Eyeing Technology, eBay's Skype Buys VoIP Startups

Peer-to-peer communications firm Skype said it would buy a pair of VoIP startups in a two-for-one deal completed with the stock of parent company eBay (Nasdaq: EBAY), a transaction that gives it direct access to technology it currently licenses from a third party.

Skype, which eBay acquired last September in a deal worth US$2.6 billion, said it would acquire San Francisco-based Sonorit Holdings and its U.S. subsidiary, Camino Networks.

It will pay the closely held startup with 700,000 shares of eBay stock, giving the deal a value of about $27 million.

Adding Experts

Skype co-founder and CEO Niklas Zennstrom said the acquisition gives his firm access to "some of the leading experts in online voice engineering."

"We're excited about bringing the talented Camino Networks team to Skype," he said. "They will add considerable expertise to our own world-class technology team."

Being part of Skype will give Camino Networks "access to the best platform for bringing our technology to users," CEO Jonathan Christensen said.

The deal will have no impact on eBay's earnings for the coming year, the auction giant said. The fact that it let Skype make and announce the deal is seen as evidence that it intends to let the firm grow on its own -- an approach similar to the one it has used to establish PayPal as a dominant online transaction processing firm.

Hearing Voices

Skype's interest in Camino is based on the firm's expertise in voice processing on the Internet. Improvement in that area seen as key to the growth of VoIP and other voice services delivered over the Internet. Currently Skype licenses voice processing technology from a third party, Global IP Sound.

Global IP Sound is no stranger to Sonorit -- having sued it last year for trade secret violations after Sonorit hired several Global IP Sound employees during its growth spurt.

Skype has no immediate plans to change its voice processing provider from Global IP; instead, it intends to enlist engineers from Camino and Sonorit to refine its own technology, which is just one of a number of specific technologies that enable voice communications on the Web.

The additional investment, while modest compared to the price tag of the Skype buy, may help put to rest questions about whether eBay would be able to keep Skype competitive in the rapidly evolving VoIP space.

Battle Ahead

Skype's main competitor in the pure-VoIP market, Vonage, recently filed for an initial public offering. The IPO could net Vonage tens of millions of dollars to help it ramp up marketing efforts and solidify its market share before even larger companies, including cable providers and traditional telecoms, begin to aggressively pursue VoIP customers, telecom analyst Jeff Kagan told the E-Commerce Times.

"The long-term winners will be the big companies we all know by name now," Kagan said. "In the shorter term, the smaller firms are doing a good job of building customer bases and rolling up the technology they'll need to compete."

Mergers may be the order of the day in the voice-over-Internet space this year, as companies begin to roll up smaller firms that are seen having some of the best technology in the space but lack the resources, the brand name and the visibility to make significant market pushes, said independent VoIP Analyst Jeff Pulver of Pulver Media.