VOIP services

Skype Feels Pressure to Pay Its Way

Some recent changes at Skype Ltd. show that the IM/VOIP company is under the gun to justify the $2.6 billion price eBay Inc. (Nasdaq: EBAY) paid for it 15 months ago.

If the company can't come up with ways to earn more money more quickly, it will likely miss out on some portion of the $1.5 billion Skype is set to earn if it hits certain financial goals in 2006, 2007, and 2008. The exact terms of the "earn out" were not disclosed. Analysts say it'll be awhile before eBay discloses whether or not Skype received any of that money. (See EBay Buys Skype for $2.6B.)

The changes involve turning control of the day-to-day operations at Skype back over to Skype's founding fathers. Also, the company is nixing a free calling gimmick it had in place for the U.S. and Canada.

Late last week, eBay vet Alex Kazim gave up his post as Skype's president, and said he would move back to eBay. Another eBay exec, Henry Gomez, will take over as president of Skype, but will play only an "advisory" role. (See Skype Loses President.) Kazim's move leaves Skype CEO Niklas Zennstrom and a core group of Skype managers to push the company toward the revenue milestones set for it by eBay.

A second move last week involves the pricing of Skype's services. (See Skype Sells Unlimited VOIP.) The company announced new prices for its SkypeOut phone service to the U.S. and Canada. After December 31, SkypeOut calls to the U.S. and Canada (from the U.S. and Canada) will return to the standard rate of 2.1 cents per minute. Skypers can also buy a full year of SkypeOut within the U.S. and Canada for $30.

The new pricing marks the end of a six-month period in which Skype calls to the U.S. and Canada were free. (See Skype Offers Free Calls.)

That free period probably pumped up Skype user numbers, analysts say. Skype reported 136 million registered users at the end of the third quarter, a 20 percent increase from the 113 million users it reported at the end of the second quarter. (See Skype 3.0: Why Email When You Can Call? )

But the deal may also have hindered eBay in reaching its goal of $200 million in Skype revenue by the end of 2006. "They will come in a little below that, but still with very high growth," Guzman & Company analyst Philip Remek tells Light Reading.

Remek says Skype will be generating an impressive half billion in yearly revenue by the end of 2009. But Remek also believes Skype's earning potential will plateau at that level. He reasons that as the total pool of Skype users grows, more free Skype-to-Skype calls will be possible. For each one of those free "pure VOIP" calls, Skype gets paid for one fewer of its PSTN-connected SkypeOut calls, which constitute 90 percent of its revenues. (See Skype Adds Payment Option.)

Skype's net revenues totaled $50 million in the third quarter of 2006, a 13 percent increase from the $44 million it reported in the previous quarter. (See Skype Sales Hit $50M.)

— Mark Sullivan, Reporter, Light Reading

[email protected] 12/5/2012 | 3:31:58 AM
re: Skype Feels Pressure to Pay Its Way Last I checked Mr Zennstr+¦m was from Sweden and the other guy from Estonia.
Mark Sullivan 12/5/2012 | 3:31:57 AM
re: Skype Feels Pressure to Pay Its Way Thanks for pointing that out. I am correcting it. -Mark
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