EBay wants to put Skype in your pocket

Olga Kharif
01 Apr 2009

For years, Internet calling service Skype has been trying to land its popular software where its customers are yakking most: on their mobile phones.

After repeated experiments aimed at getting consumers to use Skype for cell phones, the eBay (EBAY) unit may have a winner. On Mar. 31, the company will release a version of Skype for Apple\'s (AAPL) iPhone and iPod touch, as was previously speculated in the blog GigaOm.

The deal would put Skype\'s service in the hands of millions of potential new customers and give its 400 million current users new ways of logging more airtime. Skype will be available for free downloading from Apple\'s iTunes App Store the same day.

The announcement, which precedes the CTIA wireless communications trade show in Las Vegas Apr. 1-3, is part of a push by eBay to land Skype on a panoply of smart phones and other mobile devices. Skype\'s users have been clamoring for an iPhone version for months. Now the question for eBay investors is whether the foray into mobile calling will generate enough revenue to boost Skype\'s sagging value as eBay dresses the unit up for sale. Google (GOOG) and Microsoft (MSFT) are potential suitors, according to Wall Street analysts.

Skype\'s value could soar fast

Wringing the highest possible valuation from Skype is important for eBay, whose overall growth has slowed and whose stock is badly underperforming the Nasdaq Composite Index.

If eBay sold Skype today, the business could fetch $1.5 billion to $2 billion, says mergers and acquisitions and initial public offerings expert Tom Taulli, who founded BizEquity, which estimates the value of small companies. That\'s far less than the $2.6 billion eBay paid for it in 2005. But Skype could be worth as much as $5 billion within two years"”if it can exhibit stellar sales growth, Taulli says.

Lately, Skype\'s results have been earthbound. Fourth-quarter sales of $145 million were up just 1.3% sequentially, even though registered users increased 10%. That\'s because more subscribers are using the service\'s free calling features that don\'t pay Skype a dime. Jeff Lindsay, an analyst with Sanford C. Bernstein, who says Skype could be worth $3 billion if eBay sold it, expects the unit\'s revenues to grow by only 11% in 2010, down from 16.3% growth in 2009. The slowdown will happen even as the number of Skype users doubles, he predicts. Numbers like that make Web calling \'not a very attractive business,\' says Lindsay.

Plans to spread Skype through the web

Enter the iPhone. Skype\'s new software will let users of the service call and instant message with each other, free from their Apple phones. But Skype will charge users for Internet-enabled calls to landline and mobile numbers of people who aren\'t Skype users"”presumably a significant portion of airtime.

Wireless versions of Skype are only one facet of unit President Josh Silverman\'s plan to spur growth. The company plans eventually to launch its service everywhere users may log on to the Internet, including phones, televisions, cars, and their work PCs, says Chief Operating Officer Scott Durchslag. \'I see [Skype] as a Ferrari that\'s only firing some of its cylinders,\' he says.

It wasn\'t supposed to take this long for eBay to tune the engine.

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