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We live and work in exciting times - revolutionary times. Technology continues to recast the media industry.

The extraordinary advance of affordable personal digital technology and the stellar rise of social networks are both distrupting and transforming the media market making this a unique moment to be involved in the convergence sectors we focus on.

This is also our place to ruminate and comment on the world as we see it, we hope you enjoy and please join in.

Tuesday, 2 October 2007

Skype - flash in the pan, or revolutionising digital communication?

in 2005 EBay bought Skype for $2.6billion, expanding its core peer-to-peer auction business into VOIP phone services. At the time, Skype was the shining star of the digital sector, signing up customers at a rate of knots - the Facebook of 2005.

Fast forward to October 2007, and EBay writes down the value of Skype by $900 million, admitting it overvalued the group in 2005, and paying a one off and final bonus to the Skype founders of "only" $530m, rather than the maximum $1.7bn earn-out that could have been achieved.

An air of EBay gloom surrounds the announcement, "Skype has not performed as well as we would have hoped" " Skype is not where we want it to be in terms of user activity".

The key issue here - EBay overpaid based on an unrealistic multiple calculated on projections of monetising the audience into paying for Skype calls to landlines and mobiles, something which has proved difficult to achieve at the levels needed to justify the sale price - Q2 revenues of $90m at a relatively sluggish growth rate year on year aren't that impressive.

"Peer to peer connection" - the intersection between digital and traditional comms, is a fascinating place at the moment. EBay gambled that people would pay to sit at PC or laptop, and Skype mobiles and landlines to communicate, but my view is that people have way more digital choice now - instant messaging, facebook posting, SMS over internet - do I really need to actually talk to someone when I can poke, prod, prevaricate and post. And if I do need to talk, then my mobile has more free minutes and texts than I need.

EBay know they need to focus on what to do with Skype, it's an interesting strategic question for them, to prevent another write-down in value in 2008. Some serious consumer insight is needed right now.


Anonymous said...

What does the Skype write down mean for the valuation of Facebook ($10-13bn)?

Will the ebay announcement cool the market?

It should but that would require good sense and commercial logic.

Anonymous said...

Perhaps more interestingly there may have been a big misjudgement that people are looking for the cheapest all the time...why bother with Skype in a world where every phone networkis bombarding you with offers

Anonymous said...

Skype quality is still a bit dodgy at times, though it has improved. Is it being held back by the relatively slow broadband connections in the UK at the moment?