If I was a matchmaker of technology acquisition, which had settled the technology giant Cisco Systems with Skype.
The companies complement each other well, it looks as if it was a match made in heaven. In fact, I would say are more compatible than Skype and eBay have never been. eBay acquired Skype in 2006 for U.S. $ 2.6 billion.
Apparently, I am not alone in thinking that Cisco and Skype should marry. Cisco has reportedly already made a bid for the company, according to TechCrunch. The two companies remain silent about the rumors.
One of the biggest dilemmas the eBay auction site was online with Skype was to find out how to work successfully on its core technology. At the same time, eBay also was not able to own Skype business model profitable enough to justify the enormous expense.
eBay and Skype finally dissolved. eBay sold its stake in Skype at the end of 2009. And earlier this month, Skype introduced an initial public offering with the Securities and Exchange Commission.
Instead, Skype’s business and technology fit perfectly in line with existing Cisco products. In fact, Cisco does not have to make the traditional business model of Skype, which generates cash primarily from its SkypeOut service, cost-effective to do even an acquisition of Skype technology a success.
“Incorporation of the Skype technology in some of Cisco’s existing products such as WebEx and Unified Communications, will only make the most valuable products,” said Zeus Kerravala, senior vice president of Yankee Group. “So would not necessarily make the traditional consumer highly profitable service Skype.”
Video is the key
Cisco video is nowadays. In fact, that’s all CEO, John Chambers, you can talk. In a recent event in New Jersey, Chambers said video is quickly becoming the killer app of all IP networks, including the Internet itself. With each new evolution of television, applications consume more network resources. And this feeds Cisco business and other businesses.
“The video network is voice-over-IP” today, “he said.
So it makes sense that Cisco would like one of the largest online video applications conference on the planet as part of its empire. Skype says that 40 percent of all calls made through your video chat software.
The most natural and easier to integrate technology in Skype to Cisco WebEx conferencing service, Cisco. WebEx is a collaboration tool that allows leading companies to share documents and communicate online with others. Skype video and voice services are well integrated into the WebEx services contract to a new level. Many companies large and small companies are already using Skype video anyway.
Skype’s technology could also be a good complement to other Cisco products. For example, Skype video would also fit well in other companies, Cisco Unified Communications products provides a video component to the call of VoIP and presence applications. It could also be used to produce Cisco’s telepresence video conferencing services to the masses.
Cisco equipment has been selling high-quality videoconferencing to large companies in recent years. And in January at the CES show in Las Vegas, the company said it would be evidence of a consumer version of the product that offers a similar experience of video conferencing in the country. The telepresence system will use the current users HDTV and broadband Internet.
Adding Skype video technology from Cisco can help lower the cost of the service. Skype also gives Cisco an instant user base of at least 124 million active users.
“Even if Cisco could make the technology comparable to that of Skype video services, Cisco still have to obtain millions of people to change their service Skype to Cisco,” said Kerravala. “Therefore, it could be an uphill battle. Why do not you just buy?
Skype could also benefit by connecting with Cisco, one of the richest companies in effective and stable in the technology sector. Since the separation last year from eBay, Skype has really started to turn a profit. In the first six months of 2010, revenues of U.S. Skype$ 406 million and net income of U.S. $ 13.2 million, according to the filing of the SEC. Compare this with the whole of 2009. Then Skype had sales of U.S. $ 719 000 000 and a loss of U.S. $ 99 million. Skype, said in his submission to the SEC that are expected to increase revenues through new agreements with Verizon Wireless has beaten and television makers as Samsung and LG.
But even with the new agreements in the works, the flow of Skype’s revenue is predominantly linked to a service, SkypeOut. This is the Skype service that allows users to call regular phones from your Skype account. Given that only 8.1 of its 124 million active users are paying customers using this service, the revenue stream of the company is somewhat precarious.
As part of Cisco, Skype does not have to worry if your traditional consumer business stumbled. Unlike eBay, it could not find a good fit for Skype’s existing businesses, Cisco could still benefit from the free consumer service Skype, but it did little or no money. Skype has a total of 560 million registered users worldwide, with 124 million using the service each month. That’s a lot of eyes around the world can co-brand with the performance of Cisco Skype calls.
Cisco has been trying to enter the consumer market for years. It sells branded Linksys router and last year acquired Pure Digital, makers of Flip Video cameras, for U.S. $ 590 million.
At the end of the day, Cisco’s core business remains the sale of switches and routers that transport traffic over corporate networks and across the world through Internet. The video is the application more bandwidth intensive there. Cisco and anything can be done to encourage more use of video is the money in their pockets. That is why the acquisition of Skype makes sense as the acquisition of Pure Digital.
A price to pay
The potential cost of an acquisition of Skype is not insignificant, but should not be a problem for Cisco. Some reports suggest that Skype is looking for a valuation of U.S. $ 5 million dollars, which means Cisco would at least have to match that of Skype to even consider the possibility of accepting the proposed acquisition.
Cisco has spent that much money for other acquisitions. In 1999, he spent nearly $ 7 billion in optical networking start-up Cerent. In 2005, he bought TV set-top box maker Scientific Atlanta in U.S. $ 6.5 billion. And in 2006, paid a cool U.S. $ 3. 2000 million WebEx.
In other words, Cisco has demonstrated that it will pay big bucks for strategic assets. And Skype is at least, if not more, than many strategic acquisitions Cisco strong in the past.
The only potential problem is that if Cisco were to acquire Skype, which would be in direct competition with some of its major customers, telephone companies like AT & T and Verizon Communications. But Kerravala not think it is a major concern for Cisco.
“Cisco definitely put in a more competitive position with some of their customers,” he said. “But the market is moving toward VoIP anyway. And there are only so many synergies between Skype and Cisco. “