Skype May Be The Biggest Winner From The Web 2.0 Era
Skype does not get the respect it deserves, because eBay not only publicly admitted to overpaying for it but is making a mess of its core business. Another reason may be that Skype flies in the face of conventional Valley wisdom that says it has to be all about social media. Or maybe the fact that Skype came from Europe, and we all know that Europeans are just lunch-eating dilettantes. Whatever the reason, a company that has $500 million in revenue, is profitable and growing, and has a shot at becoming the largest player in what is now a $2 trillion (yes, "t" for trillion) market, should get more respect.
Ten Reasons
In ten years time we may look at Skype in the same way we look at Amazon and Google, as a huge built-to-last company, for these ten reasons:
- It has revenue, about $500 million in 2008. Ahem, only in the strange world of Web 2.0 is that considered remarkable. I love using Twitter, but without sustainable revenue their future has to be in question.
- It is profitable. We're talking "high-teen margins," according to eBay's CEO at the Accel Symposium. That does put it in a different league. It means they can survive the harshest of economic climates. If Facebook is having to raise money in these markets their model must be fundamentally flawed, which means their time as an independent company may be limited. To control your own destiny, you need to be profitable.
- Skype's growth is accelerating in a tough market. Skype is publicly talking about growth rates of 30% to 40%. That's not bad in an economy where flat is the new 30%. Skype has the perfect recession pitch: cut costs now! This shows in its most recent numbers. In the last quarter, Donahoe told us that Skype-to-Skype grew 73% and Skype Out grew 63%.
- Disruptive technology. Disruptive technology is an over-hyped term, but in this case it really fits. Skype's peer to peer technology enables them to dramatically under-price the competition and still make money. New users don't cost much money - compare that with Facebook and YouTube. Even better, each new user that comes on improves the service for others - the core P2P proposition.
- Viral marketing. Skype is the perfect viral business. I have lost count of the number of people I have told about Skype, for the simple reason that I want to communicate better/cheaper with them. Many of them are doing the same.
- Massive market with vulnerable incumbents. $2 trillion is a lot of money. That is the size of the global telecom market. As to vulnerable, how many people feel so loyal to their telephone company that they won't switch to get lower prices? Yes, when Skype dominates the market it won't be worth $2 trillion any more. Even if it is worth 25% of that, say $500 billion, that is OK for the dominant player. Faced with the Skype threat, incumbents have a horrible innovator's dilemma. To really match Skype will destroy their current business even faster.
- Just wait until it bites into those cell phone bills. Skype on mobile phones - really native Skype you can use for free wherever there is WiFi - has been possible technically for some time. This has been held back by the mobile operator's head lock on the device manufacturers. At some point the dam will break. Consumers pent up anger over nickle and diming cell phone bills will ensure that a real alternative will be welcomed.
- Skype is totally mainstream. This is not about being hip or early adopter. Just show the video conversation to anybody with loved ones in distant places. You will see the surprise and amazement that makes it seem like magic.
- It is a sticky service. Google still gets my business because they are better than the alternatives. But switching to an alternative will be totally simple. When somebody suggests using something other than Skype, I resist. I have my contacts in there, know exactly how it works and have integrated some external tools. Skype can continually add new features to make the experience better as our hunger for communication is pretty well limitless.
- Skype can do an IPO. For anyone younger than 30, we should probably spell that out: Initial Public Offering. We keep being told that the IPO market is moribund because of Sarbanes-Oxley. Baloney! The IPO market is moribund because we have lacked profitable high-growth companies that move into huge markets.
My prediction is that as soon as market conditions improve, eBay will sell Skype through an IPO. Their shareholders will pressure them to do so. There is no synergy logic in being part of eBay. The value of Skype is obscured by the problems in eBay's core business. The Skype IPO can be early in the market recovery, as their story resonates so well in a recession (markets usually recover well before the economy recovers).
Who Else?
Who else can take the title "biggest winner from the Web 2.0 era"?
- Google: not really Web 2.0, though; born in 1999.
- YouTube: still losing money, no clear monetization model, and video-serving costs are substantial. It is hard to imagine YouTube as an independent company
- Facebook: how long can the great hope remain the great hope? At some point, it has to demonstrate a sustainable revenue model and some profit. It still doesn't have a native revenue model that makes sense to both users and advertisers.
- Twitter: see above.
- Salesforce.com: not really Web 2.0 either; born in 1999. More revenue than Skype today, but smaller addressable market.
Share
Facebook
Comments
Subscribe to comments for this post OR Subscribe to comments for all ReadWriteWeb posts
when did skype become a web 2.0 application?
Well argued, Bernard. But, regarding point #7, damns don't break, dams do.
