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Why Skype Should be Sold to Google
April 16, 2008
There are now rumors circulating that Google will buy Skype. These rumors are not new -- I wrote about this as recently as November 20 of 2007.But they did die down for a while and have been renewed. I have heard wild claims like the evaluation of Skype is in the multibillion dollar range, etc.
I should mention that I have tremendous admiration for the people at Skype who developed software that tens of millions of people use. I am frequently blown away when I use the software myself and see over ten million people online at one time.
Having said that, Skype is a poster child for IP communications. Certainly not the only one but many think of them as a barometer for the market. Vonage too is thought of as a barometer of the communications space. Sadly, the two of these companies have done nothing to help the communications space these past few years. Quite the opposite in fact.
But Vonage is not the topic of this article... Skype is. And even if free software which sits on your PC has nothing to do with session border controllers, some in the investment community like to lump the companies together.
What this means of course is that to have the healthiest communications market -- and especially an IP communications market, we need to ensure Skype does well.
Certainly this may not be possible. In other words perhaps there is no way for Skype to ever make more money than they do now. In fact, perhaps when Motley Fool writes about just how atrocious the Skype purchase was for eBay I should just accept it. Maybe the company is doing its best and still can't make big profits.
But I am 100% sure that the company's management could do a lot better. In fact I wrote an entry titled What eBay Should do with Skype where I outlined steps the company should take.
Here they are once again:
1) Enhance the social network capabilities: Skype currently is in a good position to expand into social networking via Facebook like features. They have added some community services but not enough to be taken seriously as a real social network. Some analysts place Facebook’s value at $100 billion. This is obviously an area the company should be going after more seriously.
2) Show some ads: Let’s see if I understand the situation. You have over 5 million users on your service almost every moment of every day. You need to increase revenue. Your answer? Show no ads. If I were eBay I would be flashing product listings in front of Skype users as often as possible. If this doesn’t make sense, why not show Google ads like everyone else in the world? It is tough to see where this isn’t a $100 million/year revenue opportunity – this amount may seem high but think about how long people use Skype each day and consider you can flash new ads in front of users constantly. Moreover, probably $90 million would flow to the bottom line. eBay’s P/E ratio is currently about 40 so this amount of earnings could translate into about $3.6 billion in market capitalization. Not showing ads is something I can’t conceivably understand.
3) Enter the enterprise VoIP market: Cbeyond has a market cap of over a billion dollars and provides hosted communications to just a few cities in the US. Zennstrom first told the world at Internet Telephony Conference & Expo that Skype was very popular in the business space. Why was this never monetized in a formal manner?
4) Provide paid recording capabilities: With the regulatory environment forcing so many companies to record phone calls and so many Skype users in the world, you have to offer a recording service to help those companies who need to capture Skype IM and voice calls within their organizations. My revenue estimate? $25-$100 million/year.
5) Skype trunking: This technology is one of the most intriguing around – allowing companies to communicate with branch offices, customers and home workers at a low cost. I feel going forward every company should take advantage of SIP trunking and Skype trunking. Skype knows this. So the question I feel compelled to ask is why would they do not work more closely with partners such as VoSKY and actually market Skype trunking products to customers in a more serious way. VoSKY is doing a good job but why is there not a multimillion dollar Skype ad budget behind VoSKY and others? Why leave the success of this massive market in the hands of partners when you can ensure the rapid success of this burgeoning new space yourself? The reason may be that Skype was built as a viral platform and they except this to be the only way to sell. Ditto for eBay. Guess what? Companies like Avaya, Cisco, Dialogic and Quintum sell telecom equipment and/or gateways and they have to market to customers. To be serious in the business space, Skype needs to start a serious partner program where they fund the marketing of companies which help their own paid services increase.
6) Go after the PBX vendors: If I am a PBX vendor I would be looking for Skype interoperability as a differentiator. Still, I have yet to see an ad touting PBX vendor’s Skype Interop. Why?
7) Charge for something beyond just connecting to the PSTN: Charge for conferencing, enhanced video, the ability to get new features first, for the ability to use the service without having to see ads, etc.
8) Partner with media companies: Work with content providers and stream programming via the Skype client. Make money through subscriptions and ads.
9) Take on the world’s biggest auction houses with Skype video enabled live auctions. If eBay can pull off selling cars, it can pull this off as well.
10) Embrace Skype: I have a weird question. Companies all over the world are integrating their customer service departments with gateways allowing callers to use Skype to call in. Isn’t it odd that PayPal doesn’t accept Skype phone calls? If you want companies to integrate with Skype – which will obviously increase revenue – doesn’t it make sense to lead by example?
11) Embrace enterprise video: Video is enjoying resurgence and Skype has a well-known brand name and has a pretty good video solution. What about offering a video plan for businesses which will be cheaper than existing solutions on the market but priced high enough to generate real revenue?
