Deal done. Retail VOIP in the offing? Views later.

eBay has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. For Q4-05, eBay expects the acquisition to be dilutive to pro forma and GAAP earnings per share by $0.01 and $0.04 respectively. For the full year 2006, eBay expects the transaction to be dilutive to pro forma and GAAP earnings per share by $0.04 and $0.12 respectively, with breakeven on a pro forma basis expected in the fourth quarter of 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20% to 25%.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.

Full text of news release...

On Skype.com:

eBay to Acquire Skype

London, September 12, 2005 – eBay Inc. (Nasdaq: EBAY; www.ebay.com) has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration. The acquisition will strengthen eBay’s global marketplace and payments platform, while opening several new lines of business and creating significant new monetization opportunities for the company. The deal also represents a major opportunity for Skype to advance its leadership in Internet voice communications and offer people worldwide new ways to communicate in a global online era. Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.

“Communications is at the heart of ecommerce and community,” said Meg Whitman, President and Chief Executive Officer of eBay. “By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”

Founded in 2002 by Niklas Zennström and Janus Friis, Skype offers high-quality voice communications to anyone with an Internet connection anywhere in the world. The Skype software is easy to download and install, and enables free calls between Skype users online. Skype’s premium services provide low-cost connectivity to traditional fixed and mobile telephones. Skype’s software also offers a robust set of features, including voicemail, instant messaging, call forwarding and conference calling. Upcoming product innovations include Skype video, expressive content such as avatars, and customized toolbars for Outlook and Internet Explorer.

One of the fastest growing companies on the Internet, Skype already has 54 million members in 225 countries and territories. Skype is currently adding approximately 150,000 users a day and has created a thriving ecosystem of products, services, developers, and affiliates. Skype is considered the market leader in virtually all countries in which it does business. In North America alone, Skype has more users and serves more voice minutes than any other Internet voice communications provider.

“Our vision for Skype has always been to build the world’s largest communications business and revolutionize the ease with which people can communicate through the Internet,” said Niklas Zennström, Skype CEO and co-founder. “We can’t think of any better platform to fulfill this vision to become the voice of the Internet than with eBay and PayPal.”

“We’re great admirers of how eBay and PayPal have simplified global ecommerce and payments,” said Janus Friis, Skype co-founder and senior vice president, strategy. “Together we feel we can really change the way that people communicate, shop and do business online.”

Zennström and Friis will remain in their current positions. Zennström will report to eBay CEO Whitman and join eBay’s senior executive team.

A Powerful Ecommerce and Communications Engine

Online shopping depends on a number of factors to function well. Communications, like payments and shipping, is a critical part of this process. Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles.

The acquisition also enables eBay and Skype to pursue entirely new lines of business. For example, in addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype. Pay-per-call communications opens up new categories of ecommerce, especially for those sectors that depend on a lead-generation model such as personal and business services, travel, new cars, and real estate. eBay’s other shopping websites — Shopping.com, Rent.com, Marktplaats.nl and Kijiji – can also benefit from the integration of Skype.

PayPal and Skype also make a powerful combination. For example, a PayPal wallet associated with each Skype account could make it much easier for users to pay for Skype fee-based services, adding to the number of PayPal accounts and increasing payment volume.

In addition, Skype can help expand the eBay and PayPal global footprint by providing buyers and sellers in emerging ecommerce markets, such as China, India, and Russia, with a more personal way to communicate online. And consumers in markets where eBay currently has a limited presence, such as Japan and Scandinavia, can learn about eBay and PayPal through Skype. Skype can also help streamline cross-border trading and communications.

With its rapidly expanding network of users, the Skype business complements the eBay and PayPal platforms. Each business is self-reinforcing, organically bringing greater returns with each new user or transaction. The three services can also reinforce and accelerate the growth of one another, thereby increasing the value of the combined businesses. Working together, they can create an unparalleled engine for ecommerce and communications around the world.

Transaction and Financial Information

eBay will acquire all of the outstanding shares of privately-held Skype for a total up-front consideration of approximately €2.1 billion, or approximately $2.6 billion, which is comprised of $1.3 billion in cash and the value of 32.4 million shares of eBay stock, which are subject to certain restrictions on resale.

The maximum amount potentially payable under the performance-based earn-out is approximately €1.2 billion, or approximately $1.5 billion, and would be payable in cash or eBay stock, at eBay’s discretion, with an expected payment date in 2008 or 2009. Skype shareholders were offered the choice between several consideration options for their shares. Shareholders representing approximately 40% of the Skype shares chose to receive a single payment in cash and eBay stock at the close of the transaction. Shareholders representing the remaining 60% of the Skype shares chose to receive a reduced up-front payment in cash and eBay stock at the close plus potential future earn-out payments which are based on performance-based goals for active users, gross profit and revenue.

