EBay Wants to Put Skype in Your Pocket

(page 2 of 2)

It wasn't supposed to take this long for eBay to tune the engine. The online auction company bought Skype so buyers and sellers on site could chat in real time about products and bid. But Skype failed to become an integral part of eBay and the company has had to write off nearly $1 billion of its Skype investment.

Skype a "great standalone business?"

The outlook for Skype darkened a bit more in March, when Google introduced a rival Web-calling service. "Google Voice offers many of the features that users pay for in Skype, but at a lower rate," Bernstein analyst Lindsay wrote in a Mar. 16 report. "This unexpected development puts eBay's projected revenues of $1 billion for Skype by 2011 at risk."

EBay declined to comment on whether it plans to sell Skype. But speculation about a future sale gathered momentum in January, when CEO John Donahoe told financial analysts during a conference call that the unit would make a "great standalone business." The more Skype can do to expand now, the better suited it will be for a sale or initial share offering down the road when markets rebound, according to analysts and former Skype executives.

To pump up its value, Skype has been in a dealmaking frenzy of late. In February, it announced that Nokia (NOK), the world's largest cell-phone maker, will start loading Skype software onto its most advanced mobile phones. In January, Skype became available on Google's Android operating system and phones that run it, including T-Mobile's (DT) G1.

Hutchison Whampoa's Skypephone

Skype also has big plans for a new class of handhelds called "mobile Internet devices" being pushed by Intel (INTC) and others. Consultant ABI Research expects 86 million Linux-powered MIDs to ship by 2013. "We think this [application] could be what makes or breaks the category," says COO Durchslag.

Finally, Skype is working to secure agreements with additional wireless operators following a successful deal with Hong Kong conglomerate Hutchison Whampoa. That company's carrier properties have sold more than 500,000 of a device called the Skypephone that features Skype's software. Nearly 80% of Skypephone subscribers are new Hutchison customers, according to Durchslag. Those numbers should ease negotiations with other carriers, he says.

Mobile devices account for an increasing number of Internet-enabled voice calls. The number of people placing calls through the Web via mobile phones is expected to reach 100 million worldwide by 2011, from 7 million in 2007. according to ON World, an industry consultant in San Diego. Skype wants a piece of the pie.

"We are not a newborn anymore," Durchslag says. "We are entering adolescence with a new leadership, being able to forge economic terms that can work for both [Skype and carriers]." Much like today's teens, it seems, Skype can't live without mobile phones.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.