Let's Talk About Skype
I read Nick Carr’s thoughts last night and commented on them.
Then I saw Jeff Pulver’s thoughts this morning (via twitter).
I agree with much of what both of them say about Skype, but I think it just comes down to wrong guy married wrong gal.
A couple days ago, a reporter asked me via email:
I’m curious about eBay’s big Skype write-off, which (along with Vonage’s problems), suggests that "free" isn’t much of a business model when you can’t easily rely on advertising (which seems to be the case in telecom). You agree?
And I told the reporter:
I think Skype is a great business that is owned by the wrong company.
I wouldn’t jump to conclusions based on what eBay’s done with it to date.
Like everyone else who was blogging two years ago, I went back and looked at what I wrote at the time.
But why does eBay want to own Skype?
Forget for a second the rumored price of $2bn to $3bn.
What’s in it for eBay?
This quote is from the Wall Street Journal’s story on the rumored deal:
Skype offers the Internet auctioneer a thriving
e-commerce business that benefits from so-called network effect, which
is a good or service that has value to a potential customer based on
the number of customers who already own that good or use that service,
said this person familiar with the matter.
Yeah, so what? I still don’t see the synergy in the deal for eBay.
Back to the purchase price. I think Skype is a bargain at $2bn to
$3bn. I think everyone should use Skype and I think it will be on
every kind of communication device over time – cellphones, PDAs, etc.
I think Skype could be the ultimate phone company of the 21st century.
So owning Skype makes sense. But I am not sure why it makes more
sense to eBay than Verizon or BellSouth.
For me it comes down to what I said on Nick’s blog last night.
i can’t help but think that the wrong company bought skype. imagine if Nokia had bought them or even Verizon or even Google.
I agree eBay was probably the wrong company to buy Skype. The question is, why did they do it? Sure, Skype benefits from network effects like eBay did, but to think that it’ll integrate with eBay was certainly a stretch. Unlike PayPal, which a huge number of eBay users picked up on their own well before the acquisition, Skype has no such uptake by the community for doing eBay transactions. I can’t believe that as savvy as the eBay management is, that they honestly believed that ~$3 billion of value could be derived from the “talk to seller” scheme. They had to know that that wasn’t going to be a huge hit like PayPal. It would’ve only taken a 3-day online survey to find that out. So did they just screw up, or was there a different plan all along that they’ve kept under cover? Perhaps they just wanted to diversify their business and build another GE but didn’t want to come out and say it. After all, the growth of the auction business has slowed and they still need to show double-digit gains. Maybe they just wanted a completely new source of revenue that had nothing to do with auctions and the synergy angle was just cooked up to placate the shareholders and wall street.
It’s an interesting one. The problem everyone screams about facing is trying to figure out how to monetize all of these free web2.0 services…and yet the only solution we have come up with so far has been…advertising?!! Why couldn’t eBay, who obviously deals with an enormous amount of financial transactions online daily, come up with a way to turn Skype into a revenue machine? I can’t believe they payed $2.4B just to TRY a “talk to seller” scheme. I agree, a Verizon or Nokia makes more sense…but eBay should have still been able to recognize how to monetize it…even if that meant moving it on shortly after their purchase of Skype.Qian Wang is right though – surely they must have known before buying that their user’s would not necessarily flock to a service such as Skype. I think both services, whilst touching many people, are not so interconnected to allow for a symbiotic relationship ala PayPal and eBay. Judging by the comments of the eBay CEO, it seems they may have misunderstood that each service had a subtly, but certainly different, community of users and that someone using one, was not always going to use the other. Web 2.0 Culture Jam! lol
The deal was a no brainer as the blog mentions. I happened to talk with some one high in the ranks at Paypal and he mentioned about nearly 200,000 new members signing up/day for papal . Other than that I dont know what they did with that deal actually. They couldn’t integrate the product or such strong users with any other verticals which is really sad.I don’t know what went wrong where. Any way who ever closed the deal receives applaudes. For the current price its not such a bad deal after all.
I completely agree–the problem here isn’t skype, its a bad match. it would be fascinating to see a company with the proper focus, incentive, and assets to grow skype’s core business take it off ebay’s hands. The timing of this could be very interesting given the open access activity/700mhz auction(and the upcoming gphone). This could be an interesting play for google–as they may eventually have the spectrum, network and device to create a wireless service with skype used for voice, and have a more realistic method to monetize such a mobile service(than other potential skype acquirers) via their advertising/other product suites. I have serious doubts that skype would have been well developed by any of the u.s. wireless carriers given what skype does to their voice revenues and the carriers’ concerns(and they’re generally playing their concerns) over dis-intermediation. Given Nokia’s substantial commitment to broadening their business they could be an interesting acquirer as well, but it would be a move certainly unwelcomed by their close carrier partners. All in all, Skype provides a truly great service to consumers in an enormous market that is potentially approaching a period of serious disruption–the well-placed company that gets skype on their team could be positioned to execute something significant.
That last sentence reminds me of one of Umair’s posts, when he asks rhetorically, “What if the NYT had bought Blogger instead of Google?”
Fred, if Verizon or Nokia would have bought Skype they’d be in the same fix as they are now. What do eBay, Verizon and Nokia have in common? None of them are equipped to capitalize from the disruption that a company like Skype represents. I made the call on Skype in January 2006 and it didn’t have anything (much) to do with the price. It had to do with the way that eBay and Skype are misaligned — eBay profits by facilitating (and controlling) communication between buyer and seller, while Skype benefits when things are opened up.
Telecom from the big guys is cheap and getting cheaper. I just got off the phone with my wireless carrier. I was canceling my unlimited data, mobile TV, radio and navigation plan for $25. They said if I wanted to keep the plan, they would give it to me for $10/mo indefinitely (not a one month trial). 2 months ago they comped me 2000 text messages per month for free.Fred, I don’t think you can beat these guys on arbitrage anymore. Skype has some value-added features beyond voice and IM, but nothing worth $2B.
Completely agree with the “wrong guy-wrong gal” statement. When the deal was announced that was my first thought, “why ebay?”. I think that if anyone should have bought Skype that should have been a telecom company, an ISP, or a we-do-it-all web giant like Yahoo or Google. eBay would not have been even at the end of the list of those who should have bought Skype. AOL, Comcast, ATT, Yahoo, Google – yes, sure. But eBay?
Adding to my comment (as Greg Solovyev): I would so be a Comcast tripple-play customer if they offered skype-in.
Maybe the Skype guys were a bit too busy with their venture capital outfit, Atomico…
If Ebay had been an East-coast firm they’d have taken a pass. I think they got infected by VC-fueled hype that permeates Northern California. Sometimes being too close to the action is expensive. Ask Bear Stearns.
I met up with an old friend and technology analyst recently whose family is in the business of power selling on eBay. His take on Skype made a lot of sense. to me. eBay’s motivation to purchase Skype was based in assisting its sellers with customer service. For those in the game, power sellers live and die by customer ratings. What eBay didn’t appreciate is that sellers didn’t want any spend time talking to their buyers.
The acquisition of about has worked out great for the nyt. About is a cash flow machine with nice growth The NYT got a bargain when they bought aboutFred