Pros and Cons of Skype IPO

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Skype is planning a $100 million initial public offering (IPO) less than a year after spinning off from eBay and being acquired by private investors. The prospectus for the planned IPO illustrates that Skype is maturing, but that maturity may come at the expense of what made Skype what it is today.

Skype recently updated the iPhone app to take advantage of multitasking and enable calls over 3G.
Skype has established itself based on providing free Skype-to-Skype audio calls, and video chat from the computer. Taking advantage of the ubiquitous nature of the Internet, and low-cost VoIP technology, Skype also provides relatively cheap voice calling rates to virtually anywhere in the world.

Skype has grown quickly into a household name. It has 560 million registered users--up 41 percent from last year. More than eight million of those users are paying customers, and Skype averages about 124 million connected users each month--statistics that are also on the rise. Skype wants to evolve beyond those free consumer-service shackles, though, and become a larger force in online communications.

The goal of Skype is to take the familiarity and user loyalty of the established Skype brand, and apply it to new products and services to generate more revenue. It wants to compete more directly with VoIP providers like Vonage, and it wants to make its presence known in the corporate world with offerings like Skype for Business.

Skype has been fairly aggressive at making a mark in mobile communications. It developed a Skype iPhone app, which just recently added the ability to multitask and run in the background, as well as the ability to place calls over the AT&T 3G network. Skype also has a deal with Verizon to allow Skype calls on its network.

The infusion of cash from the IPO could allow Skype to offer a variety of innovative new features and services, as well as providing it with a marketing budget to help generate more paying customers and wider adoption by businesses. However, the IPO can also be somewhat of a Pandora's Box.

With investors come demands. Shareholders expect rising share prices and dividends. They want a return on their investment, and that pressure can fundamentally change the way business is done--possibly stifling creativity and innovation for the sake of revenue and profit.

Don't get me wrong--revenue and profit are good, and Skype has every right (or obligation from the shareholder's perspective) to pursue them. It's just that going public brings a completely different dynamic to the business decision process, and the drive for profit could force Skype to cancel free services, or start charging for services that are currently free in order to cover overhead and keep revenue up.

I expect that the Skype IPO can be a success. But, the company that emerges on the other side might be fundamentally different than the Skype we have now.

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