Skype is very cool. Shame it is owned by eBay
I do agree with you, skype can be the market leader in web2.0 era. especially with launch of skype on mobile phones, and with increase of people using smart phones, skype will go beyond the customers of the internet.
by the way great, informative article
Well, Skype is good of course.. still it's not a web 2.0 application itself.. instead it is a desktop application ..
I would agree with you about the points you've pull up about Skype but Sorry I can't agree about web 2.0 and skype.. :)
Google born in 1999, so it's not web 2.0 ... lol where is this definition came from?
I do agree that Skype's potential has not been fully exploited.
But you artificially exclude Google in your claim that Skype is the 'winner' of the web2.0 era, while conveniently ignoring that Skype is clearly web1.0 technology.
I'm glad to see Skype getting some more public recognition. I use it on a daily basis for business and home. Being from Europe based in Asia I find the premium Skype In and Skype Out services so useful (I think it's probably as close as I'm ever going to get to Google Voice's services).
It will certainly be interesting to see where Skype goes in the coming years, perhaps they will go web-based and then they really will be a Web 2.0 winner. I'd love to see them create those kind of widgets that could in one fell swoop knock out Meebo Rooms and all the "Live Salesperson Chat" widgets.
i have used it for calling outside my country it is really cheap.
I've been using Google Voice for about a week. It is early, but I just don't see how Skype can compete with the feature set.
Posted by: Cartwright Reed
|
March 30, 2009 3:45 AM
Great article, just in time for my MSc assignment. (I will ref) Thanks :)
Good information but its not fair that happens to Skype . It should get its position. Being an European why getting discarded?
As their popularity increases, and more people use Skype to Skype - won't they loose their ability to make money?
Skype is fantastic. Ditto "shame it's owned by ebay". I use to call friends whenever they're overseas and for mobiles. Really is so much cheaper and that's important in these rather gloomy times.
Think they will find a way forward. Sure they wouldn't have set it up without forethought for long term Business.
Skype is fantastic. Ditto "shame it's owned by ebay". I use to call friends whenever they're overseas and for mobiles. Really is so much cheaper and that's important in these rather gloomy times.
Think they will find a way forward. Sure they wouldn't have set it up without forethought for long term Business.
Don't forget the Pirate bay is a huge advance in the Web 2.0 world. Putting aside the legal issues, this is the way media should be delivered! Many media company's are facing the same problem the phone company are facing. Media distributed by P2P is more efficient, and is gutting there industry, to compete is to say "We must gut our selves to compete".
Thanks, Bernard -- excellent business perspective on Skype. Most people don't realize these things, since the company's been essentially hidden within eBay for so long now. I agree that it seems inevitable for it to bust out.
Also interesting timing that your post comes out just before we learn Skype for iPhone is ready! It's supposed to be available for download from the App Store starting tomorrow (Tuesday 3/31).
regards,
Graeme
www.tech-surf-blog.com
Do you have any idea can we use it in China?
www.egitisim-blog.com
"we all know that Europeans are just lunch-eating dilettantes." whoa ... i get bundled in that, F*CK YOU Bernard Lunn
Thanks all!
Matt # 18. I assume that you were matching irony with irony, so LOL. But in case you left your sense of humor behind, woah.
Andrew # 2. Thanks for correction. My English teacher is anguished and says it was not his fault. Actually I like the idea of damns breaking...
Cartwright # 6. I have not tried Google Voice and as Skype gives me everything I need I have no motivation to try. Which is really Google's problem. The era of "Google launches, all incumbents are dead ducks" was only ever true in a few people's mind, not in the reality of the market.
Egitism # 17. Any reason why it is not available in China? That would be interesting to know if the Chinese Govt is blocking Skype and how. It would make an interesting post. Skype has figured out how to get behind corporate firewalls, so the Great Wall....?
Do you have any idea can we use it in China??
Wow, dude, Skype is Da Bomb yo!
RT
www.anonymity.us.tc
It is available in China, but it is known, that at least text messages via Skype are filtered and protocolled.
Read more here:
http://www.theregister.co.uk/2008/10/03/skype_coughs_to_china_test_tap/
I am a subscriber of Skype and recently I got my Skype number too. Let me guess I have paid over USD 300 in last 9-10 months and I will continue to do so. I just love Skype.
It is one of the best things to have happened in web X.0. I think Skype potential was diluted by eBay. No evil reason here, it is a simple case of mismatch.
- Yo Skypo
Agreed Skype's business model is sound, everyone needs (or at least likes) to have phone-like conversations on a regular basis. Additionally, everyone is keen to save money however possible, so using skype really is just common sense.
I have to agree regarding many of the web 2.0 initiatives revenue returns - currently many operate on a "hey we are cool and interesting - somebody buy us" and it's definitely worked well for some. But how do google plan on turning a bandwidth chomping monster like YouTube into a profitable entity... I really don't know...
