Meg Whitman (Republican) and Jerry Brown (Democrat) are in a close race for governor of the US state of California. Who would be better for Skype? IMHO, Jerry.
Let’s compare them on Internet access, net neutrality, and privacy.
I’d frame Meg’s positions as corporatist conservative so long as it doesn’t conflict with being a social conservative. Regulation is bad, regulation of corporations is evil, corporations are what make this country great, their leaders are the ones who create jobs and freedom.
So when asked about Internet access for all Californians, she’d say state government needs to get out of the way of businesses who’d want to serve them and cities shouldn’t compete with private companies to offer muni broadband or fiber backbones.
If you asked her about net neutrality, she’d say you want net neutrality but you want the government to stay out of it, that industry will make it work.
If you ask about strengthening and enforcing personal privacy laws, she’d support them in name only, saying she wouldn’t want to hurt businesses or interfere with public safety or national defense or to create new rights for sexual minorities or other people.
All the talent dedicated to replacing Joltid’s p2p engine have been reassigned to other Skype engineering projects, like its forthcoming platform for third-parties.
This begs the question: Why didn’t Meg Whitman buy the Joltid IP when it was vastly cheaper in 2005? In 2005 the only market for the Global Index was to iffy music sharing services without a business model.
Congrats to all for this stage being over. So will Skype’s next big liquidity event be an IPO or a merger? If M&A, with whom?
eBay’s release:
Nov 6, 2009
eBay Inc.
eBay Inc. and Silver Lake Investor Group Settle Skype Litigation with Joltid Limited
SAN JOSE, Calif.–(BUSINESS WIRE)–eBay Inc. (NASDAQ: EBAY) today announced that the investor group led by Silver Lake, which had previously entered into a definitive agreement to acquire a majority stake in Skype from the company, has reached a settlement agreement with Joltid Limited and Joost N.V. that gives Skype ownership over all software previously licensed from Joltid and ends all litigation currently pending against the investor group and eBay at the closing of the acquisition.
As part of the settlement agreement, Joltid and Skype founders Niklas Zennström and Janus Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 percent stake in Skype. As a result, Silver Lake and other investors including Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will together hold 56 percent of Skype and eBay will retain 30 percent. As previously announced, eBay will receive approximately $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million. The deal, which values Skype at $2.75 billion and is not subject to a financing condition, is expected to close in the fourth quarter of 2009.
“Skype will be well positioned to move forward under new owners with ownership and control over its core technology,” said eBay Inc. President and CEO John Donahoe. “At the same time, eBay continues to retain a significant stake in Skype and will benefit from its continued growth. We look forward to closing the deal and focusing on growing our core ecommerce and payments businesses.”
Commenting on the agreement on behalf of the investor group, Silver Lake Managing Director Egon Durban said: "We are very pleased to have the litigation resolved. We remain confident in a great future for Skype, and we look forward to working with Niklas, Janus and the other investors as partners to help the company achieve its full potential."
The investor group will no longer include Index Ventures, which has withdrawn from participation. Commenting on its decision to withdraw, Danny Rimer of Index Ventures, said: "We are pleased that Skype will now be able to put litigation behind it, and we wish Josh Silverman, his team and the Skype investors well in continuing to grow a great business. Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction."
eBay’s post-Whitman management gets credit for doing something right. Staffing the right executives in 2008. Letting the new leaders turn the startup into a company worth selling. Sending the right signals to potential buyers. Getting the deal done. Not rewarding the founders for their Joltid extortion. Nice way to turn things around!
Skype will fund its own expansion. Don’t expect cash infusions for acquisitions, infrastructure, labor intensive services, or advertising. Skype has been producing more than $10 million monthly in free cash. Skype’s roadmap will chew up all of it just for internal growth and to create cash reserves.
Skype will keep its overall direction and product strategy. Skype doesn’t need to rethink its business anytime soon.
The SEC pipeline of data will be gone. eBay’s 2009q3 10Q report (coming this October) may be the last detailed reporting of Skype operations and finances ever. Privately owned companies need not report performance unless they float stock.
