Update: Skype, the Internet telephony company that recently filed for an initial public offering, might be up for sale… again! After being sold to eBay and then spun out, a report suggests that Cisco Systems (s CSCO) is looking to buy the company. The report adds that Google (s GOOG) might been interested in Skype but has backed off because of anti-trust concerns.
The deal, if it indeed goes through is going to cost Cisco some serious chunk of change — upwards of $5 billion. If Cisco does indeed buy Skype, it would be the first time the router and switch maker would enter the world of services. (Update: Folks in comments correct me and point out that WebEx is a service, so Cisco already is in the services business.)An entry into telephony and messaging services would put the company in competition with many of its customers, especially the telephone and cable companies. But then, Cisco does have to face the harsh reality of finding revenue and profit growth to keep its shareholders happy.
It currently has 560 million registered users and about 124 million of them are active on monthly basis, while about 8.1 million of them are monthly paying users. For the first six months of 2010, Skype reported revenue of $406 million, and net income of $13.2 million.
Skype is one of the shining lights of technology sector right now and its IPO could spark the technology IPO demand. The thin-float alone is going to ensure that Skype would remain hot on the stock markets.
Related research from GigaOM PRO (subscription required):
* Report: The Consumer Video Chat Market, 2010-2015
* Skypekit analysis: SkypeKit: Skype’s Platform for CE-Based Communication
Didn’t they already enter the world of services with WebEx?
Not the first time they are in services. Cisco owns Webex.
Hi Om,
They do have WebEx already, right?
Dhenu
thanks for pointing out that WebEx is a service. I have corrected the post as a result.
I think the services Om was referring to was meant to be “service providers” in the traditional sense, like voice and data providers. In my opinion, I think WebEx falls more into the SaaS category, but I agree, the sentence could’ve been worded a little more clearly 🙂
Ted
Thanks for the comment. I think I was pretty explicit in saying that this would put it in conflict with its carrier customers!
Funny. I instantly thought of WebEx…
Then I thought, damn, the IPO market is dead if Skype can’t even make it to IPO.
I’m not necessarily a fan of Cisco, but this deal would make sense for them. Put Skype everywhere.
I think it’s time for skype to repeat the same “cheat system” as ebay. Let’s Cisco by everything for 5 billions but one core component being left out so skype can come back to Cisco for licensing fee in addition of 5 billions.
Actually, Cisco has been a service provider (then transitioned to enabler). First, with their Cisco Linksys One platforms a.k.a. Service Nodes (SN) [1] as well as the others here pointing out WebEx. Additionally, Cisco Eos is very much a full service solution for niche hosting requirements [2].
However, the main difference here would be an instant addition of a full service provider play for both consumer and business. Adding Skype as an adapter to an ISR would prove to be a huge differentiator in the SMB/SME space. Though, I’d wonder if the Skype brand would filter down into Linksys offerings first or as a part of the consumer land grab in the living room for IPTV (Scientific Atlanta). Also, imagine their digesting M&A activity with Starent [3] and what Skype could mean in the mobile space as everything moves to IP.
[1] Link
[2] Link2
[3] Link3
Skype was a revolutionary service. But, even though I am not a economic expert, it seems to me if after 8 years Skype can only generate an annual profit of $13m how can they be worth $5b??
Oh… snap! 😉
When I suggested to a Cisco VP that they buy Skype he told me I was nuts, that when you really dig into the numbers 65% of Cisco’s revenue comes from telecoms carriers – why would they risk that.
Now Google has put free calls to real phones into a browser, and the tools to remove international long-distance into some 70 million mobile phones a year (and rising), so maybe Cisco’s had a change of sack.
Whoever gets Skype will have an asset of huge and soon-to-be-wasting potential. Cisco’s emphasis on enterprise may not be the best fit, though. I’d rather see Skype buy RingCentral and serve smaller businesses first – it would be a more natural fit, and a faster way for Skype to boost subscriber revenues from an average of around $1.70 annually to the $3-5 range where they can start to take off.
Cisco has been making some interesting plays lately. It has been pushing video to business because it needs them to upgrade their infrastructure faster. So, Skype would seem to fit that strategy.
I’d hazard a guess: John is way smarter and hands on than Meg.