editing by Edwin Chan and Steve Orlofsky)

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Comments (4)
Although I love using Facebook I love Android. On my mobile right now. If Google acquires Skype it could compete with mobile carriers like Verizon. That would make my phone bill cheaper. I hate paying $3,000 a year for my family plan. My verizon connection isn’t that good anymore anyway. On all our computers I use Skype and the calls are clear enough. I am furious that I can’t make Skype calls on my phone or even on tablets that Verizon blocks anyway even though tablets don’t make Verizon calls!

May 05, 2011 9:55pm EDT  --  Report as abuse
NickBright wrote:
This analysis is wrong.

Google’s capacity to support social networking is further reinforced by its Android OS and the unprecedented massive wave of individuals moving to that mobile platform.

May 05, 2011 9:57pm EDT  --  Report as abuse
Eric93 wrote:
A linkup of skype with Google would be a disaster. Google would destroy skype just as they did with Gizmo5. Either they have no clue about telecoms or they just love destroying innovative companies. Their googletalk and googlevoice are total junk. They don’t seem to have any idea how to make them useful or ‘user frinedly’. Just because they have money doesn’t mean they have any sense.

May 06, 2011 8:43am EDT  --  Report as abuse
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