Skype’s FY08-Q2 Results … Generates a Significant Question

On Wednesday eBay released their quarterly financial results, including an update on Skype usage. This chart presents the trend lines over the past year.

The only other information that came out in the call:

  • Over 25% of all Skype-to-Skype calls involve video
  • Skype is "double-digit" profitable (along with PayPal)

Comments:

  • It is apparent that the MySpace agreement contributed to the accelerated growth in Q4-07.
  • For the first time, during this quarter, the daily growth volume itself has dropped off.
  • While Skype-to-Skype minutes tracked along with increased accounts in the previous two quarters, why have the growth of these minutes dropped significantly to 4% in a quarter where new account registrations rose by 8%? (And the Skype-to-Skype minutes growth rate itself dropped off significantly.)
  • This usage level is consistent with the fact that concurrent online users still has not passed 13 million at its daily peak, yet grew significantly from 10 to 12 million in the previous quarter.
  • U.S. revenue growth has definitely stalled; yet international continues to move forward.

But here is the big question:

  • Account registrations grew by 28..9 million accounts in the past quarter
  • According to Hudson Barton’s "Real User" estimates (which are somewhat consistent with the "concurrent users online" numbers in terms of growth) Skype usage has only grown by 2 to 3 million "real users".

What has happened such that the other 26 million to 27 million "new accounts" are effectively inactive?

  • I recall that, when WinFax Lite used to be offered in almost every software package in the mid-90’s, the upgrade rate used to be about 1% go 2% and was consistent with most "free introductions" of popular PC software
  • Here we do see here a take-up rate of about 10% to 15%, so certainly this growth is consistent with Skype having a "free" offering for Skype-to-Skype calls.
  • New account registrations is not necessarily reflective of new users as a single user can have multiple accounts for various reasons. And, as with all user data bases, the longer term information incorporated into this number goes stale over time.

The Skype 4.0 beta program has been designed to build into the user experience feedback from both legacy and new users. But there has to be more than the user interface as a factor involved that leads to this relatively low take-up rate. Candidates for consideration could include:

  • End point user configurations that lead to bad experiences?
  • Attempts to install on too many sub-1GHz PC’s?
  • Bad end user network connections?
  • Poor quality "home" routers that cannot handle voice packets in real time appropriately?
  • Insufficient or incomplete technical support resources?

Let’s hope Skype’s market research moves beyond simply drilling down on the user interface experience. This is definitely a statistic that needs further investigation. Definitely I have had good to excellent experience with Skype, including video calling, over time but does that have to do with my own configuration which I tend to upgrade from time-to-time? Am I too "technically competent"?

And this discrepancy is one more reason why eBay should be reporting the number of users who actually made a Skype call during the "reported" quarter. This would be much closer to the real picture of Skype usage. As with MacDonald’s "over X billion sold" where it represents real hamburgers, it is only fair to provide both shareholders and analysts with a much meatier picture. (All the publicly listed telcos have no problem providing this information.) The number of active SkypeOut accounts would also supply a better handle.

This is both a challenge and the "missed opportunity" for Skype’s new management team to address. And maybe an issue for not only eBay’s investor relations activities but also at some point it may draw the attention of the SEC.

Sorry folks, but I can provide some practical case situations involving companies reporting "vague" or inconsistent numbers; the final outcomes were not pretty. In this case the reported data is not fraudulent nor would this data, at the current Skype revenue level as a % of eBay revenues, severely impact eBay’s financial results but it is misrepresentation of the true Skype picture.

Tags: Skype, eBay, Hudson Barton, Borderless Communicator, eBay Q2-08 financial results, MySpace

Powered by Qumana

About Jim Courtney

Bringing over thirty years' experience in the sales, marketing and management of cutting edge technology businesses.
No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.