The above-mentioned dollar and eBay share amounts are approximate, based on the Euro-Dollar exchange rate and eBay’s stock price as of September 9, 2005. The final value of the stock component of the consideration may vary significantly from this estimate based on the value of eBay stock at closing.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. For Q4-05, eBay expects the acquisition to be dilutive to pro forma and GAAP earnings per share by $0.01 and $0.04 respectively. For the full year 2006, eBay expects the transaction to be dilutive to pro forma and GAAP earnings per share by $0.04 and $0.12 respectively, with breakeven on a pro forma basis expected in the fourth quarter of 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20% to 25%.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.
About eBay Inc.

Founded in 1995, eBay pioneers communities built on commerce, sustained by trust, and inspired by opportunity. eBay enables ecommerce on a local, national and international basis with an array of websites – including the eBay Marketplace, PayPal, Kijiji, Rent.com and Shopping.com – that bring together millions of buyers and sellers every day.

About Skype Technologies SA

Skype, the Global Internet Communications Company™, allows people everywhere to make free, unlimited, superior quality voice calls via its award-winning innovative peer-to-peer software for Windows, Linux, Mac OS X, and Pocket PC platforms. Skype is available in 27 languages and is the fastest growing voice communications offering worldwide. Since its launch in August 2003, Skype has been downloaded more than 163 million times in 225 countries and territories. Fifty-four million people are registered to use Skype’s free services, with over 3 million simultaneous users on the network at any one time. Skype Technologies SA is headquartered in Luxembourg and is growing its offices in London and Estonia.

Forward-Looking Statements

This announcement contains forward-looking statements regarding Skype and the expected impact of the acquisition of Skype on eBay’s financial results. Those statements involve risks and uncertainties, and actual results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to, the timing of the closing of the transaction, the possibility that the transaction may not close, the reaction of the users of Skype’s services, the future growth of Skype’s user base and public acceptance of Internet voice communication services, rapid technological changes in the Internet voice communications sector, the reaction of competitors to the transaction, global developments in the regulation of Internet voice communication services including those provided by Skype, the possibility that integration of Skype’s offerings following the transaction may be more difficult than expected, and the possibility that entry by Skype and eBay into potential new lines of business will not be successful. More information about potential factors which could affect eBay’s business and financial results is included in eBay’s Annual Report on Form 10-K for the year ended December 31, 2004, the company’s Quarterly Reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements are based on information available to eBay on the date hereof, and eBay assumes no obligation to update such statements.

The eBay announcement:

***A New Way to Communicate***

I’m excited to let you know that eBay plans to acquire Skype, the leader in online voice communications.

Skype has set a new standard in online voice communications with
outstanding sound quality and unmatched ease of use. And like eBay,
Skype has a fast-growing community -- some 54 million Skype users
around the world already use their PCs to talk with one another.

And best of all, conversations between Skype users via PC are free. You
can get up and running on Skype in just a few minutes. Just go to http://www.skype.com/go/x.home to learn more and download the free Skype software application. Try it – it’s fun!

Over time, we intend to make voice communications a part of the eBay
marketplace – a huge step forward in making transactions faster and
easier, as well as bringing even more interactivity and humanity to the
eBay Community.

You can include your Skype ID in your About Me page. For now, however,
Skype links may not appear in View Item pages. We’ll be working with
you, our Community, over the next few weeks to thoughtfully work out
the details of how eBay and Skype will interact, including any policy
changes that may be required.

We expect this acquisition to be finalized soon. In the meantime, you can learn more about our Skype plans in the news release we issued just a few minutes ago.

Working together, eBay, PayPal and Skype will redefine online trade and
community. I hope you’ll join us in this exciting new chapter in eBay’s
history.

Sincerely,

Meg

The Ebay rumors are hilarious. Nobody can verify or confirm anything. Not even vague denials from any of the parties. Who benefits from the leak? Skype's VCs pushing valuation buzz and Skype's bizdev team, both to better arm-twist partners.

Everything Skype can offer eBay or its subsidiaries (technology, network access, Skypification of its user experience, PayPal currency conversion of Skype Minutes) can be delivered as a service, without an equity entanglement.

And then you get the Skype Voice announcement. Bill Campbell does a fine job skewering the outrageous charges imposed by Skype. Can you imagine paying 30% of a sale to your credit card company? Or to your phone company for letting you hook up your computer to the phone network? That's Skype's program!

