Skype loses its hype

by billso on Tuesday, 2 October 2007

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.

  • 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.

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