VCinJerusalem

Defining a "User"...Skype Says They Have 276 Million of Them: Questioning Where We Are in VoIP

Just reviewed a recent presentation by Skype GM Jonathan Christensen at Ecomm2008 entitled "A Brief History of VoIP." The full presentation can be viewed here or below. Besides a nice ego boost, in that Jonathan cites Delta Three, which I co-founded and helped lead, as a "pioneer," I came away with a few highlights, and questions.

Number one highlight, is that Skype (and others) went from talking in 2003 about downloads (500K in 2003) to "users." Jonathan says that today there are 276 million users of Skype. Believable? I think not, but depends on how expansive your definition of user is...When I tried to use Skype tonight (more on that below) there were 12.4 million "on-line." Not using, obviously, just running Skype in the background. No usage statistics are ever given....would be fascinating to hear what those 276 million actually are doing.

Number two, is that Jonathan does not relate to quality issues, which in my mind are still A BIG DEAL. VoIP has had a bad reputation since the beginning as a low quality phone quality, when in reality we geeks know that true VoIP should be better quality than the PSTN. Why is it [still] not? Because unless you control the network[s] you run on, you have no quality of service. Tried to talk to one of our CEOs tonight on Skype (he in hotel room in LA, me in my house in Jerusalem where I have 5 MB line), and after few minutes of CB radio like static has to IM him asking for hotel room number, and I called him using my POTS phone.

Number Three, while Jonathan claims profitability for Skype, as far as I know the only revenue they have is from Skype Out, which is nothing more than a cheap calling card for the PSTN -- in other words, they generate no revenue from  actual pure IP communications. Could they at least put ads on the Skype app? Sure. But I guess being part of Ebay, there is no rush to bring in new revenue channels...

Finally, Jonathan talks about "mash ups of web based communications," but as far as I know, Skype "users" are restricted to calling, on net, other Skype "users." Not much of a mash up there. In fact, sounds very much like a closed garden, even worse than regular phone network. Where are the inter-op agreements for Skype users to talk to MSN/ICQ/AIM/GoogleTalk users?

I have a lot of respect for Skype team past and present, but think VoIP community is still taking baby steps from the "pioneering" days of Delta Three, ITXC, VocalTec, and others. It is time for new pioneers to really move us forward in leveraging the power of IP communications.

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Going Beyond the HEADLINES, Skype Silliness

In many disciplines, going beyond the headline is important, but in the tech space, especially with start-ups (I include in that anyone yet to prove they can make serious money) facts are really important, because many of us tend to slip into la la land when talking about our products/service.

Take a look at this posting from FierceVOIP blog:

Skype scores 12M concurrent customers

      

February 21, 2008

         

       

Tags       Skype   VoIP Phones      

      

   
       

   

Skype watchers noted the big VoIP provider this week enjoyed 12 million concurrent users for a short period. The peak occurred around 19:00 GMT and coincided to a period when both European and U.S. users were using Skype. According to the Skype Journal, the strong rise in usage reflects a recent lift in the take-up of Skype by U.S. customers. Over 80 percent of Skype's user base is offshore from the U.S. and Skype has long yearned for a bigger U.S. audience. The peaks are driven by its European base.

At the same time, Skype claimed to have clocked 100 billion minutes of audio and video usage. What that means is hard to get your head around, other than to note there are now 276 million users with registered Skype accounts. If only someone could work out how to make money from free telephony!

Now, did Skype actually have 12 million concurrent users? NO! They had 12 million on-line at the same time. Impressive, but not the same as 12 million people actually all making a phone call at the same time. Also need to remember that many Skype  "users,"  including me,  mainly use Skype as  another IM  tool, and rarely for actual  phone calls.  I do  have some Euro  loaded into my account, for  those desperate times when I have wifi and need to call off the IP network (using SkypeOut).

The most important line of the post above was the last line, which is that Skype still has not figured out how to makes gobs of money from its "12 million concurrent users," much to Ebay's sadness (for those of you who already forgot that deal, Ebay bought Skype for billions of dollars, many of us are still trying to figure out why they would have paid anything...).

Call me old-fashioned, but while I love whiz-bang technology as much as the next person, a start-up is [at some point] supposed to actually become a business, which means turning a profit.

Oh, even in business you can be a loss leader at times (see here what my friend Rami Levi is doing to chicken prices in Israeli supermarkets) but that is quite simply a marketing ploy.

Writing a headline is an art, but those only get you so far. After the headline comes reality, and even if Skype really had 12 million people talking at the same time (imagine listening in), if it's gross profit margin is no better than Rami Levi, well, then they better start selling chicken--at least then people will get something to eat after all that talking (as a Vegan, only using chicken to make the point, would prefer tofu!).

                                                                        

I Hate To Say I Told You So...but $4 Billion for Skype?

OK, so maybe I am stuck on this whole issue of overpaying for rapid growth start-ups, but it really does hurt my business (seeding tech-enabled service companies, see Jerusalem Capital ). When market gets silly, my LPs (limited partners) expect "better" results, entrepreneurs expect higher valuations, and I get an inferiority complex...

Take a look at the news concerning the acquisition way back when of Skype by Ebay for over $4 billion. As Dan Primack  says in his recent posting (here), "In other words, eBay has finally figured out that Skype isn’t worth $4.1 billion."

Yes, the deal never made sense. The only explanation was that Meg used Skype once, saw how easy they made VoIP (and I say that as co-founder and former Chairman of    Delta Three, according to Jeff Pulver  "the first commercial VoIP provider") and told her  M&A team, "get me that." For Ebay $4 billion was not so much to pay, especially as only $1.5 billion was in cash, the rest in shares. The rest of us were left holding the bag, because we know the real value of Skype's "community."

Nu, so does that mean that Google will admit that they overpaid for YouTube ? No, they will not come out and say that, but I am sure down the line they will take an accounting charge to reflect that overpayment (which could be a doozer, based on existing and potential lawsuits).

Again, the rest of us in the ecosystem are left trying to build real sustainable businesses out of all this hype. Challenging, but fun.  Of course,  I (and my LPs) would not mind a 115X return on our money, at least some of the time...;-)

Until then, please only approach us with real business models!