Renren: Why Facebook Needs Skype

Late yesterday, news broke that both Facebook and Google were vying to purchase Skype. The VOIP service may see its IPO in the latter half of this year. The acquisition is valued at $3-4 billion- but Skype's 663 million registered users (and growing) are priceless. There are a number of reasons why Facebook would be interested in tying the knot with Skype. But one- Chinese social networking site Renren, stands out above the rest.

Renren or "everyone network" is the largest social-networking site in China. It "only" has 117 million users, but it also has more momentum than any comparable site in the country. And it just raised three quarters of a billion dollars in its IPO. There are 457 million Chinese Internet users, and Renren is aiming to convert them all.

Which is a big problem for Facebook. The Palo Alto-based search engine sees China as a crucial avenue of expansion. CEO Mark Zuckerberg spent last December in China apparently inking a deal with Baidu. China's largest search engine plans to work with Facebook to open a joint social network. But the announcement of that deal- and the launch of that site, are still months off.

And Renren isn't slowing down.

Here's where Skype falls into the picture. The VOIP-service currently operates in china through the TOM-Skype joint venture. Skype's been in China since 2004. They are already an established name, with 88 million registered users in-country. That's a foothold Mark Zuckerberg can't help but want.

But can Facebook- who made $2 billion last year- afford Skype? The company may be worth as much as $50 billion but they don't have nearly that much in liquid cash. The social network's most recent round of fundraising brought in $500 million. Far short of that $3-4 billion mark. If it comes down to a bidding war, Facebook can't beat Google. But it may not get to that. Skype has the final word with this- and it all comes down to who they feel will be a better fit.

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