Why Facebook Skype Is Not a Bad Idea

As Facebook evolves into a communications business, combining with Skype makes great sense. But why would Skype sell out?

Did you hear that both Google and Facebook are looking either to partner with Skype or simply to buy it? Funny, because back in the days when Skype was in play (before it was acquired by EBay), Google had a chance to buy it, but Larry Page and Sergey Brin nixed the idea.

Today some are speculating that Facebook might be a better suitor than Google, though I bet none of the sources quoted in the Reuters story has any first-hand knowledge of any deal. Reuters pegs the price of Skype at $3 billion to $4 billion, roughly three to four times Skype's annual revenue, which is in the $1 billion range.

People laughed at me when I suggested back on Sept. 29, 2010, that Facebook should buy Skype. Here's what I wrote then, and I still think that is the real reason for a Skype-Facebook deal:

"Sure, this would be a big, hairy merger, but look at it this way: In one swoop, Facebook would dominate what I've maintained is both the new age and classic social networking. They have people's credit cards; they have their real-world phone information; and in the end, they have a better, more useful, social graph than Facebook itself.

The Skype-Facebook client on the desktop would mean both Facebook and Skype will be jointly in people's faces and take time away from other Web services, such as Google. A simple search box inside the Skype client, and the two companies are starting to take attention away from archnemesis Google."

FROM NETWORK TO COMMUNICATIONS

Since then, Skype is much bigger, has more revenue, and has a lousy new desktop client. Facebook has taken huge strides toward owning "communications" and online "interactions."

When Facebook launched its Social Inbox, I pointed out:

"For the first three years of its life, the company was merely a social network, but then it transformed itself in quick succession into a social Web platform and then a social aggregator of the Web. Today the company launched its 'social inbox,' a new kind of messaging system that is the first public manifestation of the new new Facebook. Facebook's newest core competency is communications—a way to become even more indispensable in our daily Web lives."

There are many other reasons why this deal makes sense, the biggest being Marc Andreessen, the Web wunderkind turned über-VC who sits on the board of Facebook and has investments in both companies. It would be Christmas in summer for his fund if this deal goes through.

IS SKYPE CRAZY TO SELL OUT?

What isn't clear to me is why Skype wants to sell. Sure, everything has a price, but boy, if there's one company that can go public, it's Skype. Frankly I am surprised that Skype would settle for such a low number. Why sell for four times its revenue? Is there something that doesn't meet the eye? Has the juggernaut slowed? Six months ago, I suggested that Facebook should pay $7 billion to $7.5 billion.

I'm even more surprised that Skype wouldn't shoot for a public offering—which is crazy, because it is precisely the kind of company that can go public.

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