Of course, Facebook has been working on basically the same thing, Facebook Connect, for about the same amount of time. And while Facebook can’t claim to have come up with the idea of putting a social shell over the otherwise non-social sites of the Web, the company did feel relatively safe as the Internet’s social leader. Social is its turf, and a realm in which Google has yet to make a real dent. Google may own our data, but Facebook owns our social networks.
Each service has its advantages. Google’s is easier to install—in fact, the company automatically turned it on for every site using Blogger. Facebook’s version is a bit more transparent in its privacy policies, and feels like a bit less strange to use since Facebook is already the place and brand through which so many of us do social networking. Letting people be their Facebook selves on a Web site makes some intuitive sense.
The real difference between the two services is the intention of the companies behind them. Facebook has extended its functionality onto the Web in order to draw us back onto Facebook. The more we use Facebook’s apps to find and connect to other people out on the Web, the more committed we become to our profiles, walls, and posts back on Facebook. Google doesn’t have a networking hub to draw us into, so what’s in it for the search giant?
Why of course, as with everything Google does, the real goal is more and better targeted advertising. Indeed, the most important (but last to be mentioned) upgrade to Google’s Friend Connect is a feature that allows Web sites to target advertisements to individuals based on their Friend Connect profiles. No, Google isn’t really providing us access to each other. It’s providing advertisers with better access to each of us.
So who is going to win? Google, of course. And it’s not because the company is better at social. It’s because Google is better at making money, and helping others do so.
Putting Facebook’s application on your site only helps your visitors connect with others who have visited. If you’re selling or publicizing something, and you’re lucky, maybe they’ll even talk about how great your products are, and then broadcast parts of their conversation back to their “walls” on Facebook.
Putting Google’s application on your site means your ads could work better and you’ll get more money.
Which do you think most bloggers are going to choose?
My investors at Fon (Fon is the largest WiFi network in the world and is built by its users) include most of the people and companies that were involved in the recent sale of Skype. At Fon we have eBay, Janus Friis and Niklas Zennstrom personally as investors and board members, Mike Volpi personally as an investor and board member, Danny Rimer as a board member and Index Ventures as an investor, and Marc Andreessen as an investor. So for me to talk about Skype after the recent dispute for the control of this company could be dangerous. But there's no need to be concerned. This post is not about my opinions on what happened in the Skype dispute. Personally I think that Janus, Niklas, Mike, Danny and Marc are all awesome guys, amazing investors and board members. So what I will speak about in this post is strategy or how I see the future of Skype: the dangers it may face and the opportunities it may have.
Before getting started I would like to say that I have been a user of Skype from the very beginning, from way before I actually met and became partners with Janus and Niklas, that I think that Skype is a remarkable product that is way ahead of the competition. While not yet a highly profitable company Skype is heavily used around the world and has certainly been a gift to humanity. Now having sent my thank you note to its founders, let's talk business.
Most communication on Skype as we all know, is totally free, only occasional calls to non Skype parties are the ones that generate the $740 million revenue run rate that allows Skype to make a living. The rest is enormous amounts of minutes of communication that take place thanks to the amazing piece of software that is Skype. And the few minutes that are revenues are under threat from three main rivals.
The first one is called Facebook. While my friends inside Facebook have not disclosed anything confidential to me, I think it is obvious that Facebook will soon have its own Skype. And what's amazing about Facebook is that even though it produces mediocre to bad apps, everyone loves their convenience and uses them. Its pictures apps is mediocre in comparison to Flickr, its email pales in comparison to Gmail and its chat is way worse than that of Skype (no file attachments, no this, no that), still the growth of those apps in Facebook is explosive. So much so that while I have been in Skype since 2004 and Facebook since 2006 on a recent check I had around 30 people I knew on Skype and 144 on Facebook chat. When Facebook incorporates a Skype like product, how many people will go on using Skype?
Facebook is already hurting MSN big time. Moreover, Facebook is getting so big that soon there will be no Facebook Out. The threat that was Skype's threat, namely how do you make money if everyone is on Skype and there is no need for Skype Out, is now being transferred to Facebook. But the thing is that Facebook, another gift to humanity, has a different business model, advertising, and they could really hurt Skype.
The second threat to Skype is flat rate pricing from telcos around the world. Why would anyone use Skype Out if they have an all you can eat tariff on their phone? And all you can eat tariffs are more and more frequent. In Europe all ADSL plans come with flat rates to all fixed lines, and in USA flat plans to fixed and mobile plans are more and more common. There are also community plans like calling anyone on AT&T for free that turns AT&T mobile into a Skype. It is remarkable that these plans are available to visitors such as myself and my family. We are six and when we go to USA everyone gets a phone with an AT&T card and we all call each other for free on prepaid! And telcos have one big advantage and that is that you don't need a computer to make a phone call.
The third threat is Google Voice. Google Voice is interesting because it came out of the Google Talk fiasco and it shows how relentless Google is when it gets its mind set on something (disclosure: Google is also an investor in Fon). What Google Voice is doing with the free phone calls attacks the very livelihood of Skype and that is Skype Out. And the integration with Gmail and Gmail contacts is amazing. Skype is weak at that, it has no email. Google first copied Skype with Gtalk and it took off but not really. Google Voice is the second derivative of the Skype attack, and is going well. The $50 million acquisition of Grand Central that resulted in Google Voice stands up there with the acquisition of Keyhole that resulted in Google Maps as two of the best M&A moves of Google so far.
So considering that Skype is under attack from Facebook, the largest telcos in the world and Google how can it be a good business to buy Skype?
Well the key here for the new investors in Skype is not whether Skype will rule the world but whether it will be worth more than what the investors paid for it. And after giving you the cons here are some arguments and strategies in favor of the acquisition.
