EBay Admits To Bad Call On Skype

MaineCoasts writes "The Times online reports that two years after buying Skype for 2.6 billion, Ebay yesterday warned shareholders that they may have made a mistake. In essence, they vastly overpaid for the company. ZDNet offers analysis of the announcement: 'Clearly, the current business model is not enough to satisfy eBay in light of how much the company spent on Skype. And the reason is simple. Even though Skype has done a very good job of getting users to download its software client, most people who use the service do so to make free Skype-to-Skype phone calls. The only way that Skype makes money from its subscribers is when people use its Skype-In or Skype-Out services. Skype-In allows users to pay to rent a phone number, which people on regular phones can call. Skype-Out allows users to call traditional phones or cell phones for a fee.'"

There's only one solution for Ebay

SKYPE - 200 million+ users - Used, LIKE NEW! A++++ SELLER

Buy It Now: $2,000,000,000
Current Bid: $5.50

Re:There's only one solution for Ebay

Congratulations, GoogleBuyer, you are the new high bidder!

Current bid: $6.00

Maximum bid: $10.00

Re:There's only one solution for Ebay

Auction cancelled. Google Checkout not accepted.

Re:There's only one solution for Ebay

Reserve not met.

Re:There's only one solution for Ebay

Reserve not met.

Greetings, I am Prince Faruk from the UK. I am very interested in your auction and will pay US $3 Billion by money order for the Skype. Please send me back the extra $1 Billion plus the Skype promptly. It is a gift for my daughter in Nigeria, that is the reason why the address.

Bubble

Hmmm... smells like the bubble could be collapsing.

Re:Bubble

Hmmm... smells like the bubble could be collapsing.

Look! A needle! :D

Re:Bubble

I still remember that Ebay had difficulties to explain how Skype could integrate their core business.
There was no point for them to invest so massively in such a service.

Re:Bubble

Hmmm... smells like the bubble could be collapsing.

When one company (and, of course, its shareholders) buys in to a risky, unprofitable business, you call it a bad investment.

A bubble is when EVERYONE buys unprofitable assets. That's a pretty important distinction you are overlooking.

Pretty obvious, wasn't it?

Just out of interest: Of everybody you've ever hear talking about Skype, how many mentioned the free Skype-Skype calls and how many mentioned you can pay to call others, too? (It's about 50:1 with quite a lot of non-techies in the 50 and an ex-coworker in the 1 group...)

Re:Pretty obvious, wasn't it?

I personally use the Skype Out service. I have one contact in Skype that is a Skype user, and he uses it for work (that'd be my father). I paid $17.50 CAD for a year of unlimited long distance, and I tell everyone what a great deal it is and how they should sign up for the service. As of yet, not a single person I've told about Skype has even downloaded it, let alone used the service. Perhaps people are just afraid to try something new?

That said, there is one thing I have noticed. I get great call quality with Skype when I call my parents in Ottawa, or my friends nearby, but when I call my in-laws (up in the Northwest Territories), I have anywhere from 3-10 seconds lag, and the quality of service is poor. It would seem that the quality of service is limited by the available bandwidth - they just got 768K 'high speed' Internet there a few months ago! After all that, I plan to continue to use Skype Out, and when they finally start offering more Canadian phone numbers, I may even consider using Skype In.

Re:Pretty obvious, wasn't it?

So, it works great, except to talk to your in-laws? What an AMAZING coincidence! :-D

Re:Pretty obvious, wasn't it?

When I was working in sweden for couple of months, I actually used both skyp-out and skype-in to call my relatives. The international call prices are ridiculous between Finland and Sweden, even when me and the other end are on the same companys network! (TeliaSonera)

Re:Pretty obvious, wasn't it?

I've also used it from Holland, leaving my cellphone in the UK. Nearly every internet cafe has Skype installed and, even including the internet fee, it's cheaper than making an international call.

However, from the article:

"Skype has been focused on user acquisition, and it's done a great job. But we also feel like we can find new ways to monetize those users."

I'm very wary of what 'monetize' might mean. I'm surprised that they didn't plaster ads all over the application soon after eBay bought it to be honest.

Re:Pretty obvious, wasn't it?

It was pretty obvious to a lot of seniors living in deep southern Texas. A lot of us have canceled our AT&T long distance and gone with the annual Skype premium service. The annual charge was about what we paid a month with AT&T and we now can chat without one eye on the clock. I don't know about the non-techies in the 50+ bracket that you know - but I can introduce you to hundreds in the 65+ that Skype out constantly.

