Facebook is making a splash today with a major upgrade to its ubiquitous social media platform: Video chat, thanks to a partnership with Skype. But whether the Skype partnership will upgrade the Facebook IPO prospects remains to be seen.
The Facebook Skype move adds an extra layer of interactivity to the social networking giant, which already boasts 500 million active users who spend over 700 billion minutes per month on its site. The motivation for the Facebook-Skype synergy was to keep people connected, sure – but more importantly, to keep users plugged in as competitors look to get a slice of Facebook’s massive social media pie.
The idea of a Skype deal with Facebook is to allow multiple friends to talk via video chat at the same time. Consider it a chat room for the 21st century, where your Facebook wall comes to life and puts all your friends in front of you at the same time for real-time conversations via video conferencing.
So what does the Facebook Skype deal say about the state of things for Mark Zuckerberg and the social media giant? Well, the timing of the Skype deal say it all. Last week, Google (NASDAQ: GOOG) launched its Google+ (pronounced Google plus offline) social networking platform. And its Google Hangout video tool was the biggest strength of the service.
Google Hangout is a prominent feature of Google+ and has been heating up the internet with reports of how addictive it is and easy to use for folks already logged into Gmail. A great New York Times tech blog post hints that Hangout could be the company’s “killer app.”
Facebook clearly doesn’t want to be left behind. Hence the hasty Skype announcement this morning.
Of course, let’s not be fooled into thinking that the Skype thing was just thrown together on the fly. Back in May, Microsoft (NASDAQ:MSFT) racked up a whopping $8.5 billion phone bill to buy Skype – due in part to rumors that both Google and Facebook were considering a buyout of the video conferencing king themselves. Microsoft has its own plans for Skype, to be sure, but clearly knew that Skype was in demand in Silicon Valley.
But the bottom line is that Google beat Facebook to the punch on video chat. And as boy wonder Mark Zuckerberg races his company towards the inevitable initial public offering of Facebook stock in the next several months, that’s not ideal. It’s more important than ever to assure Wall Street that the Facebook IPO hype over the last year or so has been well warranted.
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Even more troublesome for Facebook is that the IPO market doesn’t appear to be as remarkable as it seemed a few months ago – even for social media companies. LinkedIn (NYSE:LNKD) opened some 80% above its offer price on the first day of trading, but has slid in the red since its initial stock offering May 20. And Renren (NYSE:RENN), the so-called “Facebook of China” is off some -40% since its May 5 IPO.
Facebook is clearly more dominant and is a much sexier company then either LinkedIn or Renren. But it’s important to note that investors have become more skeptical lately – and Facebook is going to have to prove itself with this Skype partnership if it wants to assure Wall Street that Google+ doesn’t pose a threat.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.