Thursday, February 12, 2009

Skype growing impressively but what's the ROI?

Skype seems to be showing signs of sustainable growth not only in terms of new accounts but also in terms of turnover and profitability. What's the impact of VoIP adoption overall and how good an investment has Skype been for eBay? Follow the link below the clipping for more on these questions.

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Internet telephone company Skype, an eBay company, has released impressive user numbers. The company now has 405 million users worldwide, and it is adding 380,000 new accounts daily. Skype continues to offer free calling between Skype users and low cost rates to all other physical phones. The company also posted a $45 million Q4 2008 profit, the 8th consecutive quarterly profit for the company. Skype also says 2.6 billion SkypeOut minutes were used, and SkypeOut minutes are estimated to be growing 61% quarterly, which will bring significantly more revenue to the company if the trend continues. Skype recently launched Skype 4.0, the biggest and most comprehensive upgrade to its service.

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Skype's apparent success is good for Skype, but the real long term relevance of Skype's performance is how it's going to translate in the economy. And it's not Skype specific, but that company is iconic when it comes to adoption of VoIP and new practices of global communications. Skype's performance, especially the 2.6 billion minutes sold, make me wonder whether there are going to be larger benefits for sustainable development of the economy, e.g. in the forms of:

  1. better, faster, cheaper way of running businesses

  2. public services, less and better travel for meetings

  3. better service in e-commerce contexts

  4. more productive interactions between people

Let's get back to Skype because for an investment to be really relevant and really meaningful, it should benefit all stakeholders. That's increasingly going to be the case in the economy of the 21st century (which also means that the way we measure performance is going to have to evolve). In Skype's case, eBay is obviously a key stakeholder. The $45 million in quarterly profit posted for Q4/2008 is nowhere near the kind of amounts that would justify the price paid by eBay to acquire Skype in September 2005 ($2.6 billion - an interesting report report here). In fact, with a quarterly corporate profit of $45 million, assuming it's sustained through 2009, the pre-tax profit could be in the $200 million ballpark. In fact that would mean a return on investment of just 3.95% for eBay...Not that good a financial deal for eBay although it may have strategic value that has yet to translate financially.

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