But that's not the worst of that deal. It's that Skype's BizDev team is driving for tactical profit but creating a strategic disadvantage. I'm tempted to say they're trying to think like a mobile service provider but Bill says it looks like simple opportunism.

This deal is an innovation killer.

This type of deal, cherry picking three players out of an entire industry, only reinforces Skype as a "walled garden," a private, tightly controlled place with one master. The other way to do it is to set things up so anyone who wants to compete can do so. Publish protocols and specs and some common tools for call termination (SkypeLite, maybe?) and for commerce. Set rates comparable to what credit card processing companies charge for debit transactions; Skype minutes are risk free since all funds are prepaid cash.

By the way, do you understand what Skype Voice companies do? They are middleware. You call a number. Their computer picks up the phone and answers with a recorded message. It creates a user experience for you using a library of prerecorded messages, a little speech recognition, Voice-XML to guide the conversation, and whatever database of content you're sharing. Like calling up for movie times and making it easy to search for the blockbuster playing near you.

Enormously helpful.

And these companies offer the service now, on regular phone lines, on toll free numbers. They make their money by selling their service to companies that want to engage their customers over the phone. Like banks for bank balances. Or a newspaper for delivery problems. Or a shipper for tracking problems. In none of these examples does money change hands. It's just my business process talking to customers in a convenient, narrow, well structured conversation.

They don't pay the phone company extra for the privilege.

Skype's partnership model doesn't allow this. If there's no revenue, nobody gets paid. And Skype must be paid before they let you pick up when a Skype caller rings you.

Skype's model doesn't allow public service implementations. The volunteers who put together KatrinaHelp would love to implement a service like this but will not charge the dispossessed to find a lost child.

And companies that want to plug in their own IVR systems are shut out too.

Like Bill said, it's a mess.

Instead of putting up a new api, protocols, etc. upon which vendors can innovate and add value the way tellme adds value (terminating calls and doing something with it), they are doing custom deals for a handful of players for short term cash, closing out the developer and entrepreneurial ecosystem including dozens of Tellme rivals.

Skype can fix it but, as it stands, the Skype Voice program is one step back.

João Brogueira writes:

On 1 June 2004, Jean Mercier posted an article on SkypeJournal making an analysis of how many users are online at a certain our within a 24 hours period. This raises the question of how to register the values without being waked up during all night.

The same Jean Mercier as per request of Bill Campbell, of SkypeJournal, shows how to make a video to register the Skype window and the number of users online.

I was surfing the Web today and I found this very interesting post claiming to have miniSkype, a small program that can not only register these values but also export them directly to a database for later analysis.

In short:

1. Jirong Zhou posted a test program on his blog, likely written by others.
2. It logs in to the Skype network, without Skype.
3. It gets data from the Skype network, like the number of people online.

Let me describe the screenshot for you...

It is a Windows XP desktop and three windows are open.

Two stacked on the left are titled "miniSkype v0.0.0.01". They each have a Log In/Out dialog panel on the left, showing "shantou001" logged in with a five character password and a "Log Out" button. To the right of the dialog panel is a text box showing a log of miniSkype's activity.

The first window's log shows:

Login
listen on random port
connecting SkypeNet ...
SkypeNet connected

The status bar shows a "1", "3", "login success", and "305271 Online".

The second window's log shows:

Login
listen on random port
connecting SkypeNet ...
SkypeNet connected
Logout
SkypeNet not connected
Login
listen on random port
connecting SkypeNet ...

and then scrolls out of sight.

The second status bar is the same as the first except that the number of people online is 3047812.

The third window is an application, what appears to be a utility from Gunagzhou's http://www.sky.net.cn/, makers of personal firewall software. It shows open applications and their network connections. One of the instances of MiniSkype.exe (running on drive E:) is shown with both a TCP connection (open on port 1389?) and a UDP connection.

Accessing the Skype Cloud Without Skype?

So does this mean...

• Skype's access to the cloud can be reverse engineered? If so, we can write applications that can write and read to the cloud from servers or clients. So if Skype doesn't write a version for your platform (let's say the PalmOS, for example) you might write your own.
• Cloud data is posted in the clear? While conversations are encrypted, it isn't clear that profile data and presence status is. And, I'm assuming that MiniSkype didn't encrypt the login process beyond common https.
• The MiniSkype client successfully logged in through Skype's own admin servers? If so, can Skype be selective about which clients have access? Should Skype publish a Terms Of Service about touching the cloud? In other words, how should Skype sanction access to the cloud?
• Having accessed the cloud, what other data from the cloud is available? Everything described in the Skype APIs? More?
• Can MiniSkype ask questions about other people, the way the Skype client can see buddy list presence and profile information?
• Is this intensely cool? Widely important? Or dangerous?