Some of these things have been done already but for the life of me I cannot understand why I am not bombarded with ads when I use Skype. Of course eBay ads should be shown. If we approximate the number of users on Skype at any given moment to be conservatively 8 million, there should easily be 25 million people using the software each day.
There is gold in those connections. By not showing ads in fact, I believe eBay is at risk of shareholder lawsuits.
But for whatever reason, the company has not chosen to embark upon many of the ideas above. Frankly, there is no crystal ball that says these ideas will bring in a billion more in revenue but the cost of trying most of them is peanuts and not doing anything is guaranteed to produce similar results to what the company is now experiencing.
So in my opinion, I think having Skype sold to another company will be good for the entire communications space. Perhaps the company needs a fresh start and some time to try anything and everything that will get the cash register ringing.
Google is a great partner because they have the ability to show ads from the largest ad network in the business. More importantly, they have technology which can recognize spoken words and show the appropriate ads based on keyword.
In a way, we should think of Skype the same way we think of YouTube... An extremely successful multimedia platform with tens of millions of users where ads can be laser targeted.
I should mention that I did reach out to Skype regarding the Google acquisition and they mentioned that they do not comment on speculation and rumors. Of course this was what we all expected.
I suppose the next time I reach out to the company I should ask them about my ideas. Am I way off base? If so perhaps the company could clue me in as I would love to see Skype continue to grow, not only in users but in revenue.
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Tour de Force
April 16, 2008
I just stopped by the Tour de Force developer conference put on by Salesforce.com. There is lots of activity here and I was intrigued to see how many partners were at the event.
I got lots of details on the company's strategy and their relationship with Google. I am looking forward to writing about it soon.
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Ortiva Wireless Enables Mobile Streaming
April 16, 2008
Do you remember the past CEO of Cantata, Mark Zionts? He keynoted a past ITEXPO and was head of the company just before it sold to Dialogic. Since then he joined another company which he helped sell and now he is on to a new company called Ortiva Wireless -- where he is CEO. Ortiva has found an interesting niche in the mobile video streaming market where they focus on optimizing the video experience for end users without requiring them to download anything onto the phone. Unlike a progressive download where the client needs to have extra memory, DRM and a buffer, the solutions Ortiva Wireless focuses on stream live, in real time.
The company has focused extensively on ingesting and analyzing content and subsequently has learned the nuances needed to ensure the client gets the best possible experience regardless of bandwidth. For example if a user is watching a news broadcast and the bandwidth starts to dry up, the software makes the decision that stereo is likely not needed and moreover that the audio is more important than video.
Ortiva is working with tier one carriers at the moment and business seems to be very good according to Zionts. Marc is proud to point out that some of the investors in their B round of funding were actually service providers. In my experience this is usually a good sign as carriers generally understand the market they serve better than others.
The company can also sell to content providers but at the moment the service providers seem to be beating the door down, so don't expect any outreach in other areas any time soon.
There are many organizations looking to be the ad insertion point for mobile carriers and I am happy to report Ortiva Wireless is no different and they can also help carriers insert these ads on a per-subscriber basis.
My take on Ortiva is they are in the right place at the right time as many carriers want the revenue associated with video without purchasing and subsidizing high-end devices. I would imagine the company and this space will continue to expand for some years to come.
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Callwave Fuze, Unified Communications Plus
April 16, 2008
In the race to provide the best Unified Communications solution, there are just so many approaches. The various ways to achieve UC are staggering in fact. Companies like Microsoft have partnered with many companies to achieve seamless UC - with special emphasis on Nortel and Aspect. IBM has partnered with virtually all UC players - including Aspect and Nortel while companies like Avaya are thriving by not only offering their own solutions but a bewildering assortment of integration options.But is it fair for only the largest players to get a seat at the UC table? Of course not… That is why it is worth mentioning I recently met with Jeffrey Cavins, Richard Roberts and Michael Buday from Callwave, the company that makes a variety of UC solutions.
The company has a service called Fuze which is a browser-based UC platform with a nice-looking GUI. The solution has differentiated itself in a number of ways by ensuring their service works on a variety of devices. Just one of these is the Nokia N800 and N810 internet tablets.
So what does the service do? Aside from the usual merging of e-mail, voicemail, etc… There is also high quality videoconferencing and Skype-based conferencing allowing up to about 1,000 people to be on a call at the same time. Furthermore, there is internet fax, media sharing, Outlook synchronization, voicemail transcription, support for Yahoo and Google mail, find me/follow me functionality, and more.
Perhaps one of the more interesting features is the ability to schedule conferences where participants are called when it is time for the conference to begin. Yes my friends, Fuze could be responsible for retiring the conference call in number and PIN code.
Boy I hope they are successful in this last area as I would be thrilled to never have to dial into one of these calls again.
But I digress… Fuze service is worth considering if you are a small business, service provider or a mobile professional - always on the go.
