Skype struggles to find real revenue

Lots of free advice on what new eBay CEO John Donahoe should do to with its  auction business as both Amazon and Google Check Out take aim at its marketplace and PayPal business but there was little said about what Donahoe should do with its hugely popular but marginally profitable Skype VoIP business.

 The latest Q4 figures show that while revenue was up a healthy 76 percent over the same quarter in 2006, Skype remains only marginally profitable. eBay did not release any contribution data for Q4, but based on the previous three quarters net contribution numbers, Skype will have added no more than $50 million to the corporate bottom line for 2007 and some of that number would have come from forex appreciation, as over 80 percent of Skype's revenue comes from outside the U.S.

Based on eBay's own numbers, each registered users contributed a mere five cents to Skype's revenue in the last quarter. And if the currency appreciation is discounted it looks like the average contribution actually decreased in euro's [1]. Of course many of those registered users are dormant, but Skype can't have it both ways. Either publish the real customer numbers so the true contribution can be calculated or else live with what is the heart of the Skype problem--lots of users, little revenue.

Unless eBay has finally come up with a magic trick/application to integrate its VoIP business with its auction and/or payment business so as to make Skype a serious earner, this problem is not about to get any better. As VoIP uptake becomes more mainstream at both the residential and enterprise level Skype's appeal as  a "new (cheaper) technology" wains.

There are a raft of serious web-based voice applications sniping at the VoIP giant, most threatening is that they are expected to become inter-operable challenging Skype's ability to remain aloof from the market. On the mobile front, while Skype plays with carriers such as 3, there are already VoIP applications offering very low-cost calls, with more likely to explode onto the market as consumers take up mobile web services.

Somehow Skype has to migrate/entice its massive customer base onto a paying platform, but with so many alternatives now in the market this is only going to get more difficult. Skype has already taken a $1.4 billion write down for its $2.6 billion purchase and the question that will be asked soon by the auditors is if another charge is necessary. Donahoe was retiring CEO Meg Whitman's choice, but with eBay's stock price now down at 2003 levels he may just decide Skype was his predecessor's mistake and is a distraction he does not need.

For more:
- eBay Q4 slides  [2]
- eBay comments about Skype at least weeks call [3]
- Skype numerology blog
[1]
Related articles:
eBay earnings; Whitman retires Report [4]
Skype resists inter-operability Report [5]
3 continues to expand mobile Skype coverage Report [6]