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eBay bets big on Skype
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On Monday, eBay said it would take a $900 million so-called impairment write-down against the value of Skype. This means that eBay has been forced to reassess the value of the Internet telephony company relative to its overall business today. By recording a charge, the company is essentially saying that it has taken a loss on its original investment.
In what looks like an attempt to shake things up at Skype and move the division in a new direction, eBay also said Monday that Skype co-founder and Chief Executive Niklas Zennström has stepped down.
His departure was expected. Zennström, who helped start Skype in 2003, has joined forces with Skype co-founder Janus Friis to start an Internet television service called Joost. And it has long been anticipated he would take more time to work on that endeavor.
From the time that the Skype acquisition was announced in September 2005, analysts and investors on Wall Street shook their heads wondering how the company could pay such a hefty premium on a company that essentially provided free or low-cost voice minutes in a market that is dominated by large incumbent telephone companies.
When the merger was announced, eBay, which owns and operates the most well known online auction service, said it saw great potential in using Skype's peer-to-peer voice over Internet Protocol technology to connect buyers and sellers in the eBay marketplace. There were grand plans to integrate eBay's PayPal payment system with Skype's VoIP network.
But nearly two years after the acquisition closed, there is little integration between eBay's auction Web site and the Skype voice service. Even though Skype has grown into the largest voice over IP provider on the planet, the bottom line is clear--it still hasn't made enough money to justify the hefty $2.6 billion price tag.
"The Skype service has been tremendously popular as a free service," said Jordan Rohan, managing director and Internet analyst at RBC Capital Markets. "But at some point, free doesn't work anymore. It's not a management problem. It's a business model issue."
That said, Skype has been a success story of sorts in the voice over IP arena. Its subscriber base has grown from 57 million registered users in 2005 to 220 million users at the end of June 2007. That's an increase of more than 160 million registered users in less than two years. The division also recorded its second quarterly profit in a row on July 18 on revenue of $90 million.
But despite this success, eBay's CEO Meg Whitman said when the results were released, she was still not happy with Skype's usage levels.
The big question now is, what's next for Skype?
Making money
Clearly, the current business model is not enough to satisfy eBay in light of how much the company spent on Skype. And the reason is simple. Even though Skype has done a very good job of getting users to download its software client, most people who use the service do so to make free Skype-to-Skype phone calls.
The only way that Skype makes money from its subscribers is when people use its Skype-In or Skype-Out services. Skype-In allows users to pay to rent a phone number, which people on regular phones can call. Skype-Out allows users to call traditional phones or cell phones for a fee.
Skype and eBay don't break out how many subscribers use Skype-In and Skype-Out, but Rohan said there is evidence in Skype's numbers to suggest its Skype-Out usage is actually declining.
"Skype-Out usage is way down," he said. "But regardless, Skype's core business isn't much different from a really cheap calling card business. The margins are really thin."
It's clear that the dream of massive integration between eBay's auction site and Skype won't be realized anytime soon. But the company still sees big potential in Skype's voice services.
"We feel like we can do a lot more with Skype as a stand-alone VoIP provider," said Hani Durzy, a spokesman for eBay. "Skype has been focused on user acquisition, and it's done a great job. But we also feel like we can find new ways to monetize those users."
- More from News.com on this story's topics
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- Phone companies that degrade voice force providers to build network.
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by disco-legend-zeke
October 2, 2007 9:00 AM PDT
- The Telecommunications act of 1996 was designed to permit concurrent growth of new technology, without harm to the telcos.
It allowed them to unbundle network elements. So if i just wanted a copper pair, i could rent it for $8. As these new services grew, the LECs panicked, and got federal mandates overturned.
A case in point, Las Vegas. Where COX and SPRINT simply refuse to lease unbundled fiber or copper.
Great Bean Counter type idea. Now the streats are all trenched by facilities based competitors. New york city has a company that just owns conduit. (i watched one section being built, it had 64 three inch pipes)
However, as pointed out in the article, the future is wireless because of the low installation cost. Hang a pair of $1500 off-the-shelf radios 10 miles apart, and you OWN a 20 MEG link.
Hang 10 $150 802.11N routers in your block, and EVERYBODY owns about 500 Megs.
Add GPS cascade routing instead of IP based Path-oriented routing, and you create a self forming, self healing network, owned entirely by the users.
Google already gets this, and there is nothing to stop other entities from bidding on that or other pieces of the spectrum. Al Gore could get elected on a platform of Public access to 700 MHZ. The cost of spectrum. OWNING spectrum is, well, like owning the air. Hey i want to bid on RED. anybody using RED light for signaling would buy a license from me. Today we know that 2.4 and red are the same... everybody can share red as long as they use beams, not broadcast; we now have the technology to produce dynamic, massively redundant, beams of RF. Its already working in 2.4 and 6.8, 700 MHz awaits only a sensible ruleset for operation.
There is nothing wrong with the old model, RF technology did not permit simple beam forming. The lowest cost alternative was a fixed dish.
I saw steerable dish stuff at a trade show.
Today, a virtual dish is created electronically, in the chipset, not just one but Many. I saw in operation a panel antenna/radio tha could do 200 WI-FI connections at the same time.
Tell your favorite candidate to pledge to stop the sale of red. After all, spectrum belongs to the people. Not the wealthy communications dinosaurs.
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