Skype is simple. Michael Arrington and all of Silicon Valley may find Google Voice amazing but is the average global citizen ready to use it? Massively use it? You download Skype, you find your friends on Skype, you talk. And if you don't find them you Skype out. And when you talk you can also do video. I love video calls on Skype. I used to use them for people I really cared about, relatives, close friends. Now I even do business calls on video with Skype. It just gives you more of a sense of what is going through the other person's mind. And Skype is the leader on video quality. So simplicity plus video may be a good way to beat flat plans from telcos and avoid being Tivoed. If the video services can migrate to mobile phones Skype is on to something.
Skype can include advertising. If Gmail reads your emails and places ads why can´t Skype do the same thing on their chat or even their voice channels? How far are we from systems that listen to what you say and just as you finish saying “let's go to Ibiza for the weekend” they start showing you cheap flights to Ibiza. Gmail proved that if you give people a great service they don't care if you spy on them. That could be an enormous revenue source. So far Google has been kind to Skype even including it in the Google pack. Maybe a Google deal for advertising is in the making.
Skype can conquer the business world. Facebook is not the only community in the world, there is LinkedIn, Xing (disclosure: I was an investor in Xing) and other more business minded networks. Those “business types” work best with Skype. I believe that as Facebook squeezes everybody in its quest to Microsoft the world (Mark Zuckerberg told me that Microsoft is his model) a few “Apples” will emerge. Skype could be one of them. Apple has a tiny fraction of the PC market, Dell dwarfs it in revenues. But Apple dominates the over $1000 PC segment and dwarfs Dell in market cap. Skype could position itself as the communicator of choice for businesses. And that has tremendous value.
Bottom line, the jury is still out. I have no doubt that Skype now has tremendous brain power. But it will need it all to succeed. Good luck Janus, Niklas and Marc!
Google said this week it might buy a big company “every year or two,” targeting “some accelerant that it would provide for revenue, some major, major user base that we did not currently have access to.” What’s surprising isn’t that Google is thinking this way, but that it’s admitting it so publicly. In the sometimes feverish world of M&A (and right now is one of those times), those are rousing words.
Schmidt surely knows this from his years as an executive, but if Google is really buying, it might make sense to pretend it’s not. In the Internet sector, just hinting such a thing when you have $22 billion in your back pocket (while generating nearly $3 billion from operations last quarter) can spur rumors, and rumors can drive up company valuations. There are already rumors that Google’s going on a big buying binge, setting its sights on the likes of Akamai (Adam Kramer shot that one down already).
So while it’s tempting to speculate on what Google should buy, let’s look instead at what Google could buy, but shouldn’t. I’ve argued before that, given the history of M&A in the web sector, a surge of new deals could end up like a 2 a.m. barroom — a place where thoughtless but impulsive decisions can lead to regrets. So here are four deals that might seem tempting, but would be best to forgo.
Hulu
Why it could happen: YouTube hasn’t turned a profit. Hulu has. Why? We’ll watch a commercial per break (or two, as seems increasingly common) for Jon Stewart or Tina Fey, but not for the Drunk Kardashians or TV for Chickens. Networks are starting to press harder on Hulu, limiting its offerings. Hulu could help kick YouTube down its path to profitability. Hulu could also make Google even more dominant presence in online video than it is now.
Why it shouldn’t: Hulu could make Google an even more dominant presence in online video than it is now. No one — whether studios or viewers — is crying out for Google to be more dominant. Also, I find Hulu’s interface to be superior. YouTube’s is still too devoted to its original design, as if its users would freak out if a new interface from scratch brought a better viewing experience. Also, as Om has argued, Yahoo is a better fit for Hulu. Besides, someone has to compete with Google in video.
eBay
Why it could happen: eBay’s marketplace business doesn’t really fit into Google’s business plan, although if things keep turning around, it could contribute to revenue growth. Checkout has never taken off, but PayPal could strengthen Google’s e-payments options while offering PayPal access to new shoppers and retailers. Skype could just offer an end run around the obstacles that AT&T and Apple are tossing in front of Google Voice. And Google’s legal clout might even help Skype in its battle with the VoIP services’s founders.
Why it shouldn’t: Mixing a company with a few silos of independent units (eBay) with another company with such a broad vision, one that it’s sprawling in all kinds of areas (Google), would create a nightmare of integration. The 77 percent rise in eBay’s shares so far this year, which gave it a $32 billion valuation as of Friday, also makes it less than a bargain. Google would need to pay largely with its stock, and such a big deal would be dilutive to investors (including Google employees), especially if other big deals are on the table.
Twitter or Facebook
Why it could happen: Early reviewers of Google Wave are largely impressed by the technology but puzzled by the strategy. Wave is more of a collaborative tool — a gun aimed at Sharepoint rather than Facebook or Twitter — which leaves Google still largely absent in the social media landscape. Facebook could add to Google’s revenue, while either company would offer the kind of “major user base” to which Schmidt referred.
Why it shouldn’t: From a financial perspective, a Google purchase wouldn’t help Facebook or Twitter, neither of which is hurting for capital. And from a strategic perspective, it could hurt. Both are still innovating services that are in the early stages of development. The task of integrating their technologies with Google would slow that process down. That would be bad for users of Facebook and Twitter, and it would take out exactly the kind of competitors Google needs as it strives to innovate in the social media arena.
Talk about Google buying these companies isn’t new, but chatter is likely to pick up now that Schmidt has tipped Google’s M&A hand. While deals involving smaller, search-oriented companies like Russian engine Yandex and mobile-ad company Jumptap would make sense, it’s hard to imagine Google buying a bigger, established company without creating more problems than it aims to be solving.
0 comments:
Post a Comment