Over the course of the day more details about the rumored Skype acquisition has been reported. According to MarketWatch there have been mentions of a purchase price of up to $5 billion with more credible rumors place the price somewhere between $2 – $3 billion. Even $2 billion is striking me as being pretty expensive, but maybe there’s a business model there that I’m just not seeing.
The same MarketWatch piece references over 50 million Skype customers (a press release from Skype issued a few days ago says that they have 553 million customers). Clearly this number does not reflect the number of downloads, because according to this blog entry which references an AP article Skype crossed the 100 million download threshold in April 2005. Seeing significant details on actual usage by Skype customers is hard to come by.
Skype are attributed as having an expectation of $50 to $60 million in revenues this year. Since Skype is a private company there are some key details, such as profits, missing from these details. Most of this is going to be from fees for add-on services such as SkypeOut calling to standard telephones and the SkypeIn feature that allows users to receive Skype calls using regular phones.
There’s some more data in this piece from Forbes, which states that Skype has over 2 million SkypeOut customers. At a minimum EUR 10 (approx. $12.40) per SkypeOut account (at least at the start) there is a minimum of $24.8 million in revenue since the launch of SkypeOut in July 2004. Considering the big brand competitors such as AOL, Yahoo and Google coming on board with VoIP calling, it remains to be seen how Skype are going to increase the penetration of SkypeOut among their installed user base or otherwise get customers to commit to significantly higher usage of Skype to drive average revenue per user up to deliver on their revenue targets. There may be other opportunities for revenue with Skype Voice Services for call centers and content providers, but it’s hard to see where Skype sees huge revenues here, either. Some of the breakdown for Skype and partner TellMe’s take on the total revenue for Skype access to content looks pretty daunting, and content providers might shy away.
The Forbes article title best reflects why I am most skeptical about the high valuation of Skype: Skype Proves Anyone Can Sell Phone Service. This is very true, and with AOL, Google, Yahoo and other big brands entering this space, things are going to get extremely crowded.
One thing I don’t expect users will tolerate in this space as well as they’ve tolerated in traditional instant messaging is the lack of cross-platform operability. I don’t expect users to tolerate the notion that they can only speak to their friends and family on the same platform. If services such these are ever expected to replace traditional phone lines (a concept which I know is highly debatable) interoperability is a must. By comparison, imagine that a Cingular customer would ONLY be able to call other Cingular customers, and that user would be out of luck to call a Verizon Wireless or T-Mobile customer. Even more strangely, imaging if you could only call other people using Nokia phones. Right now, if youre a Skype user, you can only use the software to talk to other Skype users unless you pay for SkypeOut minutes to talk to someone via a standard telephone number. So, if youre using SkypeOut to dial out, and your buddy is using whatever AOLs equivalent of SkypeIn will be (where they have a number people can call on a regular phone to talk to them via their voice over Internet software), youll BOTH be paying for the call regardless of where in the world you both are locatedand voice over Internet is supposed to be the end of per-minute charges. OR one of you switches voice clients, which serves to alienate you from your other friends with an installed base of said client. OR you run multiple software clients, which is just lame, lame, lame.
This entry is all over the place today, I will admit. My own being all over the place reflects everything that’s been going on with Skype this past week or so (or maybe its just the cold meds). Suffice it to say that I think the rumors, if true, reflect a far over-valuation of Skype. I should hope eBay come to their senses.
Disclaimer: I am one of Skypes 53 million customers but not a very thrilled or even a paying one. Ive only used it a few times with friends in the UK, and just wasnt really all that impressed with anything above and beyond being able to talk for free. Ive come to enjoy the Gizmo Project voice over Internet software from SIPphone much more for some reason, and there seems to be a greater commitment to interoperability with the folks at SIPphone. Thats just what voice over Internet needs if its going to succeed.
