Sunday, September 11, 2005

$5 Billion for Skype?

There have been rumors about X wanting to buy Skype, where X can be either eBay, Google or Rupert Murdoch. The numbers mentioned were in the range of $2 billion to $5 billion.

But is Skype really worth that much?

A quick look into a business and ecomonics book will yield that there are two ways of judging a company's value: You can look at the substance value or the sum of expected earnings.

The latter is easiest: Skype claims to have 53 million users. They would need to make just about $100 off of each user to yield 5 billions. But let's say that their userbase grows ten-fold: Still, $10 must come from each and every user. Not impossible, but hard to imagine, given that their core product is free.

The other way to look at Skype's value is by calculating how much would need to be spent on re-building it from scratch. If you spent $100 million on development (which seems excessive even for a bunch of very talented CS engineers), and $500 million on marketing (that's how much it costs to establish a new global brand), you end up at around $600 million. A far shot from the $5 billion that eBay is offering.

Dear Niklas and Janus, I think you should accept. It's hard to imagine getting a better deal, especially with competitors quickly catching up. I might add that I haven't seen a significant product improvement lately - animated emoticons don't do it for me.