I SkyeIn and SkypeOut

I use SkypeIn and SkypeOut, paid up for a year. For what my wife and I paid in cell phone bills for a month (2 phones), we now have home service for a year (we have a paid-by-the-minute phone for emergency purposes when traveling). Roughly $70 a year. I can't complain. We don't use free skype-to-skype calling because none of our friends/family use it yet.
Just wanted to let you know that we saved a ton of money on our phone bills by switching to Skype!

Re:Pretty obvious, wasn't it?

The problem with skype is that their income is in inverse relation to their network size, making it a particularly poor "web 2.0" network-driven company. The more people who have skype (and a connection to support it), the fewer people will use skype(in|out) services. For example, my girlfriend lived in China over the summer. At first I called her using skypeout. When she finally got Internet, tho, we just used skype-to-skype, because of better call quality and video capabilities.

Skype has to find a way to increase their revenue as their network of users increases; probably through an ad-revenue stream to their in-calling services. Doing this the wrong way, though (pre-call audio ads, etc.) will just scare people off to IM services with voice chat capabilities, which is increasingly all of 'em.

Good luck to 'em. I like skype (except for the lack of "quit/exit" in their file menu!)

You're Going to See a Lot of Criticism

You're going to see a whole slough of articles on this because it's now very easy for everyone to criticize after the facts are in. But, I caught this in The New York Times Blogs [nytimes.com] yesterday and I found these lessons learned to be quite accurate:

1. Just because a company has a huge and growing audience doesn't mean it can find a huge revenue source. Skype's appeal is that it offers services free or very cheap. That limits its ability to raise prices. And it turns out that there are limited opportunities for advertising or add-on services.
2. It's almost impossible to pay for a deal through "synergies." EBay executives talked about how Skype would be useful to connect buyers and sellers in its marketplace. This always seemed to be hooey. The eBay market is already full of chatter, mainly by e-mail, and sometimes by phone. Sure, some of that might well be handled by Internet phone, but how much and what value was created by eBay owning its own voice chat system? Not much, it turns out.

I think the second point is the most important. This deal was easy to criticize because they didn't know what the hell they were going to do with it. They had no forward plan. Where were they taking Skype? What were they going to do with it? How was it going to make money? Nobody knew. And, most importantly, eBay didn't either.

So why did they make the deal? Maybe they felt pressure. Maybe it looked like easy cash. One thing is for sure, it never came to fruition whatever they saw in the company. I personally liked the tool but once you start asking for cash, you can expect to see your user base taper off. You're competing with something that is already incredibly cheap in the states. If it ain't free, you're going to have problems operating in the black. If it is free, you better have some mad advertising revenue or market data stuff to sell ... I don't know but that's why they over paid for it.

Google knew where they were going with the YouTube purchase. It's now pretty clear eBay didn't know exactly what they were going to do. But, hey, they could treat it like Microsoft's original Xbox venture, "We lost a lot of money but fsck it, we've got a ton to lose and I'm bored with being the top dog in a single market!"

Re:You're Going to See a Lot of Criticism

Eh, well, except it was actually AOL buying Time-Warner. Merger, wherein AOL owners got 55% of the new merged company stock.

They later changed the name and refocused as the dot-com bubble collapsed and the 'AOL' part approached worthlessness in evaluation, and the company didnt exactly need the loadstone of a posterboy for the bubble as a name.

As to the flash-forward, the merger structure and name changes makes it fairly difficult to figure out exactly who the most stupid party was, but anyone left holding stock in the joint company probably had more left than if they'd been holding only AOL stock. Which doesn't exactly make them less stupid for touching AOL stock at all.

It's sortof sad how the high-flying corporate execs appear to have learned very little about how to avoid getting brainslugged by clever marketers.

Re:You're Going to See a Lot of Criticism

I see the same issue coming around the corner for Google/YouTube. ... Provided videos.google is still around, I personally feel Google mad err there

The Google acquisition of YouTube makes much more sense than eBay/Skype. Google has a solid business model based on advertising, and YouTube fits with that. YouTube has a huge userbase, so the ads that are now running (selectively) on YouTube are undoubtedly generating income. Of course I don't know if the income is enough to offset the bandwidth (and legal!) costs, but I suspect Google is still confident that they can turn it into a profit center, since they are continually de-emphasizing Google Video in favor of YouTube (e.g. nowadays most of the "related" links in Google Video point to YouTube).

