Mark Evans

Skype: The Rodney Dangerfield of Telecom

The worst thing that ever happened to Skype was eBay’s decision to acquire it for $3.1-billion.

In an instant, Skype went from being cool and disruptive to a wildly over-priced acquisition that made little strategic sense for eBay. While eBay has struggled to figured out how Skype fits into the scheme of things (and taken a $1.4-billion writedown on the deal), Skype has evolved into a solid, growing business with revenue last year of $375-million, 276 million registered users, and 100 billion minutes of calls generated over the past five years.

Yet Skype receives little or no respect for being one of the few bright lights within the telecom industry, which makes it the resident Rodney Dangerfield, whose catch line was “I don’t get no respect”. You rarely see stories about Skype’s growth or how well it’s managed to do despite becoming an orphan within the eBay empire. Instead, the focus is always on how eBay paid too much, the writedown and how Skype makes no strategic sense for eBay.

The question facing eBay and its new president, John Donahue, is what to do with eBay (and StumbleUpon and Craigslist, for that matter). Do you sell Skype, and wash your hands of an acquisition that made little sense. Do you keep it, and try to grow the crap out of it?

TechCrunch, which loves nothing better than a juicy M&A rumour, is reporting Google could be in talks to buy or partner with Skype. It’s hard to tell whether there’s anything to the speculation given it seems to be based on the where there is smoke, there is fire approach.

The biggest issue for eBay is doing something with Skype that doesn’t make them look like strategic idiots again. If Donahue going to get off to a solid start as president, he needs to do something with Skype that looks smart, savvy and pragmatic.

Given Google’s interest in telecom (GrandCentral, GTalk, wireless spectrum etc.), Skype could make sense at the right price. Of course, it made sense for Google a few years ago when Tim Draper, one of Skype’s early investors, was running around Silicon Valley boldly suggesting Skype was worth $1-billion.

More: Silicon Valley Insider suggests Skype could be acquired for $3.1-billion to $4-billion, which would let eBay walk away with its head held high.

Technorati Tags: eBay, Google , Rodney Dangerfield, Skype

Related Posts

• eBay-Skype: I Hate to Say I Told You So….
• Skype: The Sexier Story is Growth
• eBay-StumbleUpon: Where’s the Strategic Fit?

Skype Should Do An IPO Soon

Okay, eBay blew it with the purchase of Skype by wildly over-paying. So what now?

After cleaning up its books, eBay should set Skype free by doing an IPO. It would probably be embarrassing to eBay but how much worse can it get?

If you step back, Skype appears to be a pretty solid business with about $400-million in revenue and 220 million registered users. How much is that worth? Let’s conservatively assume $2-billion based on eBay’s writedown and reduced earn-out ($530-million vs. $1.7-billion).

If Skype did an IPO, my sense is investors would be all over it.

1. Retail investors are crazy about high-profile brand names who sell services they can understand/use.

2. The VoIP market is growing, and will get bigger as high-speed Internet, Wi-Fi and Wi-Max become more popular.

3. Skype is a real business with sales and probably pretty high-margins that has not been monetized properly. eBay could have aggressively rolled out more premium services and even introduced advertising into the mix. If everyone excited about Facebook and its 35 million users, there should be buzz about Skype and its 220-million registered users.

4. There would be a long line-up of investment banks more than willing to enthusiastically sell Skype.

Prediction: An IPO would be a financial bonanza The offering price would be left far behind and the blogosphere would be full of Skype is amazing posts. Hey, we’re not talking Vonage,which has a business model that doesn’t work; we’re talking about Skype, baby! The only caveat is eBay may not be willing to let Skype go public because the offering’s success would be embarassing.

More: Kara Swisher makes some excellent points about how eBay failed to leverage Skype’s exploding popularity. Swisher also uses the eBay-Skype investment fiasco to take yet another run at Facebook and all the hype surrounding potential investors.

Swisher may be one of the few people happy to rain on Facebook’s parade these days but I can’t help but get the gnawing feeling that she’s on to something. For whatever reason, Facebook has lost its mojo - at least that’s my sense. Maybe it’s the outrageous potential valuation; maybe it’s Facebook starting to monetize itself; or maybe it’s Facebook Fatigue (FF)…but I’ve lost that lovin’ feeling and not feeling too sad about it.

Related Posts

• Skype: The Sexier Story is Growth
• Too Early to Grade eBay-Skype Deal
• Skype: The Rodney Dangerfield of Telecom

eBay-Skype: I Hate to Say I Told You So….

I was one of those people who never got eBay’s decision to buy Skype. It didn’t make sense strategically despite eBay’s loud assertions it was a great fit. In fact, I opined - along with lots of other people such as Andy Abramson - that eBay got suckered.

Over the past two years, the eBay-Skype marriage never seemed to click. There were constant management changes and strategic inconsistencies while eBay struggled with its own growth issues such as problems trying to establish a foothold in China.

Finally, eBay has conceded defeat by taking a $1.4-billion write-off, saying goodbye to CEO Niklas Zennstrom, and, most significant, only paying out $530-million of a potential $1.7-billion earn-out. As Henry Blodget proclaims “Skype has Bombed”.