Five product changes I expect from Skype in the next year.
Better P2P. Skype will first deploy a simple functional replacement of the Joltid P2P engine. They will improve it, building in six years’ of real world experience Joltid never had. Skype should be able to make its P2P network more resistant to Internet outages and blocking, more resilient in the face of damage to the peer fabric, more efficient in finding and routing connections between users.
Better video. Perhaps their own video codecs. Higher resolution video as cameras and PCs catch up. Multiparty video calls. Better use of processors, including video digital signal processors.
Skype Inside. A clearer platforming strategy, building on their experience with Skype Lite (clouds of Skype supporting thin, mobile Skype clients) and Skype For Asterisk (adding UI-free Skype clients to someone else’s servers). Think "Communications as a Platform," where you can build Skype messaging, presence, and calling into mobile, desktop, and server applications.
ID anguish. Skype has an immature user identity model, left over from instant messaging services in the mid 1990s. We’ll see greater conflict between Skype’s two identity systems. Skype’s consumer and corporate Skype names (user IDs) aren’t interchangeable although their users and markets overlap.
A little less anti-social. Skype’s great at talking with people you know. It does nothing to help me find interesting, entertaining, or useful strangers. Almost nothing (do birthdays count?) at helping me curate my friends and cultivate my relationships over time. Skype backed off from supporting its Skypecasts service (hosted calls with moderated Skype chat backchannels) and Skype public chats (web links to group text chats). Skype will research how to help people do more during a conversation (collaboration) and how to add more of the value found in other social media (discovery, ridiculously easy group formation, social gestures, non-conversational messaging).
Skype earned market acceptance when Oprah said "I love Skype" in 2008. Skype started to become a household name as Oprah brought guests to her her weekday show.
Thursday, a year later, she spent an hour in Skype’s honor. Nothing happened; Skype’s download rate didn’t budge.
The "Where the Skype Are You?" show aired Thursday, 05/21/09, at 4:00 pm in most US and Canada markets, rolling across time zones. U.S. Memorial Day weekend might have dampened the "Oprah Effect." A few weeks’ earlier, the Oprah Winfrey Show had a Nielsen Television rating of 5.4, 6,197,000 audience, and 7,110,000 viewers for the week of 04/27 – 05/03 2009.
Why didn’t Oprah’s Skype day work?
The small problem: The tone was wrong. It felt like an infomercial more than a celebration of broadband Internet’s ubiquity. Oprah’s delivery was wooden, the Skype conversations banal, video quality variable.
This episode must have looked great on paper. Skype reinforces several Oprah themes: Surviving tough economic times by using free or cheaper tools. The importance of family and communication. That we live in a connected world and affect each other.
Sadly, Oprah’s regulars already knew the Skype basics, having seen dozens of guest appearances over Skype. Skype day became a "best of" show; not the most exciting format.
The huge problem: Fans could not Skype Oprah.Unlike twitter, where Oprah created an account that everyone could follow and message, Oprah did not give out a Skype account for fans to befriend. People want to be closer to their celebrities so, for example, they followed Oprah on twitter; 1,182,301 at last count.
Why couldn’t a million fans Skype Oprah?
Twitter scales well for their news and celebrity users (ones with high TV ratings). Fame changes relationships from symmetrical (we friend each other) to off the charts. 1,182,301 twitterers follow Oprah, Oprah follows 14.
Could Skype handle an Oprah account? Or a Coke, a White House, or an American Idol account? What would happen if someone with a fan base used the web and television to invite a million people to befriend them in Skype? No PSTN, just in-network Skype activity. One user with a million friends.
Skype is engineered for the average user, with a handful of contacts and modest levels of activity. For the most part, Skype’s network is thin, flat, like the long tail in a power curve.
Power skypers, like Skype Journal readers and those who work at Skype or who use Skype for selling, may have a few hundred or a few thousand contacts.
