Internet phone-calling phenomenon Skype, which was bought by online auction company eBay Inc. for almost $4 billion lately, said it sees computer giant Microsoft as one of its biggest potential rivals.
The biggest threat to Skype comes from Internet companies like Yahoo, AOL, and Microsoft’s MSN, said the CEO of the VoIP provider, noting it is not these rivals’ technology he fears, but rather their large user base.
The San Jose, California-based auction house bought Skype in September for $2.6 billion in cash and stock. Potential earnings could increase the value of the deal to more than $4 billion.
Luxembourg-based Skype offers free computer-to-computer calls between Skype users. It charges for calls made from or to numbers outside the network.
But Mr. Zennström said saying yes to eBay was more of a matter of chemistry than anything else. His company’s new parent has a history of nurturing its acquisitions, he said, making it a good partner when it comes to growing Skype, which helped pioneer free Internet phone calls.
Microsoft bought Teleo in August and Yahoo bought Dialpad earlier in the year in efforts to catch up with Skype’s lead in the booming voice-over-Internet-protocol VOIP market.
Of course, Niklas Zennström, who is also Luxembourg-based Skype’s founder, has less to worry about these days, now that his company can also access eBay’s 161 million registered users.
Zennstroem said he had thought long and hard about the sale to eBay and had talked to other potential buyers as well as considering an initial public offering before plumping for eBay, which promised Skype the most autonomy.
eBay had a good track record with online payments unit PayPal, said the soft-spoken Mr. Zennström, in remarks at the ETRE technology conference in Athens, Greece. ETRE is organized by Red Herring’s publisher, Dasar.
Skype has been looking to differentiate itself from other technology companies that also provide VoIP. In September, the company upgraded its Skype for Windows software, adding personalized ring tones, sounds, and pictures for members. It also announced improved sound quality on Skype’s VoIP service, and free call forwarding to landline and mobile phones, among other offerings.
Sharing Skype
As for eBay, just because it bought Skype does not mean it will have the service all to itself. Skype will integrate with some of eBay’s services, but will also continue to partner with other companies.
Under the deal, developers can tap into the open interfaces of eBay and Skype. As a result, the partners are hoping the developers will roll out e-commerce applications using voice that will likely deliver even more traffic to eBay and Skype. Mr. Zennström remarked that the eBay deal had made Skype investors very happy. But he also slammed venture capitalists in general, and many VCs were in the audience during his talk.
He complains? He recalled how he and his co-founder Janus Friis, who made up the team behind the popular peer-to-peer file-sharing application, Kazaa, did not get any funding initially from European investors.
Bill Draper, a well-known high-tech VC, was the first investor to take a chance on the duo. But after his investment came a dry spell for Skype. We couldn’t close the first round for a year after that, he said. No one wanted to give us money. And those who did offered them, proposed very unfavorable terms, Mr. Zennström said.
As Skype grew, one of the options considered was getting more money through private-equity financing or from VCs; then Skype could mull an initial public offering, he said. But Mr. Zennström said the eBay deal made the most sense in the end. We want to build the largest online communications company, he said.
Indeed, that’s exactly what all the Internet companies, armed with their huge brand names, seem to want to do these days. Google, Yahoo, and AOL all offer voice chat as part of their instant messenger offerings. These companies all plan to continue to focus on voice, and will certainly come out with better services and applications in the not-too-distant future.
With eBay’s resources behind him, Mr. Zennström can take on those companies on a more even playing field.
Our objective is to change the way people communicate. In a few years’ time the idea of paying for phone calls will seem very strange.
We have never looked at competition, he said. The competition, however, is certainly looking at the industry Skype has almost single-handedly promoted and popularized.