Publisher´┐Żs Outlook

Skype Pre-IPO Report Card

By Rich Tehrani, CEO, Technology Marketing Corporation  |  April 01, 2011

This article originally appeared in the April 2011 issue of Unified Communications

It was back in 2007 when my fellow bloggers and journalists told me that Skype was a dog, had no future, couldn’t make money and wasn’t going anywhere. I begged to differ. The way I saw it, the company simply didn’t execute on its potential. I quickly jotted down 11 ideas the company should pursue, and I even offered myself to Meg Whitman as a consultant to help implement my ideas.

Fast forward a few years and Meg is gone, the company was sold and is now implementing the ideas – slowly but surely. But many have been implanted in the last month or so, which is why this analysis makes sense to present today.

The 11 ideas are as follows, and I analyze them inline in italics:

Enhance the social network capabilities

Skype currently is in a good position to expand into social networking via Facebook (News - Alert)-like features. It has 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.

Wow, even today the value of Facebook is only $75 billion, but I am sure it will hit this number soon. The point here is Skype (News - Alert) is making the right moves – you can’t take Facebook on directly. Skype has tried with a recommendation service and other enhancements, but working with Facebook is the smartest thing it could do. And their recent talks reported on video collaboration shows it has gone in the right direction – especially when you consider the announcement that you can communicate with Facebook friends from the news feed.

Show some ads

Let’s see if I understand the situation: You have more than 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 (News - Alert), 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 a year revenue opportunity. This amount may seem high, but think about how long people use Skype each day and consider that 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.

It took them four years, but finally Skype will be showing honest to goodness ads. Corporate malpractice is the only appropriate term I have for eBay not using Skype to showcase its auctions. It’s mindboggling, really.


 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 U.S. 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?

Skype has made lots of progress here and is making real money in the enterprise. It has a long way to go, but at least it is farther along than it was in 2007.

 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 is $25-$100 million a year.

I’m not sure if <$100 million moves the needle for Skype, so we may never see this one. Besides, there are other companies that are handling this via software so it is a bit more of a competitive market. Still, $10 a month a user is likely a reasonable cost for this feature; and if my estimates are low and 5 million users out of hundreds of millions decide to pay, that is a cool $600 million in added revenue. Then there’s the Qik acquisition, which added some paid recording features to the company's arsenal.

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 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 isn’t there 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 it excepts this as the only way to sell. Ditto for eBay. Guess what? Companies like Avaya (News - Alert), 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 it funds the marketing of companies that helps its own paid services increase.

TMC is using Skype trunking now as a backup to its traditional IP communications, so nice job on this one Skype.

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 a PBX vendor’s Skype interop. Why?

More companies are interoperating with Skype today than at any time in the past – especially impressive is integration into phones from Grandstream and televisions from numerous vendors.

 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.

Recently, Skype did exactly thi,s going head to head with WebEx and others via a partnership with Citrix and GoToMeeting.

Partner with media companies

Work with content providers and stream programming via the Skype client. Make money through subscriptions and ads.

If this is happening in a big way I haven’t noticed. But then again, do people want video streaming in their voice and video app? I’m not 100 percent sure.

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.

Now that eBay and Skype have parted ways, we won’t hold our collective breath.

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?

This is a head scratcher. I’m surprised this never got done.

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 that is cheaper than existing solutions on the market but priced high enough to generate real revenue?

Well, Cisco has recently rolled this out via its Umi product. I am not sure this will catch fire; in fact, there are ten reasons I cited why it will fail in the consumer space. But there is certainly increased high quality video adoption in the SMB space, so there could be some money here for the taking.

In the past four years, Skype has done a good job keeping Google and others in check, but the biggest threat going forward is certainly Apple FaceTime and Facebook. Apple (News - Alert) really doesn’t need to partner with the Internet telephony software company, and I would be surprised if it doesn’t just recreate all the features of Skype and Facebook over time. This is probably why Facebook and Skype are looking to collaborate more closely.

For Skype – now that it will be showing ads on clients it can start charging a nominal fee for a non-ad version. The above improvements, although they took way too long to implement, have come before the IPO – meaning there could be much promise to investors who believe like I do that these moves will make a sustainable and lasting impact on revenue.

Rich Tehrani is CEO of TMC. In addition, he is the Chairman of the world’s best-attended communications conference, INTERNET TELEPHONY Conference & EXPO (ITEXPO). He is also the author of his own communications and technology blog.

Edited by Stefania Viscusi