September 13, 2005

Skype's Revenues and The VoIP Opportunity

Although I misjudged the reasons for the Ebay-Skype deal, I was indeed correct about Skype's failings in capitalising on the VoIP opportunity which I continue to contend is huge.

Emperor's new clothes: Skype's revenues

Ebay's press release presentation reveals Skype's financials for the first time. So far, the founders have always refused to mention revenues in their interviews except by saying they are "very very good". The only numbers they talked about was its subscriber base and the number of downloads. Well, the truth is now out and Skype's revenues are even bleaker than the market estimates (of 70 million).

So how much will Skype make this year? According to the release, Skype's expected revenues for 2005 are 60 million. Skype will have more than 60 million subscribers by the end of the year. Put another way, Skype's yearly revenue per subscriber is less than $1!

Now, this is not to say that Ebay paid too much for the deal. For one, we must look at the opportunity here. Skpye is part of the global internet telephony business that everyone agrees will eventually eat up the phone companies. And secondly, Ebay mainly intends to use Skype in the marketplace, where I expect it will be a much bigger driver of Ebay's growth, at least in the short term.

The big gap - the opportunity window

There's a simple way to understand how big VoIP is going to be. Add up your cell phone and landline bills for an year and reduce a dollar. Ten years from now, that's the kind of revenue per person the leaders in VoIP will share, solely from their internet telephony services.

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