Why Skype Should be Sold to Google

By Rich Tehrani
President and Editor-in-Chief

There are now rumors circulating that Google will buy Skype. these rumors are not new — I wrote about this as recently as November 20 of 2007.


But they did die down for a while and have been renewed. I have heard wild claims like the valuation of Skype is in the multibillion dollar range, etc.

I should mention that I have tremendous admiration for the people at Skype who developed software that tens of millions of people use. I am frequently blown away when I use the software myself and see over ten million people online at one time.

Having said that, Skype is a poster child for IP communications. Certainly not the only one but many think of them as a barometer for the market. Vonage too is thought of as a barometer of the communications space. Sadly, the two of these companies have done nothing to help the communications space these past few years. Quite the opposite in fact.

But Vonage (News - Alert) is not the topic of this article... Skype is. And even if free software, which sits on your PC has nothing to do with session border controllers, some in the investment community like to lump the companies together.

What this means of course is that to have the healthiest communications market — and especially an IP communications market — we need to ensure Skype does well.

Certainly this may not be possible. In other words perhaps there is no way for Skype to ever make more money than they do now. In fact, perhaps when Motley Fool writes about just how atrocious the Skype purchase was for eBay I should just accept it. Maybe the company is doing its best and still can’t make big profits.

But I am 100 percent sure that the company’s management could do a lot better. In fact I wrote an entry titled What eBay Should do with Skype where I outlined steps the company should take.

Here they are once again:

1. Enhance the social network capabilities: Skype currently is in a good position to expand into social networking via Facebook-like features. They have added some community services but not enough to be taken seriously as a real social network. Some analysts place Facebook’s value at $100 billion. This is obviously an area the company should be going after more seriously.
2. Show some ads: Let’s see if I understand the situation. You have over five million users on your service almost every moment of every day. You need to increase revenue. Your answer? Show no ads. If I were eBay I would be flashing product listings in front of Skype users as often as possible. If this doesn’t make sense, why not show Google ads like everyone else in the world? It is tough to see where this isn’t a $100 million/year revenue opportunity — this amount may seem high but think about how long people use Skype each day and consider you can flash new ads in front of users constantly. Moreover, probably $90 million would flow to the bottom line. eBay’s P/E ratio is currently about 40 so this amount of earnings could translate into about $3.6 billion in market capitalization. Not showing ads is something I can’t conceivably understand.
3. Enter the enterprise VoIP market: Cbeyond (News - Alert) has a market cap of over a billion dollars and provides hosted communications to just a few cities in the U.S. Zennstrom first told the world at Internet Telephony Conference & EXPO that Skype was very popular in the business space. Why was this never monetized in a formal manner?
4. Provide paid recording capabilities: With the regulatory environment forcing so many companies to record phone calls and so many Skype users in the world, you have to offer a recording service to help those companies who need to capture Skype IM and voice calls within their organizations. My revenue estimate? $25–$100 million/year.
5. Skype trunking: This technology is one of the most intriguing around — allowing companies to communicate with branch offices, customers and home workers at a low cost. I feel going forward every company should take advantage ofSIP trunking and Skype trunking. Skype knows this. So the question I feel compelled to ask is why would they do not work more closely with partners such as VoSKY and actually market Skype trunking products to customers in a more serious way. VoSKY is doing a good job but why is there not a multimillion dollar Skype ad budget behind VoSKY and others? Why leave the success of this massive market in the hands of partners when you can ensure the rapid success of this burgeoning new space yourself? The reason may be that Skype was built as a viral platform and they except this to be the only way to sell. Ditto for eBay. Guess what? Companies likeAvaya ( News - Alert), Cisco, Dialogic and Quintum sell telecom equipment and/or gateways and they have to market to customers. To be serious in the business space, Skype needs to start a serious partner program where they fund the marketing of companies which help their own paid services increase.
6. Go after the PBX vendors: If I am a PBX (News - Alert) vendor I would be looking for Skype interoperability as a differentiator. Still, I have yet to see an ad touting PBX vendor’s Skype Interop. Why?
7. Charge for something beyond just connecting to the PSTN: Charge for conferencing, enhanced video, the ability to get new features first, for the ability to use the service without having to see ads, etc.
8. Partner with media companies: Work with content providers and stream programming via the Skype client. Make money through subscriptions and ads.
9. Take on the world’s biggest auction houses with Skype video enabled live auctions. If eBay can pull off selling cars, it can pull this off as well.
10. Embrace Skype: I have a weird question. Companies all over the world are integrating their customer service departments with gateways allowing callers to use Skype to call in. Isn’t it odd that PayPal doesn’t accept Skype phone calls? If you want companies to integrate with Skype — which will obviously increase revenue — doesn’t it make sense to lead by example?
11. Embrace enterprise video: Video is enjoying resurgence and Skype has a well-known brand name and has a pretty good video solution. What about offering a video plan for businesses which will be cheaper than existing solutions on the market but priced high enough to generate real revenue?

Some of these things have been done already but for the life of me I cannot understand why I am not bombarded with ads when I use Skype. Of course eBay ads should be shown. If we approximate the number of users on Skype at any given moment to be conservatively 8 million, there should easily be 25 million people using the software each day.

There is gold in those connections. By not showing ads in fact, I believe eBay is at risk of shareholder lawsuits.

But for whatever reason, the company has not chosen to embark upon many of the ideas above. Frankly, there is no crystal ball that says these ideas will bring in a billion more in revenue but the cost of trying most of them is peanuts and not doing anything is guaranteed to produce similar results to what the company is now experiencing.

So in my opinion, I think having Skype sold to another company will be good for the entire communications space. Perhaps the company needs a fresh start and some time to try anything and everything that will get the cash register ringing.

Google is a great partner because they have the ability to show ads from the largest ad network in the business. More importantly, they have technology which can recognize spoken words and show the appropriate ads based on keyword.

In a way, we should think of Skype the same way we think of YouTube (News - Alert)... An extremely successful multimedia platform with tens of millions of users where ads can be laser targeted.

I should mention that I did reach out to Skype regarding the Google acquisition and they mentioned that they do not comment on speculation and rumors. Of course this was what we all expected.

I suppose the next time I reach out to the company I should ask them about my ideas. Am I way off base? If so perhaps the company could clue me in as I would love to see Skype continue to grow, not only in users but in revenue.

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Rich Tehrani is President and Group Editor in Chief at TMC. In addition he is the Chairman of the world’s best attended IP Communications event, Internet Telephony Conference & EXPO.