Skype luster fading?

In a recent post, we see some rather controversial comments from Ken Camp:

Wow. Skype bashing is normally off limits, in an almost eerie kind of way. I have always been fascinated by the mindless loyalty to Skype, regardless of their actions and motives. Now we’re starting to see a few brave subjects questioning the integrity of the emperor’s attire.

So let’s step back and take a look at whether Ebay is getting any of the things they wanted out of the deal. They put out their own document in May giving their reasons for making this deal. That document is no longer located on the original link: (http://investor.ebay.com/downloads/050912ebay.pdf) but I’m sure a Google search with find you a copy.

Some of those reasons were (verbatim from the above document):

• Skype will accelerate commerce on eBay
• Skype opens up new lines of business, new monetization models, new geographies
• A great standalone communications business

Let’s take a look at these, one at a time.

Skype will accelerate commerce on eBay

Despite Meg Whitman’s protestations to the contrary, Skype/Ebay integration is almost non-existent. Nine months after the acquisition, certain categories of Ebay auctions were treated to “Skype Me” buttons. There are no indications that this has had much of an impact. In fact, there are many reports suggesting that sellers have no interest in live communication.

Personally, I think there is a great deal of potential here, but less in terms of what Ebay has proposed to date, not “bolting on” Skype to Ebay, but creating an entirely new platform leveraging the power of Skype, such as a platform for “service auctions” perhaps more like a hybrid of Craig’s List and Elance, all with integrated real-time communications. But there has been almost no indication that such things are on the horizon.

Moving on.

Skype opens up new lines of business, new monetization models, new geographies

This single goal/benefit is really three somewhat separate things. I’m going to focus on new geographies because that’s what I’ve always heard to be a big part of this transaction. One of the big “synergies” with this deal was supposed to be that Ebay is huge in the US, and not so big outside the US, and Skype is just the opposite. Skype was supposed to help Ebay take over certain regions and Ebay was supposed to help Skype gain traction in the US. Ebay’s sponsering of calls for US users was clearly an attempt to achieve this.

Has this worked? I don’t see much evidence for it. 86% of Skype’s revenues still come from outside the US. Likewise, Skype’s impact to Ebay’s market share outside the US seems to be essentially none. I could be missing some data points. Is there something I’m missing?

A great standalone communications business

Is Skype a business yet? Skype has yet to produce $100MM $200MM in revenue but they are on a $240MM annual revenue run rate. Ebay’s revenue is $1.45B by comparison. Skype’s overall revenue and subscriber growth are slowing. It’s a business. Perhaps not a $4.5B business, but a business for sure. But I don’t think any of this matters. Ebay didn’t buy Skype for its standalone revenue potential. Ebay bought Skype because of the user base. But as Tom Evslin has said “No user has a long term contract with Skype.”

So what’s the final verdict? Is Ebay getting their money’s worth from Skype? Are they getting anything of value?

I would say, based on their own objectives cited above, they are not, at least not yet. Skype is doing okay as a stand-alone business, but Ebay could have done as well buying a ball-bearing manufacturer if that’s all they wanted (and for a lot less money). At some point, for this deal to pay off, 2+2 has to equal a lot more then 4, and at this point, that’s not happening. At this point, the main benefit that Ebay has gotten out of this deal is they prevented anyone else from buying Skype. But that’s a pretty expensive end result, given they spent an entire year’s worth of their net revenue on Skype. They are going to have to fish or cut bait on this thing, so Ken may very well be right that we will see more indications of trouble to come.

What do you think?