Skype's Legal Drama Ends: It's Time to Start Innovating

The on-going legal drama that has left a dark cloud over online voice and video communications company Skype has finally been settled. In the end, the co-founders get a 14 percent ownership of a new Skype, eBay (EBAY) maintains a 30 percent stake in the new company and consortium of private investors score the remaining 56 percent.

More importantly, though, the new company will finally be in a position to innovate and prosper - instead of being scrutinized under the quarterly earnings microscope of eBay to generate quarterly revenue growth. All of the previous disputes over core technologies and so on has been settled. The parties expect the deal to close by the end of the year.

Marc Andreessen, partner of Andreessen Horowitz, which is one of the investors, told VentureBeat that the company can now focus on building for the future. The company does have a lot of potential to become a powerhouse in markets that are just starting to realize their potential. Consider these forces that are changing the market for Skype:

• Smartphones, which have the ability to run Skype, are growing in popularity among consumers and businesses, opening a market for people interested in low-rate international calling from a device, instead of just a PC.
• Google Voice has hit the stage as a competitor in this space, notably on the international calling front, and has generated a number of headlines - and grabbed a lot of attention - because of Apple’s supposed rejection of the Google Voice app for the iPhone and AT&T (T) asking the FCC to regulate Google Voice as a telecommunications service, instead of a Web service.
• Video conferencing is grabbing the attention of the cost-concerned enterprise. Cisco (CSCO), for example, has made a big splash into enterprise-grade telepresence video conferencing, highlighting the money - and time - that can be saved by holding meetings by telepresence, instead of putting executives on airplanes.

I’ve long been a Skype user but must admit that my interaction with it has pretty much been limited to the occasional (more like rare) video chat. I’ve also been a long-time fan of innovation (what can I say? I’m a Silicon Valley native) so I’m happy to see the company fall back into the hands of the founders and investors who want to see the service grow and prosper.

Now, Skype execs can quit worrying about how they’re going to appear on eBay’s financial statements and can get back to work on making the service better, landing new partners and holding on to its brand cachet before a newcomer (Google?) comes along and unseats a pioneer.

Comments

[Leftfield:]

Good point, the importance of Skype being "in a position to innovate and prosper instead of being scrutinized under the quarterly earnings microscope of Ebay."
Ebay management is notoriously short-sighted. They have been kicking small sellers off the site for a year now to reduce their workforce. The me-to dysfunctional Amazon clone that resulted from this short-sighted cost-cutting has caused 3 straight quarters of loss--shocking and unprecedented.
This is the first Wall St. analysis I've read on SA that seems even obliquely aware of the situation on Ebay.

Nov 08 08:14 AM

[Patricia013:]

Yep - good article. Amazing that with all Ebay's lawyers they managed to buy only part of Skype and then were left wide open for the Skype founders to come in and milk them like this. I'd think it sad if it weren't so funny! They deserve what they got.

As for Ebay - seems they finally realized that if they don't placate the antiques and collectibles crowd....at least a bit....they're going to lose them ALL! About time but perhaps already too late.

Wish you'd write on that.

Nov 08 04:54 PM

[Philip Cohen:]

Leftfield,

Quote: "They have been kicking small sellers off the site for a year now to reduce their workforce."

Actually, I thought it was the exact opposite. They have had to reduce their workforce to lower outgoings (to protect profits) because of the reduction in revenue because "they have been kicking small sellers off the site".

But what good will Skype's independence do for the rapidly-going-down-hill eBay marketplace?

Nov 08 10:05 PM

[Leftfield:]

Philip Cohen,

I figure the policy of squeezing small sellers out went hand-in-hand with workforce reduction. That is, they planned that sellers would be eliminated, and planned workforce reduction. I'm sure this has gone beyond their expectations because they are short-sighted, greedy and unconnected with the real world. Buyers who were attracted to unique bargains won't flock to a confusing site with me-to Chinese mass-merchandise, to eBay's surprise.

I don't expect Skype's independence to help eBay. It will help Skype.

Nov 08 10:28 PM

[eBay +++:]

eBay owns 30% of Skype, that's a significant stake and they got 1.9B in cash. 20 million Users on-line on Skype right now, amazing....

Nov 09 02:24 PM

[Bob C:]

On Nov 09 02:24 PM eBay +++ wrote:

> eBay owns 30% of Skype, that's a significant stake and they got 1.9B
> in cash. 20 million Users on-line on Skype right now, amazing....

Stocks were way up today, across the board today.
eBay, down .07 per share
Amazon (already sky high) up .47 per share.
Amazing Amazon!!!

eBay investors are running scared, and for good reason!

Nov 09 05:53 PM

[redbaron:]

The best thing eBay could do now for the stock and shareholders, would be to bring in new management, IMHO. It is difficult for me to see how shareholders are going to be rewarded with the game plan current management has implemented. You can't bring more buyers to the site by reducing individual sellers and their unique merchandise. It is the unique merchandise that many individual sellers bring to the site, that made eBay successful in the past, and the site will not regain it's lost lustre until new management is in place with that kind of vision. The current site is trying to replicate Amazon, and is finding it hard to do so successfully, when the right model, IMHO, is to get back to it's roots. Again, IMHO.

Nov 10 11:11 AM

[Patricia013:]

I agree - I think they'll eventually be forced to bring in new management. The buyers are fleeing from the site. Too much confusion, they can't find what they want and good sellers of collectibles and vintage are getting scarcer and scarcer. I am starting a new art project and went to ebay to look for supplies. I ended up on Etsy buying the things I need. My Ebay buying "experience" was certainly NO FUN! I'm sure this is common now and I also feel sure that Donahoe and his team do not know how to get around this. They're clearly in way over their heads! Its plain to me that Donahoe expect to turn Ebay into a retail site on its name alone! I still cannot imagine what qualifications he had that allowed the board to hand over a multi-billion dollar company into the hands of the village idiot! He must have been very convincing LOL

Nov 10 06:14 PM