Being Connected by Ian Fogg

From eBay’s financial release:

“Skype delivered a third consecutive quarter of segment profitability, excluding the goodwill impairment charge of $1.39 billion. Geographically, all three major regions, Europe, North America and Asia exhibited robust revenue growth.

Skype net revenues totaled a record $98 million in Q3-07, representing a year-over-year growth rate of 96%. Skype had 246 million registered user accounts at the end of Q3-07, representing a year-over-year increase of 81%.”

Skype is making money, just not as much as eBay anticipated when they bought Skype.
I was at a large European telco yesterday presenting to members of their exec team. They were acutely aware of the eBay writedown, but not Skype’s bottom line: three quarters of profitability. They should be and are now.

Swapping Vonage for Skype: One man’s search for VoIP that actually works
How one person went from:

I have long been a critic of Skype, suggesting that eBay was foolish to buy the VoIP toy and generally ridiculing it as a serious business tool.

To:

So today, I finally got a SkypeIn number. (I’ve had SkypeOut service for more than a year.) I set up my voice mail on Skype. I bought a phone (Philips VOIP841) to complement my use of a Plantronics headset (used more for comfort than anything else).

But there are a few real gems within the piece as to why he has embraced Skype that Internet businesses should understand:

Before I leave this post, it’s worth pointing out how similar the Skype model is to many open-source business models. Skype is free and, at least initially, tends to get used for tasks that are not mission-critical. Adoption starts with ease of trial and zero cost.

The challenge is clearly revenue. Something Skype has achieved to some extent but not sufficiently to meet eBay’s expectations.
and:

The sound quality is exceptional, and the reliability of the service (with one big exception) has been impeccable. When it’s not, there’s my mobile phone.

[my emphasis]
With multiple communication methods available to individuals, compared with the pre-mobile and pre-Internet era, everything changes.
More to follow in an upcoming Jupiter report.

At the time of the acquisition (Voices not Eyeballs: Ebay Buys Skype) I wrote that Skype’s purchase price was astonishing. This was, by the way, one of the reasons I drew the comparison between that 1990s metric of eyeballs and Skype’s voices.
Now that Skype is being written down, I imagine the naysayers will again attack Skype.
They ignore several realities:
1. Skype has a business model, and one that is independent of advertising.
2. Skype generates revenues. [Clients- please ask us for details on which consumers are paying for Skype's services.]
3. Skype’s cost base is designed to be uniquely low, due to its (largely) decentralised voice network that uses p2p technology.
4. Skype reports it has doubled its registered user base in the US in the last year.
5. Despite the write down, Skype’s paper value on eBay’s books remains enormous.
Bottom line:- While eBay overpaid, and the hoped for synergies with auctions and Paypal have not delivered upon the lofty expectations implicit in eBay’s purchase price, Skype may yet prove to be a profitable business in the long run.
Again, to draw that 1990s analogy, there are a number of successful Internet businesses alive and strong today, that struggled for a time in 2000-2002.