The new year brings another round of technology industry predictions by Robert Cringely. I always like reading these because he keeps himself honest by scoring himself each year, unlike most prognosticators, who count on us forgetting about their more farfetched predictions that never come to pass.
On a few occasions he’s scored close to 80% but he didn’t do so well for 2005, getting about two-thirds of his predictions right. I think that some of his predictions for 2006 make a lot of sense, others maybe not so much.
Robert predicts that Google will do a 20-for-1 stock split; I think this is hooey since they’ve said repeatedly they’ll never do this and if they reverse themselves now, particularly now that some folks suspect their stock is defying gravity, they’ll seem dishonest or greedy or less-than-competent or all of the above. This puts them in a tricky situation, though, not because they really need to sell more stock, but because eventually they’ll need to do something to increase their pool of options to award to new people who come on board to replace the kajilionaires who will presumably start leaving the company to go spend their kajillions at some point.
Robert predicts that Tivo will be bought by another company. This seems like a no-brainer to me. I hope this happens because we own a smidge of Tivo stock, but my concern as a Tivo customer is who the suitor could possibly be. Hmmmm…
He bets that Google won’t engage in a low-margin war of attrition against Microsoft by releasing a low-cost PC and this one seems right on to me. I couldn’t believe this rumor had any legs at all after it made the rounds after the first of the year; I’d sooner believe that Google was going to open up a frozen banana stand outside the entrance to the Shoreline Amphitheater. Mmmm, frozen bananas.
He also predicts that "eBay will stumble with Skype" in 2006. I actually think they already have. Whenever a big acquisition happens, analysts ask "where are the synergies?" eBay’s CEO gave a fairly mealy-mouthed answer to this question, saying that Skype would somehow help buyers and sellers communicate, and that eBay would be able to make a huge business out of this. But everyone overlooked the fact that eBay exists as a profit-making entity, in part, because it controls the communication between buyer and seller. If buyers and sellers really want to communicate, they don’t need Skype to do it — they could use email, land line telephone, smoke signals, carrier pigeon, etc. My sense is that this is just another line of business for eBay and they think they’ll be able to attach lots of services that people will pay for to Skype. But I think it’s much more likely that VOIP becomes a commodity in 2006 and we exit the year asking ourselves what eBay really spent those billions of bucks on. (I’m laying out a red carpet here for Ro to come by and lay down a counter-argument if he is so inclined.)
Related posts:
Waiting for Ro to arrive…
Developer programs like the model forged at Ebay will ultimately make Skype the hero of their business model of selling minutes.
We created Verosee to take Skype to an enterprise level:
The app provids team workspaces for Skype. The software allows real time and asynchronous doc mgt for across all personal productivity apps from Win, Linux and Mac. Please check it our as this app is revolutionary — together with presence & desktop sharing for free
Your application sounds interesting. What’s the synergy with eBay’s business again?
I think Google is more likely to release more and more desktop software through Pack once they’ve effectively rolled that out using a link on their homepage. If they push OpenOffice through Pack, they could hurt Microsoft without getting into the hardware or OS business.
Not sure how that actually hurts Microsoft in a world in which Office’s biggest competitor is Office 97 and OpenOffice has no compelling advantage over MS Office besides being free. There’s also considerable risk in being the conduit for free software — mom and pop are going to assume that Google will be responsible for upgrading, support, etc., and they when they don’t step up, mom and pop are going to get cranky.