A Blackberry version is coming soon and the service will soon benefit from offline capability similar to Google Gears. This will allow you to work on the airplane or subway.
In fact Roberts told me, "Accounts will be able to edit/delete contacts, listen to messages, view faxes and text and access their media locker when offline. When they go online, we will sync these changes. The user will need to use the [Adobe] AIR client for this (PC & Mac compatible), but we may be able to take care of this from the web site as well."
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Novarra's Better Mobile Browsing Experience
April 16, 2008
A shift has taken place in internet usage and now more than ever it seems people want web access on the go. A single device in fact - the iPhone shows that if we make it easy to surf on the go, people will not only surf, they will pay for the privilege to do so.Logically, this means service providers need to find ways to get their customers to not only embrace internet on the go but demand it. One of the best ways to do this is to make sure customers can access the net on virtually any device - not just the state of the art gadgets that can cost a month's salary or more in some parts of the world.
A company called Novarra has tackled the difficult task of internet-enabling devices which are not designed to browse the web in a graphically appealing fashion. The way they do this is with a content transformation gateway. For those with good memories - Net6 had a similar gateway a number of years ago and was later sold to Citrix.
The gateway and client are designed to accelerate the browsing process and make it more like you would experience on a laptop or desktop. In fact, the gateway can actually reduce download times by 2/3 and reduce bandwidth demands by a factor of ten.
Inherent in the system is content conversion to various formats depending on device. For example Flash videos are transformed on the fly to 3GPP, MPEG4 or other formats so they can be displayed on virtually any handset.
If you read between the lines you noticed that this means virtually all devices can now render Flash - even if they aren't designed to do so.
I recently met with part of Novarra's management team, Jayanthi Rangarajan, Roger Decker, Randy Cavaiani and we had a chance to demo the company's systems in real-time. I was impressed with the speed of transformation for pages such as Yahoo Finance and others. A test of TMCnet was an interesting experience because the site has flash graphic news headlines but the flash animation changes every five seconds or so as it scrolls through news stories. The transformation engine did not wait long enough for this particular flash application meaning only one or two news items showed up. It really isn't the fault of the software as it can be configured to deal with such timing issues.
As you might imagine the challenge is to display the Flash file as fast as possible so waiting around for a slow change doesn't make sense for most sites. For a site like YouTube this wouldn't be a problem.
In the past year and a half the company has deployed 15 times with companies like Vodafone, Turkcell, Yahoo and 3 Hong Kong. The company continues to partner with web portal companies and service providers and as you might imagine they also provide a great start page for mobile applications with room for ads.
The ideal mobile browsing device has not been invented and download speeds continue to be a problem when using wireless cellular networks. Until the perfect mobile browsing device is made, service providers and internet companies alike need a solution which makes the mobile browsing experience faster and better. This is Novarra's sweet spot and you should consult with them if any of these solutions can help you.
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Nick Jensen Kicks Off Day 2
April 16, 2008
Dialogic CEO Nick Jensen Kicks off the second day of the company's 2008 analyst meeting here in Times Square, New York. More to come.
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Will Social Networks Make Money?
April 16, 2008
I came across this well-researched article on the Brooding Savage discussing the fact that social networks may not ever make significant money.Why? Well, part of the reason may have to do with the success of these networks... There is actually a glut of eyeballs and pages viewed -- putting supply way out of whack with demand.
Here is a salient excerpt from the article:
Here’s my point, when the Social Networking bubble bursts, analysts will recognize Social Nets for what they are: a communications utility. They are a robust combo of mail, messaging, and personal profiles – innovative, but not earth-shaking. And these types of utilities have always underperformed as revenue generators. Instead, profitable businesses have historically used communications to attract users, who are then monetized via branded content franchises like news, sports and entertainment.
One wonders -- if this is an accurate viewpoint -- is the coming social network bubble burst inevitable?
This is not to say that social networks aren't important and that these viewpoints are written in stone. In reality, social networks may still come up with an advertising model that is new and more successful than what is in use today. If this happens, it may be that these networks are worth more than some give them credit for.
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Caribbean Outsourcing
April 16, 2008
Many people think India when they discuss outsourcing but it is interesting to note that the market for BPO/teleservices is much larger than a single country. Case in point is a company called e-SGI.I read about them in an article by TMC's Tracey Schelmetic.
e-SGI has 3,000 employees in three different offices in Montego Bay and Kingston, Jamaica, and St. Lucia. Annual billings are in excess of $60 million. The company accesses more than 120,000 calls per day. Approximately half of the employees have a high-school education and half are college educated. Each worker is dedicated to only one client. The company takes great pride in its employee benefits program, maintaining annual attrition at approximately 14 percent, which is startlingly low for call center work. Each employee is provided at least 10 weeks of initial training and then a minimum of an hour of continued training per week.
So when you think of outsourcing, think Caribbean and if you are comparing options, it may be worth a trip down to the sunny islands of the Atlantic to take a look.
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