In a note to clients issued earlier today, RBC Capital Markets analyst Jordan Rohan said recent inquiries made by him and his colleagues found that downloads of Skype software are declining and that growth in new users has begun to taper.
Our recent checks indicate … that the user growth is no longer accelerating. Ebay may need to spend on marketing or offer price promotions to reaccelerate growth heading into 2007. If eBay chooses to do both, margins would fall short or our revised forecast.
Rohan indicated that Skype, which provides presence-based VoIP and instant-messaging (IM) sessions over the Internet, is on track to record 51 million downloads of its free software in the third quarter. The analyst believes that number is slightly lower than what Skype recorded in the second quarter.
Rohan also wrote that Skype is likely to add about 18 million new users during eBay’s fiscal third quarter. That would be about the same number of new users that Skype added in eBay’s fiscal second quarter.
As a result of his findings, Rohan lowered his 2007 revenue estimate for Skype to $400 million from $475 million. He also reduced his price target for shares of eBay to $31 from $32 and slashed his estimate of eBay’s 2007 earnings to $1.18 a share from $1.20 a share.
Notwithstanding RBC’s research note, I think eBay might have bigger problems than Skype.
Even if growth in downloads and news users is slowing, Skype has a large base of regular users that could be persuaded to use the peer-to-peer communication service with greater frequency. With more collaborative features, video calls and videoconferencing, and a promotional campaign that stresses Skype’s strengths — integrated presence across communications media (which improves the productivity of communications), improving voice quality, and attractive inbound and outbound calling rates to accommodate one’s contacts who don’t reside within the Skype cloud — there’s no question that Skype could mine greater riches from its existing users.
In many ways, Skype is what SIP-based communications should have become. It allows for NAT and firewall traversal, incorporates various modes of communication with built-in presence, and it facilitates session mutability, allowing users to start a discussion via instant messaging and then switch it to voice as required. It also allows other participants to be added to a discussion already in progress.
Standards-based SIP should have filled the role that Skype occupies, but it seems to have gotten lost in an IETF labyrinth of technological overreach, logistical fog, political gamesmanship, and general incoherence. It’s a shame, really, because while Skype continues to do many things right — and still has better prospects than the RBC note might lead you to believe — it is no substitute for a more open approach that would allow for interoperable IM and voice communication spanning other voice-capable IM platforms.
Let’s hope somebody in the industry — Google, perhaps — sees that opportunity and seizes the initiative. There’s still time for somebody to get it right.