Looking back, the question that has to be asked by investors and eBay board is: what was senior management thinking? How could they have made such an expensive strategic mistake? Did CEO Meg Whitman get suckered by Google, which was also apparently interested in buying Skype? Probably.

If you ask me, the eBay-Skype deal was/is part of the weird Silcon Valley ecosystem where everyone’s buying and selling from each other. If you remember, Tim Draper, a leading Silicon Valley VC, was at a Silicon Valley conference around talking about how Skype was worth at least $1-billion. The next thing you know, eBay’s got the checkbook out with an offer that blows everyone away.

So now what? Unless eBay really wants to take a bath, it’s stuck with Skype. One option might be spinning off Skype into a quasi-autonomous business that it could IPO within a couple of years.

If you want to read some serious spin, check out Skype co-founder Janus Friis’ post on what’s happening. It’s funny and sad at the same time.

Related Posts

• eBay Got Suckered on Skype
• Skype: The Rodney Dangerfield of Telecom
• What Now for Skype, StumbleUpon?

Tech Urban Myth: The Workaround

Is there such a thing as a “workaround” that actually, well, works? It strikes me that whenever a company gets in trouble for infringing on someone else’s IP, the company doing the infringing says “No worries, we’ve got a workaround somewhere around here that we had put aside for a rainy day”. Vonage, for example, claimed it had a workaround after a U.S. judge ruled it had infringed on technology owned by Verizon, while Research in Motion talked about a workaround during the latter stage of its legal woes with NPT Inc.

We never found out whether or not RIM did have a workaround because it ended up forking over more than six hundred extra-large ones (aka millions) to make NTP go away. Now, Vonage has admitted it doesn’t have a workaround after suggesting last week it had a workaround in development . Even worse, Vonage isn’t sure that a workaround is “feasible” given the extent of Verizon’s patents. This is bad news because it means Vonage will likely be unable to sign up new customers unless it reaches a patent deal with Verizon. Maybe Vonage’s new CEO, Jeff Citron (who used to be the old CEO), will be able to strike a deal with Verizon CEO Ivan Seidenberg.

For more, check out Thomas Howe, who is incredulous Vonage can’t create a workaround, as well as Engadget.

Technorati Tags: Vonage

Related Posts

• Who's Rates Technology Inc.?
• Balsillie Pleads RIM's Case
• Vonage: To IPO or Not to IPO

Vonage: From Bad to Worse

If losing a crucial legal decision to Verizon recently isn’t bad enough, Vonage now has find itself a new CEO after Michael Snyder resigned. As important, the company said it plans to slash operating costs by $140-million to “enhance shareholder value and improve its competitiveness in the marketplace”. This is particularly bad news for Web sites that have reaped the benefits of Vonage’s aggressive marketing efforts given the company has been spending nearly $200-million online a year.

Since Snyder joined Vonage in March 2006, Vonage’s shares have tumbled from about $14 to $3.09. The company has been battered by an ocean of red ink, increasing competition from cablecos getting into the VOIP business, inconsistent service, and a high churn rate that has forced Vonage to spend like a drunken sailor on marketing to attract new customers. From the very start, Vonage’s prospects as a business have been unclear given its growth strategy was tied to attracting as many customers as fast as it could by offering a low-cost product in a market with little barriers to entry.

To me, Vonage was always more of an investment play by co-founder (and now interim CEO) Jeffrey Citron, who figured someone would snap it up to establish a foothold in the VOIP market. As it turned out, no one was willing to step up to the plate. This forced Vonage to make a $17-a-share IPO, which amazingly was over-subscribed. You could make a solid argument that Vonage single-handedly killed the tech IPO market, which isn’t such a bad thing given it has forced many companies to focus on growing their businesses, while keeping overly-enthusiastic investors from throwing themselves into risky investment vehicles.

Note: Check out this ClickZ story on how Vonage’s trouble could impact the online ad industry. As well, Jon Arnold has an extensive post on Vonage’s conference call this morning.

Technorati Tags: Vonage

Related Posts

• How Low Can Vonage Go?
• Another Day, More Bad News for Vonage
• Finally, A Vonage IPO

How Low Can Vonage Go?

After being hit with an injunction last week that prevents it from using VoIP technology owned by Verizon, Vonage shares plunged a record low of $2.98 on Friday before bouncing back to $3.37 today. Since its 17-a-share IPO, Vonage has dropped a staggering 80%. The obvious question is when does Vonage start to represent good value to investors and/or good acquisition material for someone looking to instantly add 2.2-million subscribers.

For investors, the question of value comes down to assessing whether Vonage can maintain its subscriber momentum amid increasingly fierce competition; whether it can keep more of its existing customers, which would allow it to dial back the dollars spent on marketing; and whether it can shrink its losses.