The world ain't fair.

Wealth is unevenly distributed, and economic mobility isn't even close to a norm. A drive west from Lake Michigan down Chicago Avenue for an hour makes that clear.

You see the same thing in Skypeland.

The millions of dollars that Skype helps keep in caller pockets? Most of that is middle and upper class money. The savings go to those with midband connectivity, with the disposable income to pay monthly what others call a day's take-home pay. Or a week's. Or longer.

The DSL or cable buy-in to the always-on Internet remains too steep or unavailable, even in the United States. Water, electricity, telephony, sewage, public safety, public health, courts, voting. It must be a mandate to add the fast net to universal access.

That's a dream of mine. Guaranteeing access to the net to everyone everywhere.

Everyone has dreams.

Many are dashed. Some don't know it. Denial for others.

Take SIP's dream. (If you're not from Planet Voipon, SIP is a telecom standard that tells software how to act like a phone network.) SIP's vision is profound and beautiful. A world without centers, where anyone can plug in to the network the way people plug in to email. Telephony as free as your Internet connection.

SIPsters don't have momentum; it's more like the inertia of the desperate who haven't an alternative. Thousands continue to invest fates and fortunes on SIP's promise. Slow to pay out, SIP now finds itself growing but eclipsed by Skype's breathtaking J curve and flashy consumer acceptance.

Many SIP evangelists are working themselves up to condescending that the Skype-thing exists, is popular with consumers in a fad sorta way, and doesn't completely suck as a product. But Skype is so closed and proprietary and consumerish and otherwise icky that the future still lies with SIP.

And they may be right.

Nobody guarantees Skype's survival or ubiquity. But there are few serious rivals and Skype continues to raise the cost of entry.

As it stands, SIP hasn't evolved much, either in specification or in practice. Why? I've heard some blame it on big telcos dragging feet, hesitant to obsolete product families. Others blame SIP never being implemented the same way twice. Or a standards process and body slow to embrace bold changes. May disparities between software and telco cultures be at fault?

Assume Skype will keep evolving quickly, serving 300 million users before 2008. How soon will the SIP community respond to the competition? Will they act effectively? With a potent vision? With specs that everyone will embrace and stick to? We'll see. The recent P2P SIP meeting holds promise.

I had a comforting reality check over breakfast with family still in town post-wedding. Nobody there ever heard of Skype, VoIP, SIP or anything like it. The same look they gave when I mentioned blogs at another wedding in 1999, the Internet in 1993, DARPAnet in 1979. Tolerant, loving, bemused, and not the least interested.

From China Tech News:

China's Ministry of Information Industry (MII) reiterated that it still has not formulated guidelines concerning VoIP businesses and that many current VoIP businesses could potentially be illegal.

Companies like Netease (NTES), Tom Online (TOMO), Skype, and Tencent have all started VoIP services in China. And the 263 Group and HL95 have also recently entered the sector.

The VoIP sector offers great financial rewards for companies because voice communications on the network can be as much as ten times cheaper than traditional fixed-line phones.

MII says that it is still testing VoIP and forbids illegal "phone cafes" from opening in China. It also offered no clear date on when it will issue guidelines for businesses to operate legally.

Silly, I know.

Privacy and webcams.

With a paper bag I can hide a few of my physical markers. Age. Colors. Features. Gender.

This works until you open your mouth.

In a time of mass surveillance, beware. After all, today's webcam conversation is tomorrow's television newscast.

SkypeOut let's you call a regular phone number from your Skype software.

While caller ID isn't passing anything meaningful to a caller now, the call goes through a local phone system in the same region as the called number.

A SkypeOut termination point.

At a specific time.

To a specific phone number.

From a SkypeOut user account.

Billed for a specific length of time.

To a specific payment account.

Tied to a postal address.

Three phone calls from anyone with the power of subpoena to find a caller.

So, don't assume SkypeOut will keep you anonymous if you call a regular phone number to:

• Spill the name of a covert CIA employee to a reporter
• Ask for medical help for a sensitive condition
• Report your employer for a crime
• Make prank calls
• Talk to your lawyer
• Arrange for a secret meeting with your lover

Then again, SkypeOut isn't any more vulnerable to a court order than calling from your home, office, or mobile phones.

Firecrackers echoed down the street, through my window this evening. An early welcome to America's Independence Day weekend. The sounds of war used to celebrate, and to remember.

We weren't the first, nor the last, to fight a war for national independence. We fought to rule ourselves, a freedom from monarchy. We get to vote, organize, and lobby - to have our voices heard, to hold those we elect responsible, to cast a strong light on their work and the personnel who operate our governments. It's an imperfect arrangement, but democracy is all the rage.

