mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Can Skype Survive Private Equity?

Oh Dear. Skype looks as if it is going to be no more. For many of us, Skype was an absolute saving grace when abroad. It meant you could phone home without having to pay the outrageous roaming charges of wireless network operators or the equally outrageous surcharges imposed by hotels.

 

For families with family members living far away, Skype was a great boon and solace – allowing connections with children and grandchildren which just wouldn’t be possible otherwise unless you’re as rich as Croesus.

 

Now I hope I’m totally wrong about this, but I bet the new owners of Skype, the private equity company Silver Lake, aren’t going to stick to the existing price structure i.e. buckshee for Skype-to-Skype calls, a few pennies a minute for Skype-to-Non-Skype calls.

 

Silver Lake have paid $2 billion for a 65% stake in Skype. These financial gurus have valued Skype at $2.75 billion. What can they be thnking of?.

 

It’s a pound to a penny they’ll start putting up the rates and kill off this hugely valuable social service.

 

There was a revolutionary altruism about Skype, an air of making the world a better place. Google had the same air before it put a lot of conventional businessmen on its board and became just another corporate.

 

OK, companies, businessmen and profits are necessary, but there’s still a place for  revolutionary altruism.

 

I hope.

 

TOMORROW MORNING: The Ten Best Camcorder Manufacturers

Tags: boon, financial gurus, google, roaming charges, saving grace

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11 Comments

  1. David Manners
    September 23, 2009 13:19

    Right, that’s interesting Chris, I hadn’t heard of Telediscount. I’ll give them a whirl.

  2. September 23, 2009 12:45

    Even if Skype gets killed off by the PE asset strippers all is not lost for the cheapskate telephone community. There are still the telephone discounters like Telediscount.
    I phone our son in Estonia for 0.5p/min, which is cheaper than SkypeOut at 1.5p/min. I could phone Australia for the same price.
    I used to Skype him but now prefer a telephone handset to a headset. I find the quality is better and the 30p an hour is negligible.
    You don’t get the option of video but unless you have grandchildren in far off places that’s not really a problem.

  3. David Manners
    September 12, 2009 13:20

    Well actually El Rupester I think you may be right because I see Skype had revenues of $153m in Q109 and $170m in Q209, and an operation with revenues over $600m a year needn’t get too fussed about prices. (Mind you I don’t know what the costs are). So, hopefully, all will be well, I agree Amazon thinking its business had synergies with Skype’s business was quite barmy, but the deal was OK. Amazon bought Skype for $2bn and is selling 65% of it for $2bn so they’ve made a profit. But I’m deeply distrustful of everything private equity touches. Their managements seem to put a blight, so far as customers are concerned, on the organisations they control.

  4. El Rupester
    September 12, 2009 12:21

    Maybe I’m a perpetual optimist, but I don’t see there need be a problem.
    Sure, PE owners might put prices up.
    But publically listed companies can do that too (look at the water companies, or train companies)
    The thing that keeps prices down is competition.
    And as Andy & others point out there’s plenty of that. Google, MSN, Facebook are all adding voice. The reason there probably aren’t lots more is why bother competing with something free. But if Skype isn’t free any more, something else will be.
    As a different point, I never understood why eBay spent all that money.

  5. David Manners
    September 09, 2009 15:01

    Thanks, Andy, that’s very interesting.

  6. Andy
    September 09, 2009 11:59

    I think, initially, the biggest USP of the Skype technology was the fact they built a SIP-like protocol (nothing new) on top of a decent P2P architecture which allowed it to scale well to hundreds of millions of users at little cost.
    They also developed a new audio codec with better packet loss resilience – although last I heard they were releasing it as open source!
    The IETF are working on P2P-SIP, so there’s no reason why Skype functionality can’t be duplicated by everyone else. I agree, David, that they will have to find a way to generate more revenue – but increasing the cost of calls is only going to drive users away.

  7. David Manners
    September 09, 2009 10:56

    John, that’s spot on. The PE guys who manage the investments tend to be young, bright, highly educated but industrial virgins. For them it’s all theory

  8. john
    September 09, 2009 03:00

    You are right. During the last few years, private equity, mainly the LBO types, discovered price
    : raising prices is the easy substitute for having a strategic vision, which few of these boys have – hey, that would be real business rather than spreadsheet shuffling of which they are so fond of
    . If its not on an excel spreadsheet, it must not be real.

  9. Djonne
    September 08, 2009 17:28

    Speaking of Skype, I think their success resides in the convergence of MSN-like messenger and phone features. Plus some smart guys who knew the recipe to create internet buzz.
    It’s always the same problem, what made Ipods so successful? A lot of mp3 players existed before. What makes Facebook so successful? Social networking existed for years. What makes GoogleEarth so successful? Google bought KeyHole when their software was already available widely for free, but almost nobody knew about it…

  10. David Manners
    September 08, 2009 16:23

    Interesting Djonne, makes me wonder why there’s a legal hoo-ha underway about the Skype technology. The PE buy-out, or the price which will be paid in the PE buy-out, seems to depend on a deal with Skype’s founders who retained the original technology. But if a viable technology for PC-based phone calls was in existence ten years before Skype, how can this technology be regarded as so valuable?

  11. Djonne
    September 08, 2009 16:18

    The success of Skype was to make a lot of noise about their free or almost free PC to phone call feature. But in fact they were far from being the first to enable this on the internet.
    I remember exactly 10 years ago regularly using dialpad.com in order to make calls to any US fixed line phone for free.
    For me the bottom line of this is that the trend of increasing price of online services is certainly not new, Skype was already a part of it. Internet as we were used to experience it (free, anarchic) is dying :(.
    Djonne