In many ways, Vonage is running in a marathon, and it can’t afford to stop spending if it wants to build a big enough subscriber base to establish a solid foothold. If Vonage decides to spent less on marketing, the cablecos will start to eat its lunch - which explains why Vonage is all over the NCAA basketball tournament, for example. At the very least, Vonage needs to keep pushing forward even if it runs into pesky hurdles such as injunctions, a stock heading south, large losses and a troubling churn rate.

In terms of the injunction, Vonage said the market is over-reacting (really, does anyone expect them to say otherwise?). In breaking the rule never to paraphrase Mark Twain in a press release, Vonage CEO Mike Snyder paraphrased Mark Twain by saying “the rumors of Vonage’s death have been greatly exaggerated. Friday’s events represented one small step in what is sure to be a long legal battle.”

Technorati Tags: Vonage

Related Posts

• Vonage: Bullish or Bearish?
• Like Vonage Service? Buy Some Shares
• Vonage's New P.R. Agency: The New York Times

Vonage: Bullish or Bearish?

First, the good news from Vonage’s fourth-quarter results: the VoIP service provider now has 2.22 million subscribers after it add another 166,000 customers in the quarter. Meanwhile, it only lost $65-million as revenue nearly doubled from a year earlier.

Now, the bad news: the stock tumbled to a record low, $5.25, amid concerns subscriber growth slowing. Vonage said it expects to have between 2.9-million to 3.1 million customers by the end of this year, compared with analyst expectations about about 3.5 million. The company also expects to lose $150-million to $170-million this year before becoming profitable in early-2008.

So what do you focus on: the good news or bad news? The narrower loss in the quarter or the concerns about subscriber growth? There’s no doubt the competitive landscape is getting more intense as the cablecos and, increasingly, the carriers become more aggressive. Then, you’ve got players such as SunRocket and 8×8. That said, Vonage has 2.2 million customers so it can’t be dismissed. The question is whether Vonage can continue to see strong enough growth to become profitable, establish a solid competitive foothold, and get investors excited again about a stock that has tumbled from its IPO price of $17.

For more, check out AOL Money & Finance; Russell Shaw, who is troubled by the subscriber slowdown, including soft sales during the holidays, and Larry Dignan, who wonders if Vonage has a future, and looks at a possible takeover (current price: $836-million) given the company’s depressed stock price.

Technorati Tags: Vonage

Related Posts

• Good VoIP News for Vonage? Probably Not.
• More (Bad) Info For Vonage IPO
• Vonage by Numbers..1,2,3

Videotron Surpasses 400K Customers

With more intense competition looming on the horizon from the soon-to-be-deregulated carriers, Videotron has proclaimed it now has more than 400,000 cable telephone customers after two years in the business. Of course, it helps to offer service for as low as $16.95 a month if you’re a triple-play customer but there’s no doubt Videotron has made life miserable for Bell Canada, particularly in Montreal.

The key question now is whether Videotron will be able to maintain this momentum when the local telephone market is deregulated, and Bell will be able to sell its service for whatever price it wants without seeking regulatory approval. Given Bell’s drive to improve revenue, it’s unlikely it will try to regain market share by slashing prices (that would be anathema to COO George Cope’s disciplined pricing approach) but you can expect Bell to do some targeting marketing in places where Videotron has a strong foothold. Should be fun to watch.

Technorati Tags: Videotron, Bell Canada

Related Posts

• Canadian VOIP Decision by Mid-May
• Videotron's VOIP Growth
• Bell Moves into the Montreal VOIP Market

VOIP: Time to Sell on Features Rather than Price?

If you push past the increasingly annoying Vonage ads that never fail to remind you how lower prices are such a good thing, VoIP’s real power is the features such as voice mail to e-mail, conference calls, call logs and call-forwarding. Yet, the industry is still fixated on selling on price despite the obvious need to improve subscriber numbers and ARPU.

So, it’s interesting that VoipReview.org has come out with a study showing the average number of calling features for VoIP service is increasing while monthly prices remain steady at about $25 a month. This is good new for consumers who are obviously getting more bang for the buck. It should also be good news for VoIP service providers such as Vonage, AT&T 8×8 and SunRocket because it could let them maintain or even boost prices as they offer additional services - akin to what the broadband Internet service providers are doing as they maintain or raises price while offering higher download and upload speeds.

This is the kind of news Vonage needs to improve its financial results and the performance of its stock, which is trading close to the record low ($5.65) today. Vonage will post its fourth-quarter and year-end results on Feb. 15.

Update: Om Malik has a good post on Adobe’s VoIP strategy.

Technorati Tags: VoIP, Vonage

Related Posts

• Shaw Selling VOIP on Features, Not Price
• VOIP: It's the Features, Stupid
• U.S. VOIP Projections

What’s Up With Skype?

What’s happened to Skype recently? When I call someone, they frequently can’t hear me or the call drops and then goes live again, or it drops completely. All the people who have experienced the same problems use a high-speed cable connection. Is that the problem or is there too much traffic on the network or does the latest version of Skype has a bug? It’s so frustrating that I’m double-guessing my recent decision to buy the North American all-you-can-eat long-distance plan.

Related Posts

• Skype’s Premium Plans
• Videotron Raises Prices
• Vonage Starts Price War in Canada?