When telephone networks were first rolled out, they were private affairs run by companies.

We've added government to the equation since then. To assure universal access. To compel emergency services. To break up monopolies, increase competition, keep prices affordable for the many. To protect caller privacy, fend off telemarketers, and access for the deaf.

There are many governments with a say. Cities. Counties. States. Nations. International lands. Tribal lands. Each representing the interests of their constituencies.

These often conflict with the interests of a profit-minded company.

Like Skype.

A company with users on seven continents. Beholden only to the commercial interests of its investors and executives.

Leaving government out of it for the moment, how can Skype users assert their interests?

• How might we organize?
• Do we need our own virtual town hall?
• Do we even need representative democracy or can direct democracy work?
• Do corporations have a voice, or just people who may work for/with corporations?
• How about electing directors to Skype's board after they go public?
• Need we group our voices by geography? Language? Operating system? Dominant communication mode (text, voice, video, etc.)?
• What recurring issues warrant standing bodies?
  • Security? Privacy? System health?
  • Foreign relations? With other networks? With governments?
  • Taxation and funding?
  • Development direction?
  • Certification and testing of Skype-compatible systems?
  • Accessibility?
  • Universal Access?
  • Names and Identity disputes?
  • What else?

Chat with a friend. Talking points:

1. Will Skype become as important to you as your other phones?
2. What would you miss if Skype Technologies was taken over by bad people?
3. Who can you call if you want Skype to do something?

If you record your text or audio conversations, please let us know.
Suggestions for Skype Citizen Assignments are welcome; please leave your comments.

Worldchanging is one of my personal blog favorites. This year they again turned their blog over to their readers (something we SJ could learn from) and I found myself with the opportunity to contribute. So with the Independence Day weekend coming up in America I hit the keys to encourage "Voices for Freedom".

Read it on WorldChanging, all the content links are there.

VoIP as Revolution

For well over one hundred years, the phone system has slowly but surely brought us closer together through the simple act of hearing each other speak. The Internet, in turn, radically changed communications with media from email to blogs, giving everyone online a way to share ideas with global audiences. Today VoIP - voice over internet protocol - combines the personal contact of voice and the global connections of the Internet. Moreover, it opens up the possibility of new user behavior, offering up a new vision for future.

From Skype users reporting on the "intimate planet" to kids exchanging language lessons to extended families adopting "always-on" communication -- for them a presence aware global intercom is almost here. And that global intercom is still evolving, from the addition of video to massively multiplayer games to Skypecasting to collaborative art. The emerging global multi-modal communications networks come not from gated and priced hierarchies but from the ground up. That's a big change and one likely to stimulate new innovations, new economics, and empower individuals to make a better world. Like information wanting to be free, conversations when free shrink the world.

What can you do today? Embrace solutions that enable global connections and then make them. Reach out talk and build your global network. And pay close attention to the actions of those threatened by new technologies and connections.

While this personal freedom to connect is powerful, strong vested and regulatory interests may well want to take it away. Our freedom to converse with whomever and whenever we want over the Internet should be a basic freedom. Skype proves that in a broadband world we really can reach a point where always on creates abundant opportunities to connect. We must insure these new connections are not squashed by traditional vested interests, be they political or business. Recent policy and legal decisions on Port Blocking, the RIAA and Grokster case and 911 access are examples of the turmoil the new communications methods have triggered.

Freedom in the 21st century is defined by communications. Let's not shackle voices with constraints. Let us listen and encourage a world abundance.

Let's think "Voices for Freedom".

WorldChanging: Another World Is Here: Stuart Henshall: VOIP As Revolution

Skype Journal confirmed today that the only Internet Service Provider in the Sultanate of Oman blocks its residents from web access to Skype.com. This keeps people from downloading or updating the software and from buying SkypeIn phone numbers, voice mail service, and SkypeOut minutes.

Omantel, the Oman Telecommunications Company, offered stock to the public his week but still holds the state monopoly for both land-line telephony and Internet service. It is generally believed that Omantel blocks VoIP (voice over the Internet) as unlawful circumvention of their telephone system. Omantel staff said they don't expect changes to this policy. Some hope authorization of Nawras Telecom as a mobile service operator will eventually create competitive pressure.

600 thousand expatriates live in Oman and lower-cost telephony has been very popular. Net2Phone, Skype, MSN and the like help them stay in touch with their home country.

See also:

• Skype Journal: UAE Blocks Skype.com, 24 April 2005
• Skype Journal: UAE Blocks Skype.com; follow-up, 7 May 2005.
• Wikipedia: Communications in Oman

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