Re:You're Going to See a Lot of Criticism

Excellent post.

Skype's appeal is that it offers services free or very cheap. ... once you start asking for cash, you can expect to see your user base taper off.

I think it's further worth noting that Skype has had some unfortunate technical issues. The business model behind Skype is something along the lines of "get people interested in the product by offering free Skype-to-Skype calls, but charge for calls to/from conventional phones." I think many users, including businesses, seriously considered using Skype for their international calling needs. It seemed like a good fit.

However Skype has certain stability problems. In my own usage, I've noticed that it can sometimes be a bit flaky. Moreover, the entire Skype network went offline [slashdot.org] for many days. As a result, businesses stopped thinking of Skype as a serious, reliable option.

My point is that things could have turned out differently if the Skype technology had become mature and stable enough to be a viable option for reliable international calling. They could certainly have gathered a large, paying customer base if the system was bullet-proof. But, as is, many people are (rightly) dubious of the reliability. I think Skype's business model has merit, and the program is very useful. But, eBay certainly overpaid in as much as they paid as if they were buying a mature technology/solution, when in reality there are still many growing pains left in that technology sector.

Who would have thought?

most people who use the service do so to make free Skype-to-Skype phone calls.

Imagine that. You offer a free service to people and they use it. Seems a bit odd to now say you're not making money because people aren't willing to pay for one of your other services.

To top it off, a technology company now claims they paid too much for you.

Those who cannot remember the past and all that comes to mind.

Shades of 2000

Honestly, this was another classic case of someone with money looking at a wildly successful and completely unprofitable business and snapping it up without some serious thought to how to make it profitable or more importantly if it was possible to make it profitable.

None of these businesses that provided expensive service for free and whose selling point was that it was free have ever managed to become profitable. eBay should've known better when buying a business in 2005.

Shades?

This IS 2000 all over again. Wait until the social networking sites that are being valued in the 2-10 billion dollar range yet only bring in a couple of mill a year in revenue start collapsing then it will really get ugly.

And thus the second dotcom bubble bursts

In exactly the same way as the first. "Old money" companies (as 1st generation dotcom companies like eBay are now, in comparison) paying way too much money in speculation, for a piece of the "next big thing". Next Big Thing fails to materialise as a sustainable business enterprise, money is wasted.

3 years ago, it seemed like everyone and their mom was getting into VoIP. I remember asking someone writing one, how are they going to make any money? He answered, get bought out by a big corporation.

Well, it worked for Skype, I guess.

I've been a skype in/out user for a while

And what can I say — their service is getting worse and worse. At the beginning of the year it used to be much better. These days, the clients are buggy, the phone number I got from them no longer works ... so, sure, I'm only using it for skype-to-skype calls.

To ebay – get your act together or you'll lose most of your current paying skype customers (and forget about growth)

I predict ...

This announcement is a prelude to eBay shopping Skype to the highest bidder. Even though it is not a cash cow Google, Microsoft and possibly Yahoo will be falling over themselves to buy for it's strategic value.

Personally, I hope whomever buys it, they open up the protocol as, if it does open, it could be THE voice platform.

]{

Don't be short-sighted

Clearly, the current business model is not enough to satisfy eBay in light of how much the company spent on Skype. And the reason is simple. Even though Skype has done a very good job of getting users to download its software client, most people who use the service do so to make free Skype-to-Skype phone calls.

Don't be too hasty. There are two avenues that open up huge potential for revenue:

1. Corporate presence. I know several large companies that informally use Skype. For security purposes, they would probably be willing to pay for internally operated Skype networks and collaboration software add-ons. There's a huge potential there. The large company that I work for has black-listed Skype from our computers because Skype is very tight-lipped on the protocols and "phone home" cases that are used by the application. Opening up some of the "secrets" to potential customers and supporting intranet-only implementations of the software open up a revenue stream.
2. Vonage replacement. With yet another loss in patent lawsuits for Vonage, the future is looking bleak for them. My cable company keeps sending me offers for VoIP, but frankly the thing that has kept me from switching is the much higher rate schedule for international calls. I need 5 cents per minute or less to Europe. Skype could either provide a hardware-based client to replace Vonage installations, or partner with cable companies to provide reasonable rates for long distance. Furthermore, they could start providing video conferencing capabilities.

