“There’s something here”

A few days ago, the Financial Times did a long interview with eBay’s Meg Whitman. At one point, she was asked to respond to the skepticism regarding eBay’s ability to “monetize” Skype, the internet phone service it acquired last year. She answered:

Well I certainly hope we’re gonna be able to monetize it! … If you have the largest ecosystem, then you will be the one who will actually figure out the long-term monetization model. And I think telephony will be a part of that. Skype and voicemail in what we do today, but also ecommerce applications, content applications; we will figure out how to monetize the largest user base on the Net. And we already have some ideas; there’s already a number of trials in place. And the good news is we have a stream of revenues called telephony revenues that enable us to continue to grow quite fast while we’re testing and trying to figure out the new monetization models …

And so, that’s why we were so excited when we saw Skype because I said, you know what, there’s something here that will unlock the Skype business, and will enable each business to grow on its own. So, people will understand as we deliver the results, and you know, I have great confidence that this was a smart thing to do … Because in the end, the monetization, I think, is going to be around ecommerce, not telephony. And guess who has the biggest ecommerce franchise in the world, that can accelerate the growth of Skype? So, we’ll see.

“We’ll figure it out.” “There’s something here.” “We already have some ideas.” “We’ll see.” I wonder how many other multibillion-dollar acquisitions have taken place before the acquiring company had “figured out” how to actually make money from the deal. I know there’ve been plenty where the acquirer’s money-making strategy turned out to be pure fantasy, but how many have there been where there wasn’t any strategy, where the justification boiled down to “don’t worry, we’ll figure it out later.”

You can build a religion on faith, but building a company on it seems pretty dicey. At least eBay makes a lot of money in its core business. It can afford to have patience and do “a number of trials” and hope for the best. And it can afford to make mistakes, even if they end up costing a billion or two. If Skype falls short of earning back its price, it’s not the end of the world.

You have to wonder, though, about other companies that are making it up as they go along. I think most Web 2.0 businesses fall into that category, but my favorite at the moment is YouTube. Even in these days of cheap storage and bandwidth, YouTube is burning through a ton of money to store and stream its mountain of bit-heavy, user-generated videos like the future Oscar contender Ass Hand. Fearing lawsuits or PR disasters related to the corruption of youth, it’s now also going to have to put in place costly screening procedures – having people review uploaded pictures and videos is reportedly the latest chore that companies are outsourcing to the Third World. If the big costs weren’t bad enough, there are competitors sprouting up all over the place, including heavyweights like Google with cash flow out the wazoo.

YouTube’s only hope, so far as I can see, is for an eBay-like company to come along and buy it in the hope it will eventually be able to “figure out” how to make money off all the traffic. It’s the greater fool theory of monetization.

9 thoughts on ““There’s something here”

  1. Zephram Stark

    When E-Bay acquired Skype, it got something, just like Time-Warner got something with AOL. Skype is effective largely because it helps people break the telco monopoly on long-distance, but only competes in the same market with the help of a third-party add-on dongle that forwards calls to a real phone. For the $30 cost of the dongle—or you can build it yourself—one can set up a local phone number anywhere in the world that forwards calls to any home or cell.

    How much is this service worth per month? About $2 because NetZero already has a significantly better plan for $4. The U.S. government wants to keep the telcos in business because they generate a lot of taxes. Telco taxes go almost exclusively toward oppressing other nations, something that the U.S. loves to do and which puts us in the hole billions more per day. Bush’s 9-year plan is to reduce the amount of additional debt we accumulate each day to zero (like it was when Clinton left office). His plan does not include a reduction in telco taxes, something that will happen if companies like Skype succeed. For that reason, big government is on the side of big telcos in demanding that free or cheap telephony services pay their fair share of our war expenses.

    Skype, Yahoo! and others circumvent being labeled a telephone service by only providing computer to computer, computer to phone and phone to computer functionality. The dongle makes it phone to phone, but I’m sure that use of the dongle is in no way the fault of Skype. Netzero offers a $4/mo service that can be set up to go phone to phone by simply activating a call forwarding number. I’ve been using it for months and it works great, but don’t tell the government that I’m bypassing their war fund or they might put me on their airport extra rubbins list.

  2. djones

    Speaking of monetizing users, do you think (the soon to be defunct if not already so) PubSub.com ever made any money?

    At one point, they claimed millions of subscribers.

    Their business model was never quite clear (see some of the recent comments on techcrunch related to PubSub), and then there was this interesting exchange yesterday between “Skeptic”, Eugene (a former PubSub employee), and finally Bob Wyman, on Wyman’s blog: http://www.wyman.us/main/2006/06/the_rumors_of_o.html#comments

    Do any of those revenue streams Wyman describes sound plausible?

    I’ve never heard of a company failing because it wasn’t generating cash — politics on the inside may lead to other screwed up things happening (e.g. unfavorable acquisitions by competitors) — but never outright shutdown.

    I suspect that either those things Wyman describes are either deals in-progress, ro the fees PubSub got paid were token sums, not real sales revenues.

    What is your take?

  3. juniortp

    “There is no case in history of somebody assembling a huge audience and then failing to make money from it,”

    Isnt that true?

  4. Damien Vanderhoof

    “There is no case in history of somebody assembling a huge audience and then failing to make money from it,”

    That statement generalizes the concept of leveraging control of future vested interest. A crowd can be influenced to invest time, money, concern, etc. in a venture that is controlled by the person creating the assembly. As more interest is vested, expectations for that interest increase, and the crowd becomes locked into a particular course of action. When that action is anticipated, control of it can be secured beforehand and harvested when interest peaks. Controlling future vested interest is the method of gaining wealth and power in excess of one’s due.

  5. _oh

    I picked up a copy of this book lately:

    How the Web was Born: The Story of the World Wide Web

    by James Gillies, Robert Cailliau ”

    Having read a few David Isenberg articles, he does a great job of going into telcos in US. I think Gillies and Cailliau’s book, fills in a lot of gaps, in understanding the scene in europe. Katie Hafner’s book, which I read a year ago couldn’t take in the european story. But Gillies and Cailliau’s book, sort of picks up in Europe, where Hafner left things, regarding the arpanet in america.

    It is very funny, here in Ireland we are starting to lay some broadband fibre now, use wireless broadband etc, etc. ISDN is still around, believe it or not – which is strongly tied to telecom companies of course. But a lot of broadband build-out, seems to be falling under the remit of the Dept. of the Environment. Who do these regional area future plans, to establish areas with a digital infrastructure. I find the whole area a bit suspicious myself, and I am going to keep a close eye on it.

    Brian O’ Hanlon.

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