Wow the red carpet :) Thanks Jeffrey! I think its interesting Cringely states “Skype won’t contribute much to the company in 2006/2007″. That’s like predicting “Jeffrey McManus will do a better job this year”… completely ambiguous. (And in this case you and I know Jeffrey it’s not true ;))
When your contribution margin is over a billion growing at ~30%, a $50-$100MM impact could be viewed as ‘not much’. So I call foul. What I predict is that Skype will maintain global leadership in VOIP and VOIP will become the predominant form of communication for C2C, B2C, B2B. The last two companies my wife and I started enabled VOIP services, so I do know a little about this. Ultimately, what Skype does enabling its platform will drive its success (which is already fairly massive). Consider how many companies have 60MM users? I bet even Yahoo wouldn’t mind figuring out how to monetize that community. It’s this user community which will drive a large, thriving developer community (all of which are figuring out interesting new ways of monetizing said community over and above SkypeOut/SkypeIn). I also recall people wondering how the heck to monetize online search (which is a free service folks). Hmm. What eBay/Paypal does with Skype is great for eBay/Paypal, but ultimately just the cherry on top for the opportunity at Skype. So even if Cringely comes close to whatever his prediction even means, I predict he’ll be dead wrong when it comes to the ultimate success Skype as a market leader in VOIP. Was it worth $2.7-$4B dollars? Absolutely. Waiting for your counter Jeffrey ;)
Btw Jeffrey. When I was pressing ‘Post’ a couple of seconds ago, I realized a second later that the Yahoo Ads to the right of this commentary proved my point. There were Skype ads from four different developers advertising to the Skype community… :)
I’m just flowing with thoughts here… To add to the commentary above, becoming the VOIP platform of choice is the endgame. Monetizing via SkypeOut should be only the the very base of revenue for Skype. With 60+MM users, either by partnering, acquiring or emulating concepts driven by the developer community, other revenue streams will naturally surface. Paypal is a great example of this. Paypal’s original service for consumers was absolutely free. It’s business/enterprise service was not however. Could Skype introduce an enterprise-level or premium service once it’s taken outright leadership in the VOIP space with a low-cost or free consumer service? Could that be worth billions of dollars in revenue? The answer for both is unequivocally yes. It happened with eBay, with Paypal and soon with Skype…
Finally, he has arrived!
So, I’m not really arguing that Skype doesn’t have a critical mass or critical momentum. That much is clear. I’m just trying to see the synergies as Meg tried to lay them out when the acquisition was announced, and to look to the future.
If Skype returns $100M revenue to the business this year, which seems pretty likely, then eBay paid a 40X multiple, does that sound about right? That’s actually not awful in terms of some of similar companies (including eBay itself which has a P/E in the neighborhood of 60+ at the moment) but you gotta wonder where that growth goes two years down the line when this stuff gets utterly commoditized.
Here’s a thought (completely personal and in no way tied to eBay/Skype). What if Skype as a voice service was just a means to deliver an accepted/legal P2P service to the door of every user/consumer? The delivery of large data files is already embedded to the Skype network. Is there a BitTorrent type service for consumer/business here but with access across the entire network of users (vs downloading a new app to enable it)…
I can imagine that if you own the standard P2P operating environment/platform with hundreds of millions of users (tbd), Skype would be a fantastic delivery mechanism for media (music, videos, etc), software and content that could be delivered to any node (pc, wireless). There is money there…
Also, I really think there’s a huge opportunity under the enterprise/SMB banner which is essentially untouched atm. Skype Groups is an initial launch in this direction, but consider what companies currently pay for communications. Again, if you own the standard (ala Paypal) extending that standard to the business community while embedding more security, higher quality or more feature rich functionality (web conferencing) translates to $$. Much like you will hear at Evans Data Conference Jeffrey (if you stick around), it’s all about stretching the business via one platform… own the standard and free C2C => paid B2B.
That last comment by Ro is, from my perspective, right on the money! Put another way, eBay will extend its dominant people2people transaction marketplace into the digital products arena via Skype.
Now that’s big… very big.
There’s more than one platform for delivery of P2P content today (and delivery isn’t the hard problem to solve here anyway, it’s negotiating with rights holders and then figuring out how many pennies you’re left with after you’ve mortgaged your children to them). Running a high-growth, high-margin business based on P2P would fall into the category of a Neat Trick, but if that’s in the cards, rock out with it. Your competitors are now BitTorrent and Tivo. Enjoy!
I don’t see eBay as an enterprise software delivery provider (not because eBay can’t do it but because I see enterprise software as a concept slowly dying). However, in raising that issue it looks like you’ve perhaps unwittingly taken the discussion full circle, to Tim O’Reilly’s prediction that eBay will someday purchase Oracle. Kudos!
There’s a number of folks who’ve already done a lot of rights negotiations and own a DRM system. I honestly thinks that’s more commoditized than you think. Providing wide access and distribution to that however is something few outside of iTunes is even close to, and the reason iTunes maintains its leverage with rights owners is its distribution via millions of iPods (comparable to that volume of users with Skype). Hearing streaming music from your Skype enabled phone, handset, PC is not even a stretch… Btw, how many consumers are even aware of BitTorrent vs Skype. And competing with Tivo is barely a concern. Seems like Tivo is competing with a whole lotta folks these days.
Enterprise software IS converting to Enterprise applications served via web service. It’s already happening… Enterprise communications won’t be dying off ever though Jeffrey and has only complementary connection to Oracle. So not sure what point you had there.