FOR WHOM THE BELLS USED TO TOLL
Many in the financial world, are scratching their heads at first the rumored, and then confirmed acquisition of Skype by eBay, especially after hearing the price tag.
It's an acquisition that can cause some head-scratching, especially since the synergies are not obvious at first glance, AND require a fair amount of execution with a capital "E" by managements of both companies working very closely together.
This makes it a "show me" acquisition, where the proof will be in the pudding. It will take at the very least, a few months to manifest the promised possibilities, as eBay has done with its Paypal acquisition of three years ago. It's especially unnerving for investors because it's not just the technology risk, but also adoption risk by buyers and sellers on a global scale.
But it's important to keep in mind that this acquisition, as dramatic as it may seem, is but one scene in a long drama still continuing.
A reminder of this coincidentally comes from this report in the Register today, regarding the growing pressure of Internet Telephony on both wired and wireless carriers. This is something I've posted on before, as recently as a couple of days ago. (also here). As they observe:
"A new study from the OECD predicts that increased use of internet telephony will result in lower revenues for both fixed-line and mobile operators.
According to its latest report, the number of fixed phone lines in OECD (Organisation for Economic Co-operation and Development) countries fell for the first time in 2003 as mobile operators gained market share at the expense of traditional telecoms companies.
That trend has continued into 2004 and 2005 but is unlikely to carry on for very much longer. That's because use of Voice over Internet Protocol (VoIP) services is expected to increase with the result that both fixed-line and mobile operators will see a significant drop in revenues."
Wired and wireless voice communications are being cut loose, from the predictable, steady, metered subscription revenue streams of the past few decades, to having to fend for themselves.
In the eBay/Skype case, they'll have to be supported through seemingly esoteric but potentially potent new revenue opportunities like "pay-per-call" (a twist on the "pay-per-click" model popularized by Internet advertising companies. Incidentally, pay-per-call is not a hypothetical exercise. Private New York-based company Ingenio has connected over 2 million buyers and sellers via phone leads for over five years, according to its website.
Another idea is that people might pay for voice communications for specific community-driven conversations, an application of the Long Tail to communications. eBay highlighted the "long tail" overlay of voice communications over categories of products like cars (used and new), business products and real estate, both in the US and overseas markets.
There are a number of monetization possibilities eBay outlines in their presentation today, and they're just the beginning.
Even these opportunities to extract any kind of pricing for voice communications at all, may be fleeting, like a fistful of sand running through one's fingers.
In a decade, the notion of charging anything for communications may be as quaint as charging something today for instant messaging or email.
In some ways, this transaction recalls a similar communications acquisition of seven years ago, when America Online purchased the then world leader in instant messaging, ICQ. Quoting from Internet News article:
"Mirabilis' ICQ technology is based on a proprietary server and database network. It provides instant messaging and chat between online users, and enables URL transfers, file exchanges, and online gaming.
According to Mirabilis, there are 12 million ICQ users registered via its Web site. Of its user base, the company said 60% come from outside the U.S. and almost 40% are European."
Like Skype, ICQ was born overseas (Israel), to provide free instant messaging and run in a similarly spartan fashion off a seemingly meager number of servers, and took the world (especially outside the US) by storm.
In a like fashion, in two years, Skype took the world by storm with free instant PC to PC voice communications, becoming an "overnight" global brand without paying anything in traditional advertising.
They grew to 54 million registered users for its free service, with 48% of its users in Europe, and only 13% in North America.
While ICQ sold for $400 million in cash ($287 million plus $120 million in performance target driven payments), Skype went for $4.1 billion ($2.6 billion before earn-outs). Interestingly, about a ten-X multiple, with around five-X the users.
In both cases, the opportunity was to take a globally scalable technology platform, which had become overnight sensations through world-of-mouth, "viral" adoption, and try and monetize them as fast as possible, before the underlying service became a commodity...just another feature that could be a part of so many different applications, services and companies.
In addition to eBay being Skyped, Microsoft recently was "Teleo'd", Google "Jabbered" itself, and Yahoo! got "Dialpadded". That leaves Amazon still running around the musical chairs of voice telephony enabled communications and instant messaging.
That's what voice communications is rapidly becoming, first wired, and then wireless...just another feature that will be a part of so many services that we'll stop thinking of it as a separate service altogether.
We're just seeing the second link in the communications chain communications getting commoditized and re-commercialized here...from text messaging to voice messaging...
...next up, audio (podcasting, etc.), video communication, and wireless communication being free, or free to consumers, subsidized by any number of commercial underpinnings, ranging from advertising, direct marketing, ecommerce and dwindling subscriptions.
The clock is ticking.
DISCLOSURE: I was the lead research analyst on the eBay IPO in 1998.