Despite having about $1 billion knocked off their price, I still think eBay paid far too much for Skype. Skype has been instrumental in establishing VoIP worldwide. There is no doubt about that. But I cannot reconcile with the multi-billion price tag. We have not written too much about Skype in the past. The reason is simple: As a research group, we hardly come across any major VoIP company that regards Skype as significant player. However, just for the sake of those who read too much into the writeups in the trade press, here are a few thoughts.
To start, several reporters tend to compare Skype with Voice-over-Broadband service providers like Vonage and Comcast. This is a mistake. Unfortunately we cannot compare Skype with Vonage. Vonage has a ‘tangible’ phone-to-phone service. At least Vonage has its own termination gateways. A general criticism leveled against Vonage is that the company is an ASP only and does not own infrastructure. Well it does own some infrastructure in form of termination gateways and proprietary call servers. It just does not own the last mile i.e. the access part. That begs the question: if Vonage suffers such criticism, how did an infrastructure-less telecom company such as Skype get such high valuation.
With the present business model Skype will never be able to serve the mainstream. It will not be able to offer a bundle (voice, TV, data etc), which is what survivable business model demands at present.
One slice of credit that Skype may take is that compared to its predecessors, it has a relatively bigger ‘paying’ PC-to-Phone client base that brings in some revenue, as a result of which its quarterly revenue rate is around $90 million at present. These financials are not exactly staggering though. Furthermore, two questions arise here: When most communication is IP-IP and let us say that takes 15 years more in the US, what utility will eBay have for such an asset then. The second question is whether Skype’s PC-to-PSTN service is really different from other previous offerings that struggled to get a billion dollar tag. The answer to that question is no.