One Last Look at eBay-Skype (I Promise!)
My apologies for taking yet another crack at eBay's $4.1-billion VOIP binge but I'm still hoping to get a handle of how CEO Meg Whitman sold eBay's board on spending half of its cash on a completely new business operation. Yes, there is the sexiness of pay-per-call
but eBay could have easily built that internally or acquired a Silicon
Valley start-up for relatively nothing. So what about Skype as a
telecom play? The company talks about revenue growth from $60-million
in 2005 to $200-million next year with 20% to 25% margins. But what
about after that? What if Skype's revenue increases to $400-million in
'07, $600-million in '08 and $750-million in '09? Then, you're looking
at a deal where the price-revenue multiple would be six times, which
would make Skype look like a bargain. Of course, there are caveats. The
growth projections hinge on the assumption Skype can continue its
growth and take advantage of eBay's user base. At the same time, it
assumes Skype will be able to maintain its growth and market share
despite intense competition from Google, Yahoo, AOL, Microsoft, etc. As
Forrester analyst Maribel Dolinov told me last week, the big unknown
facing Skype is its ability to maintain a sustainable competitive
advantage given the barriers to entry are so low. Yes, Skype has more
than 50 million registered users but how many of those use the service
on a regular basis - or at least regular enough not to try/leave other
VOIP services such as Google Talk? There are clearly many unknowns
surrounding Skype's future and how eBay intends to integrate Skype into
its eco-system. This makes it an expensive, high-risk deal.
Not surprisingly, Skype Journal's Stuart Henshell
is quick to come to Skype's defense - arguing that many of the IM
clients appear to have been rushed to market and, as a result, do not
have the rich feature feature that Skype sports. It will interesting to
see whether the enthusiasm for Skype among developers and folks who
love a rebel will retain its momentum now that Skype is a small part of
a large dot-com player.
September 16th, 2005 at 12:33 pm
I don't think you should be apologetic about writing about one of the bigger tech mergers in recent memory. I think it is interesting to see where this will go.
September 16th, 2005 at 12:47 pm
Mark,
EBay has not made a mistake, but it has taken a bold move that will require excellent execution to pay-back the investment, and make lots of money in the long term.
I would say Skype should have 100 million users in 12 months time. The real money of VOIP is not in free calls to another computer, but in cheap long distance calls to regular phones!
So assume 20% of Skype's future user base does call long distance. Assume a minimum $5 expenditure per month, per user, that gives you $60 a year for long distance per user.
So we get:
20 million users x $60 annualy = 1.2 billion!
So in 5 years they should get their investment back, at least in cash form.
Add to that the selling of “voice content” and “added ebay services” and you see a huge market in its infancy.
One big caveat remains though, executing this value added strategy has to be nearly flawless in the coming years, because VOIP will be a fiercely competitve market.
In 10 years time, probably VOIP will dissapear, it will be embedded in the network! So Ebay has to run with this if it wants any rewards, or it will be too late!
Regards,
Jose Luis
jlhurtado at gmail dot com.