What eBay Should do with Skype

Please enjoy the unedited November 2007 Publisher’s Outlook column from Internet Telephony Magazine.
OK, I was wrong. Really wrong. Over a billion dollars wrong in fact. Why? I believed eBay and Skype had a solid strategy to turn hundreds of millions of people who have downloaded this ubiquitous internet calling software into paying customers.
It seemed to me a community of over a hundred million users could be tapped to generate revenue which at a traditional tech multiple would be worth in the billions of dollars. After all, I use Skype. I have an account and I pay the company money each month. It would seem I may be more unique than I presumed.
I have called Skype the only company in VoIP innovating and they have done a great job adding features and functions to the package. It would seem obvious that innovation doesn’t always translate into dollars. This must be the case as eBay just wrote down over a billion dollars – saying they overpaid for the internet telephony company. Worse – Niklas Zennstrom admits eBay overpaid for Skype.
So it seems the co-founder of Skype — Zennstrom and virtually everyone covering the company in the financial and communications press thought that Skype was worth far less than the $3 or so billion than they received in total.
I really got this one wrong it seems. So I do apologize to my readers.
But if Zennstrom felt the company wasn’t worth this lofty price from the beginning – it may explain why he really didn’t try terribly hard to generate the revenue necessary to meet this lofty valuation.
Last night as I was falling asleep I started to think about what the company could have and still should do to generate revenue and increase value for shareholders.
I may just be eternally optimistic but I support my argument with hard facts and valuations of similar companies.
I may be wrong on every point below but not trying is worse for shareholders than at least trying to innovate in the neighborhood where the dollar signs live.
In the end any company is worth what the leaders can make of it and this is directly correlated to how much they deem a company is worth. Disruption means nothing to shareholders if it cannot be monetized.
What have I learned from all this? If a CEO doesn’t believe a company has value – it doesn’t. Trouble is – until this past week we weren’t aware of this crucial bit of information.
So here is my list of things eBay and Skype should be doing and yes, Meg I am available for consulting if needed as I still believe there is a great deal more value in this company.
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?
Although we have seen a tremendous amount of innovation from Skype there has been a ridiculously small amount of focus on revenue generation. There is a massive community of users who are addicted to this internet telephony software and they can still be tapped. Now is the time to take it to the next level by turning eyeballs into dollars. This may sound like it is so dotcommish of me but the last I looked, Google, Bidu and others seem to have figured out how to make such a model work.

  • Matt Giteau
    October 15, 2007 at 6:44 pm

    Rich – I am really surprised that you thought skype wasn’t overvalued – you must be unique in the industry! Some of your points are very valid, but you should also keep in mind that the P2P technology that made skype what it is today also hinders implementing services such as VoIP trunking and “centrally managed” features such as business groups and call recording. However, I fully agree on the ads. All the other IM clients are doing it and are making upwards of 100M each year in advertising. And as far as streaming media and programming via the skype client? No surprise that hasn’t been done – Niklas would have been a fool to enable skype to compete with his new baby, Joost!

  • Ed Prentice
    October 16, 2007 at 12:13 pm

    Rich, I don’t think you need to confess to being wrong. Many of us thought there was potential to create great value around what Skype had started. As you observe we are seeing some root causes, but this failure to exploit the potential value lies in eBay’s court. The question remains, can they find the value? You made a fine list while falling asleep. Imagine what management could do while awake. A good start would be scouring the web to find the views of more optimistic observers like you.

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