Nice article.
Great article, and I'll agree. If not solely for #1 (revenue), than because once used, you get locked in. Let me tell you why. I have an 11 month old daughter and in laws that live in Florida (my family and I are in New York). Because they miss the little one so much we now have a nightly ritual of using Skype to video chat. The regular use of a service that is fantastic from a demographic that spans two generations is unique in this space. Also they have support from the biggest game changer of them all - Oprah.
Thanks!
Chris
vis-a-vis Skype http://hub.tm/?SAODU ...since when is talking to one or more persons not social?
I've been a Skype user for four years or more, but the quality just isn't there to use it as a landline replacement. It's OK for Skype to Skype and also for calling people you know well and can apologise too for the in-call quality, but you'd never use it for anything important, such as business calls to customers and the like. In spite of the claim that quality improves the more people use it, I can assure you that it hasn't.
I am not sure it fits the Web 2.0 label. Although it could be better exploiting the Web 2.0 movement by being the voice call provider of choice for the myriad social networks out there when online engagement needs to move to voice conversation. But it looks like an opportunity eBay and Skype are letting pass them...
Ian Hendry
CEO, WeCanDo.BIZ
http://www.wecando.biz
The reasons stated justify the argument. I vote for Skype!
Why not Netflix, the iPhone, Guitar Hero, or the New England Patriots?
I mean, really, if we are asking for the big winner of the 'Web 2.0 era' and counting non Web 2.0 companies, wouldn't we just have to say the New England Patriots?
Ian # 27. Agree. Not as good as landline when on Skype Out. But way better even than landline with Skype to Skype. And even Skype out is better than using a mobile phone. Occasionally I have to converse with dinosaurs using traditional teleconferencing and if my choice is Skype Out or mobile I use Skype Out, but will use landline if it is available. I still use a landline but in marginal cases.
Ian (different) # 12. That is possible in theory in the really long term. But as somebody said, in the long term we are all dead, so don't worry so... By the time most people are using Skype to Skype, they will figure something that they can offer that some people will pay for.
Google Voice has a better service than Skype because you really don't need a computer. With Google Voice you call your own assigned free local Google Voice number (DID) from your own land line or cell, enter the number you want to call domestically or internationally, and it connects you. At Skype-Out rates. Plus free domestic long distance in the US (and probably other countries eventually). They say they can fund the entire operation with revenue from international calls, so domestic calling anywhere in the country is free.
Unlike Skype, it's perfectly understandable for anyone that's ever used a phone, including your grandmother. And she doesn't need a computer in her house.
If you want to go on the web and configure all the fancy voice mail or multi-ring follow me options, you can do that, but you don't have to. If you want your voice mail sent as a sound file by email or transcribed and sent by SMS you can do that, but you don't have to. Expect telephony innovation on the level of gmail.
You can use it from your friend's phone or from a work phone and call anywhere in the world, but it's a local call. Skype can't do that.
If you really don't want to have a land line, you can use Gizmo to connect over your broadband using your computer with a computer headset just like Skype. But since Gizmo uses the open SIP protocol, there's tons more software and VOIP hardware that can use it. (Cisco, Dlink, and every other networking manufacturer is in the SIP VOIP business) You don't need Skype specific hardware for Skype's proprietary system. (Of course, Google Voice totally guts Gizmo's paid service.)
Skype might have a nice addressbook, but what about when Google tells everyone that their gmail address book works for Google Voice? Gmail has alot of users.
Skype has every reason to be happy about their current numbers for international calling. But they also need to be worried. Google Voice is just better.
Interesting.. this is going to be a hit to all the music lover's out there.
great piece bernard.
amazing how eBay may actually survive all of its errors in strategy over the last 5-7 years based on 2 simple items:
* buying PayPal in 2001
* buying Skype in 2005
and for the record, while they may have overpaid i'd still argue the Skype asset is worth at least as much as they paid and probably more (for the right buyer).
(oops, sorry... eBay bought PayPal in 2002. and i should know that, since i was there ;)
Going to beat the deat horse here with this one; Skype last time I checked was an executable, not Web 2.0
Pricewise, Google Voice will give away for free nearly everything that Skype charges for. Except international calling.
Local number? Skype $60 a year, GV nothing. Voicemail? Skype $60 a year, GV nothing. Have people call your local number and have it ring at your work, home and cell simultaneously? Skype .021 a minute forwarding, GV nothing. Send SMS messages? Skype, .047 each, GV nothing. Call people in the US? Skype, .02 a minute, GV nothing.
