Skype Founders May Try to Buy Service Back From EBay: Los Angeles Times, April 2009

Original article

If the Skype founders succeed in buying back the Internet calling service from EBay Inc., it would dissolve a marriage that made little sense to customers or investors.

EBay bought Skype from Scandinavian entrepreneurs Niklas Zennstrom and Janus Friis in 2005 for more than $3.1 billion. The pair are reportedly seeking private equity partners to help them regain the service.

Trying to focus on its core auctions business, EBay did return an acquired Web service to its founders Monday, but it wasn’t Skype. The San Jose company sold StumbleUpon, a start-up it acquired for $75 million in 2007, back to its founders and other investors for an undisclosed price.

In the case of Skype, the dollar figures are bound to be a lot higher. On Saturday, the New York Times, citing anonymous sources “with knowledge of their plans,” reported that EBay could sell the company to Zennstrom and Friis in a deal worth more than $2 billion.

EBay did not respond to requests for comment.

“EBay has been fairly frank and straightforward in saying for the past year that there is little synergy between the two,” said James Mitchell, a research analyst for Goldman Sachs. “People haven’t been using Skype to buy and sell things on EBay. Part of the beauty of buying on the Internet means not having to talk to another human being.”

Adding intrigue to a possible deal is a legal dispute in Britain between EBay and Joltid Ltd., a company that provides peer-to-peer technology used by Skype. EBay said April 1 that Joltid sought to end its relationship with Skype. If Skype loses the case, EBay said in its annual report, “continued operation of Skype’s business as currently conducted would likely not be possible.”

Joltid’s website says it was founded by the same team that started music-sharing site Kazaa, although it didn’t name Zennstrom and Friis. (The pair have also launched online video site Joost and venture firm Atomico, based in London.)

Many of EBay’s acquisitions have served the company well, notably the online payment service PayPal and more recently the online ticket broker StubHub. But Skype was never an obvious fit.

“The way sellers look at it, it diverted resources EBay could have put into the marketplace,” said Jonathan Garriss, an online shoe seller and executive director of the Professional EBay Sellers Alliance, a group of about 1,000.

Although some analysts said strength at PayPal and Skype could help offset the gloomy economic environment, other investors have put pressure on EBay Chief Executive John Donahoe to shed unrelated assets — such as Skype and StumbleUpon, a browser tool that enables people to find and recommend websites.

EBay says it expects Skype to more than double its revenue to $1 billion by 2011. Skype accounts for 8% of all international calls, according to research firm TeleGeography.

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