Guest Post

Why Apple should buy Skype

August 10, 2010 3:20 PM
Grant Robertson
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Grant RobertsonEveryone is hyped up about the Skype IPO, which promises to revive investors’ interest in Internet stocks and turn a quick profit for its backers, a group which includes Web wunderkind turned Internet elder statesman Marc Andreessen.

But if he plays his cards right, Apple CEO Steve Jobs could be the real winner here. That’s because an initial public offering is still a sale. By filing for an IPO, Skype’s current owners have hung a big “for sale” sign on the company — and are essentially daring strategic acquirers to make them an offer.

Why not Apple? The gadget maker has revved up its M&A machinery since missing out on AdMob, and is starting to look at bigger deals.

Buried in the Skype SEC filing everyone was reading yesterday is a very big number which is getting relatively little attention: Video calls accounted for 40% of Skype’s 95 billion minutes of usage so far this year.

Apple’s FaceTime video-chat software – to some, the killer feature contained in the iPhone 4 — has enormous potential and Apple knows it. Don’t believe me? Just watch any tear-jerking pitch for Cupertino’s glass-and-aluminum masterpiece.

But FaceTime currently only works when both callers own an iPhone 4. That’s a crippling limitation on a slick app that, combined with Apple’s marketing prowess, could popularize video calling on smartphones.

Are you starting to see some upside for Apple? The biggest videophone user base meets the hottest videophone devices. Add unlimited Skype-to-FaceTime minutes as part of Apple’s $99/year MobileMe subscription service and you have a new revenue stream for Skype, which currently depends on selling voice calling minutes to a small segment of its user base, most of whom use it for free.

There’s one other aspect that makes Skype a good fit. Apple likes to own the core technologies behind its products, as COO Tim Cook declared last year in a call with investors. In the deal that helped spring Skype loose from eBay, Skype and its new owners settled with Skype’s founders and got access to Skype’s key peer-to-peer technology. That would be a handy addition to Apple’s portfolio of intellectual property.

Skype’s investors set its value at $2.75 billion last year. Even at a hefty premium to that — say, $5 billion – Apple has the cash to swallow Skype whole. And the best part? Google has long been eyeing a Skype acquisition. Apple loves to annoy Google lately. That might be worth the price just by itself.

Grant Robertson is a software architect and editor emeritus of DownloadSquad. A version of this essay originally appeared on his personal blog.

  • 2zero1zero

    That makes sense, but now it's too late. Apple should have bought them last year.

  • JC

    Hell no. They can have Oovoo instead. Your best rationale is that Apple loves owning core technologies and to annoy Google? That's a pretty shallow assessment and a ludicrous reason to buy the company. How would a Skype purchase do anything other than duplicate functionality Apple's already made from scratch? Google makes more sense, and maybe their proprietary tech might finally be open sourced, but failing that, I want to see Skype remain indie…

  • http://pulse.yahoo.com/_OK42M52VJS2OAKNLPPQJ2YRJLU Tweedle

    Why, when they have FaceTime? Because FT only works on iOS4 (now)? That's not a problem, that's a feature. There'll be 10 million FT users soon, and if you want to use FT with them, you'll use an iOS device or beg your carrier/OS provider/handset manufacturer to support FT. Skype is useful to keep around as “competition.”Skype certainly has good engineers and patented technology, but that's it to Apple. They would be quickly reassigned to FT or other Apple projects, not keep maintaining, developing, and selling Skype. Skype would be dead. Apple is better off leaving Skype to do their own thing. At least let them get much cheaper on the public market first.

  • http://ditherati.com/ Owen Thomas

    Oh, and the millions of users and billions of minutes. Those help, too.

  • http://twitter.com/Jkirk3279 William Carr

    Hmmm. Annoy Google…I LIKE IT !!!It's a GREAT idea !Apple owning Skype would give them a BIG bite of the videophone business.And I expect their next big device will be a Wrist Phone for video calling, a la Dick Tracy.So integrating Skype into the Apple iComm would open up a lot more potential customers.Making any attempt by Google to copy them very difficult.

  • http://ditherati.com/ Owen Thomas

    I disagree. Forget the single-device, single-carrier, single-OS problem: A mobile-only chat solution is unsatisfying. People are going to want to chat with people sitting in front of computers, for example. FaceTime can win, but only if it bridges multiple devices and usage scenarios. Skype is a way of getting there faster.

  • http://ditherati.com/ Owen Thomas

    Perhaps, but last year Skype hadn't sorted out the intellectual-property issues. With those solved, Skype is more valuable as a technology play, not just a user-acquisition play.

  • PeterA650

    Skype has over FIVE HUNDRED MILLION users worldwide. That's 50x your projected FT user base. I don't think I need to make any further comment ;)

  • http://twitter.com/extraspecial extraspecial

    “Apple owning Skype would give them a BIG bite of the videophone business.”A big bite of the $0 videophone business? Skype doesn't charge a thing for video calls.

  • http://twitter.com/extraspecial extraspecial

    “But FaceTime currently only works when both callers own an iPhone 4. That’s a crippling limitation on a slick app that, combined with Apple’s marketing prowess, could popularize video calling on smartphones.”Wait until the next iPod touch and version of iChat come out. Apple can get this capability for a *lot* less than $2.5 or $5b. They've released the FaceTime protocol as an open standard. They don't need to buy Skype to get this kind of ubiquity, the market is going to do it for them.I think buying Skype would be a *huge* distraction for Apple, and so tangent to their core businesses that I find it hard to fathom. They'd probably be better off letting Google choke on it.

  • http://pulse.yahoo.com/_OK42M52VJS2OAKNLPPQJ2YRJLU Tweedle

    I am one of those 500 million users. I use Skype video chat 3 times a year, and no one makes a dime off it.

  • Meella

    If just from the point of adding unlimited Skype-to-FaceTime, I think this is great idea. yeah, Apple’s FaceTime video-chat software – to some, the killer feature contained in the iPhone 4. But Apple’s $99/year MobileMe subscription service may arouse more arguements, free is much popular, and many won't to pay for it I believe. BTW: Im enjoyable with iP4's iMovie and iBooks, only $4.99 for the app, but it's a nice touch. So cool :) .U can understanding iP4 more: A Review of Apple's iPhone 4 in ifunia iPhone column.

  • http://www.24pagebooks.com MartinEdic

    You've left something important out. When they announced Facetime they also announced they were going to share (sort of) the code so it could be adapted to other devices. I think it's fair to assume that most devices will have a forward facing camera in the near future. Why would Apple want Skype when they are already moving towards their own standard?

  • http://pulse.yahoo.com/_OK42M52VJS2OAKNLPPQJ2YRJLU Tweedle

    FaceTime by email address in next iOS update?

  • m_shark

    It's a neat idea. Buying an installed base of over 100 mln of active users with a significant video usage is a great way to promote Facetime.

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