What about quality to landlines? With Skype (and calling with Gizmo from your computer) it's hit or miss depending on the quality of your broadband, your geographical distance from Skype's server, your neighbor's traffic, the general performance of the internet that day. And my local ISP has no reason to improve my Skype quality when they're selling their own VOIP service that connects to their servers on their local network.
With Google Voice I use my land line to dial into Google's servers and they connect to the international number using the same fiber optic wholesale infrastructure that AT&T uses. There is no traffic on the public internet. It's the same quality as any long distance carrier because Google is buying from the same global data carrier. Except that I get Skype out rates.
fring.com already lets you take Skype mobile over both 3G and Wifi - what more do we need?
Skype and fring are both leaders in this field.
Thanx for a great post.
hello
As someone who went out and bought ebay stock when they acquired Skype, I've been following this saga pretty closely. All the reasons you put forth are the reasons I wanted to own a piece of the company that had the foresight to purchase a business with the potential for global telecom disruption.
The one thing I don't agree with completely is the assessment that Skype doesn't fit in with Ebay's business. It's definitely a little strange, but if you look at it as a piece of a larger platform, I think it makes more sense. Ebay already has a huge marketplace of sellers and a payment system that is widely adopted. When you add in a communications application, it helps break down the barriers of distance. If they could get it to work, it would be amazing to be able to do conversations 'in person' using video/voice chat, providing another way decide if the person you're about to transact with is trustworthy, etc. It goes beyond a feedback score and brings true customer service into the picture, as people will be able to put their face (and hence a bigger part of their reputation) on their sales. No more days of faceless email wars and PayPal dispute resolution because you ended up buying from some flakey guy in Queens who doesn't give a shit about his customers because they're basically anonymous moneybags.
Indeed, Skype has been a boon for businesses, especially small businesses. An unimaginable amount of money is saved communicating with vendors and aprtners around the world, which would otherwise have been spent on phone calls. new age online software have indeed been god sent for small businesses like mine. Skype and HyperOffice are two online business software that i swear by.
Regarding your IPO point, Skype is already publicly traded since it is owned by ebay. I'm not sure I understand your point. Also, I'm under 30.
Dave # 33. Yes, that much maligned deal with Skype may turn out to be their savior. The public reports say they paid $2.6bn upfront and $530m in earnout. So $3.1bn and change. I will crunch some numbers to see what the market might pay for Skype in latter part of 2009, but something more than $3.1bn does not seem outrageous. Now how much is PayPal worth as an independent entity? Know any good public commentary on that?
Brian, yes Google can leverage Gmail to sell Google Voice and could give Skype some serious competition. Skype on normal phones is already there. This is unlikely to be about competition around features or price. The price is already rock bottom and both will have all the important features - hiring a few more developers is hardly a problem for either. Price and feature competition will only matter a the margins.
But I still object to the automatic assumption that whatever market Google enters they dominate. That has simply not been true. Any entrepreneur/investor who thinks that might as well give up and grow vegetables for a living.
Great post. I never understand why people are paying so much to incumbent fixed line operators. Skype has such a value proposition.
All of these indicators point to huge price wars being fought over call costs while adding features.
This is reminiscent of the free-email wars that ended up with hotmail/gmail/yahoo winning by giving away more and more services for free.
When a product becomes a commodity like this and the price gets driven to 0, what has to happen? The companies giving away the product have to begin subsidizing the product costs with advertisements.
This is where telephony is truly going to end up, skype, google voice, gizmo, icall, anybody in the VoIP business can tell you that it's going to end up being ad supported just like your e-mail, searching, tv watching etc.etc.. is.
"Skype is totally mainstream. This is not about being hip or early adopter. Just show the video conversation to anybody with loved ones in distant places. You will see the surprise and amazement that makes it seem like magic."
The rest of the list I'm not entirely sold on, but this point? Brilliant and true above others.
There are people killing it with Facebook ad's.
Facebook's self serve ad revenue is growing steadily and is set to do around $400 million over 2009 last time I heard.
Skype is good, I started using it a while back, one of the best tools out there, and twitter too, great post ;-)
Terrance Charles
www.thesimplecodemanuscript.com
Again, since when is Skype part of the Web 2.0 crowd? It's a software phone, no matter how good it is and how much I like it, it has nothing to do with the Myspace/Facebook/Twitter genre.
Using Skype wherever I go. I can make cheaper calls halfway across the globe to my clients! Skype is the best!
Skype is one of the worst things to happen to the IT world. I mean if you don't care if anyone from Skype listens in on your private conversation, then sure, its kewl. On top of that, its fairly easy to crack into a skype call so long as your monitoring one side of the conversation. This is due to the fact that Skype failed to meet the international standards for the VoIP technologies that they use. Basically, kewl idea - bad implementation.
1 2 Next