In short, there is a HUGE untapped market out there. If EBay would stop trying to milk their investment and would start investing more into it, they could really get some substantial returns.

SIP VoIP vs Skype

I use SIP extensively, it's an open protocol, used by Asterisk and is implemented by a heap of companies, providing a range of services in a range of countries. Skype uses their own protocol, and has low call quality. This isn't what I want to be paying for when buying services such as Skype In or Skype out.

SIP allows me to connect to networks without hassle and without problem. Half of Skype's problems that I see is the fact that they are using a closed protocol, again, the call quality is too low to be considered acceptable as well.

If they managed to fix this, I would be a lot happier to move everything onto one provider. I currently have to subscribe to three different service providers to get what I want, this means three bills, three accounts (In different countries, so different currencies as well) to manage and three times the headaches.

If they started offering a decent solution, and I would be one of the first to jump ship.

Berny

Pipes are a commodity (and a miserable business)

This just demonstrates that owning a connection or bit of network infrastructure isn't worth much because it's too easy to find an alternative connection. The same "route around damage" ethos of the internet makes it a "route around cost" mechanism too. Skype users, like all good internet routers, only pick the Skype connection when it's free. This is why we see such battles with the telcos trying to change the playing field (e.g., lobbying hard to prevent net neutrality and open access regs) so that they can charge more than the marginal price (which is near zero per added user) for use of their infrastructure (which costs millions or billions to build).

bubbles and such

And I'll tell you another company that is waaay overvalued.....facebook. $10 billion? Even $1 billion is too much. There will always be hype and over priced companies in the technology industry......mainly because every once in a while a technology comes along that really is worth it. The question is how do you know?

Business people have trouble with this kind of thing because they don't understand the technology. As in this case, they thought 'skype will be super-popular' which may be true, but they didn't see that once everyone has Skype no one will need Skype out.

Tech people and engineers tend to have trouble with it because they tend not to understand marketing, business prospects, or what people want. They say things like, "Less space than a nomad, no wifi. Lame" or "This is the year of linux on the desktop" and don't understand why most people aren't interested in open-moko or the gimp.

If you DO happen to understand both of them, it will be a competitive advantage that can make you a killing in the stock market. As anyone who invested in nintendo a year ago knows.

Who cares about Skype?

Who cares about Skype when we have iCall http://www.icall.com/ [icall.com] where one can make free (and I mean free) phone calls throughout the US and Canada, without dolling out dollars to Ebay? Skype executives should wake up and smell the coffee.

Skype-Out great for International Calls

I am obviously in the minority of users who pay for Skype services. I live in the UK and my family is in Australia. Using Skype-Out at a rate of around £0.1/minute is significantly cheaper than any comparable Telecom or other "cheap calls" organisation. I know quite a few other people who use Skype in the same manner. I spend around £5 per month on Skype.

Now in comparison, I spend somewhere between £50-£90 per month on my mobile phone. The amount largely depends on whether I've traveled out of the UK that month. With wider adoption of VoIP services on mobile devices, for sure my cell phone bill would drop and a portion of the money would siphon across to my Skype account.

The final thing holding me back from spending more on Skype is the expense and poor quality of the "phone" devices available. I spent £100 about a year ago on a Skype Wi-Fi phone. No need to have anything connected to my computer, the phone's base unit was supposed to connect directly to my wireless router and behold, I have Skype calls very easily. Unfortunately, after waiting almost a month for my order to be fulfilled, within 3 weeks the phone unit died. I gave up trying to get a refund from Skype and trashed the thing. So far I've been reluctant to spend a similar amount on a device that may die again quickly and have to deal with Skype customer service.

Skype sucks as a regular phone

Skype only really works for me to call other Skype users. I tried to use Skype as a regular phone, but dropped the account when it failed miserably. I had two problems:

I can't call the IBM pukes that I have working for me. That's because Skype doesn't allow Skype-out service to some area codes, and that includes the IBM conference calling center in Missouri.

And, the Skype client doesn't support DTMF tones properly. That pretty much eliminates Skype for everything except calling your mistress on her home phone. You can't get through any kind of voicemail or call answering touch tone menu without DTMF support.

Re:Call Me....No Skype Needed!!!

If you really want your life to get more interesting, give us your husband's cell number.

Clearly it's the version number.

Otherwise, there would have been more characters typed. And nobody ever, EVER, makes stupid mistakes in slashdot posts, and if they ever do, well, then the top-notch editors fix them up before the post makes it up there.