Skype loses its hype

Posted Tuesday, 2 October 2007, 08:48 HST @700

Yesterday, Forbes reported on eBay’s continuing problems with Skype. Om Malik also discussed this development yesterday.

eBay purchased the VoIP company in 2005. eBay CEO Deb Whitman wanted eBays sellers and buyers to use Skype as a real-time communications tool during and after auctions.

eBay management is scrambling to save Skype

It hasn’t worked out well for eBay. The massive Skype outage that I discussed on 17 August gave new entrants and existing competitive rivals more opportunities to convert disgruntled Skype customers. Forbes published an article about the outage here.

… eBay’s stock barely moved on news Monday that Skype’s founder and chief Niklas Zennstrom is leaving and that eBay will take $1.4 billion in charges related to the acquisition in the third quarter. When eBay makes its quarterly report on Oct. 17, analysts won’t expect Skype to contribute more than 5% of the company’s revenues — that’s how much it coughed up in the second quarter, just $90 million…

In our local market, there are several VoIP providers who have targeted business and residential customers. Pacific LightNet, Oceanic Time Warner, and AlohaTone. Google recently purchased GrandCentral, which provides users with a single mainland phone number that redirects incoming calls to the user’s other phone numbers. The New York Times discussed GrandCentral in this 15 March article.

Even the incumbent local exchange carrier (ILEC), Hawaiian Telcom, offers CallWave VoIP voicemail services to cits mobile customers. See this 19 September 2005 Pacific Business News article for the initial announcement.

Meanwhile, one of the best-known national VoIP providers, Vonage, is losing patent-infringement lawsuits filed by Sprint and Verizon. Here’s Malik’s summary from 25 September. Vonage lost its CEO in April, and is struggling to keep customers.

It’s hard to compete when the key success factors in an industry are not in your favor.

Tags: ceo, computer, eBay, email, Google, hardware, Hawaiian, Internet, key-success-factors, ksf, lockin, mobile, network, revenue, Skype, software, Sprint, telecom, Verizon, VoIP

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ms

Lets try and apply the adaptive forces model "blow by blow" and see what we get...

Distribution Channels - Anyone with broadband access can get skype.

Complementors- Computers and Internet access.

Competitors - Vonage?

Customers - those who want to be able to make/receive calls to landlines through their Internet Feed. Lots of interest!

New Entrants - ?

Substitutes- MSN, ICHAT, Google Talk. anything that offers the ability to talk via the Internet for free.

Suppliers - N/A

Regulatory Change - N/A

Technological Change - Greater ubiquity of broadband access, cheaper computers/hardware.

Based off the Adapted 7 Forces Model, things did not look too bad for Skype. So what went wrong? Apparently EBay's strategic goals were to integrate Skype into Ebay's infrastructure to allow its customers (EBayers) to communicate as well as to allow skype users to pay for services through EBay's other big money maker, Pay Pal. Unfortunately the return on investment (after two years) did not prove to be a worth while investment at all. I am unaware of how far skype has been integrated into Ebays infrastructure, but at total projected investment of 4 billion dollars, it has proven to be a big mistake...

billso

Good comment!

As long as no one is posting or sharing analyses of the companies in our assignments, I'm happy to see comments like this.

Feel free to discuss and post follow-ups about Skype.

IM voice chat isn't a full-on substitute for Skype, as there are several WiFi portable devices and phones that can handle a Skype call without a computer.

There might be some mobile devices can handle an IM voice chat, but I just can't remember if there are. Feel free to Google and post!

Personally, I think eBay management made several poor assumptions when they made the Skype deal. The most thorough due diligence process cannot reduce the risk of bad assumptions.