Stressors come to mind:
Approval work flow. Can you imagine opening up your Skype client in the morning to approve a hundred new contacts? You might get through 100 in 15 minutes if you click ‘add to contacts’ blindly. 1000 per day at 6 seconds each? Almost two hours. A million? 1,666 hours, about nine months. For all practical purposes, this must be automated.
Client Account Storage. Can your Skype client hold a million contacts? No. Even if it was the only software running and you had all the memory in the world, your Skype client was never built to hold that large a contact list. While some enterprises have hundreds of thousands of employees and and millions of stakeholders, Skype for Windows or Mac will slow to a crawl and crash when loading that many contacts. Let’s say each new contact’s profile, avatar, and history uses .1 MB. The contact list alone would be 100k MB. Skype still thinks like a phone or mobile phone company, not like a social network.
Presence and Activity Streams. Skype updates your friends when you log on, log off, or otherwise change your presence. A Skype client would be very busy with hundreds of thousands of mood and availability updates. Presence data might be very useful to the celebrity if you want to narrowcast updates ("today’s show is about puppies") only to people who are online; no need for you to see the message when you log in next week.
Navigation. Skype’s UI is not designed to let search, sort, browse, discover, organize a million contacts. Not even ten thousand contacts.
Filtering contact activity. If you friend them, they will IM, call, and send you files. I sometimes have a dozen public chats and private conversations going at once; dizzying. What happens when ten thousand people try to chat with you during today’s financial conference call? You must automate your responses in ways that produce meaningful experiences and that route callers to relevant people and services.
Public vs. shades of private. Former eBay CEO Meg Whitman revealed a deep flaw in Skype’s identity system. Her MegAtWork Skype account was different than her personal account, and she could only log in to one at a time. Techniques vary, but a celebrity must be able to manage personal, family, workplace, acquaintances, and fans from one login, disclosing only as appropriate.
Swamping Skype supernodes and relays. What happens when one node on the Skype network connects with five to ten percent of the whole network? Can enough supernodes emerge in Chicago for Oprah, for example, to support all the new connections, updates and conversations? Will this hurt the experience of other Skype users in Chicagoland? How much of updating is done directly between a Skype client and Skype’s presence and client-backup servers? Can that client-server connection be swamped as the volume rises four to five orders of magnitude over the norm?
No server side messaging, voice, video APIs. No software developer in their right mind wants to build and operate their own IM gateway. Think thousands of Skype clients running on hundreds of boxes, each needing careful administration. Instead they want to talk to a web service API. Services like IMified (congratulations, Voxeo!) let you design and run bots for the AIM, Yahoo!, Microsoft, and Google networks in hours, and without your getting into the gateway business. Skype isn’t on the list because it doesn’t host a public web service interface to the Skype network.
Why would Oprah want a million Skype fans?
Why would a brand or celebrity want to have a Skype relationship with so many people? For companies on Cluetrain 1.0 (markets are conversations) and moving to Cluetrain 2.0 (markets are relationships), Skype offers opportunities for engagement and intimacy. Unlike blogs or services like twitter, Skype conversations are held privately.
How will Oprahs engage?
Broadcast alerts and information. IM news relevant to fans based on language, interests, location, and length of relationship.
Deliver services. You could sign up for Oprah’s book club, update Oprah’s magazine subscriptions, get the link for the episode you missed, get local show times for next week, or suggest a show topic. Harpo Productions could support those services through a blend of voice mashups and call centers. How about Skyping an Oprah account that played a Skype video of her last show, or a show on demand?
Bring fans together. Introduce fans with similar interests to each other. Host thousands of small salons in Skype public chats before or after a show, or about a theme or a magazine topic. Help the millions find others to solve problems, share burdens, and make sense of the world.
"Meg 2010 – A New California" is the site tagline. Yet the language that follows is Reaganesquely nostalgic. "A New California, simply put, is returning California to the time when it ranked first among the nation in prosperity, education, and quality of life. Meg Whitman believes that, together we can rebuild our Golden State."
Henry Gomez, former eBay marketing SVP and a Skype president, is one of the people behind Meg’s online presence.
The design elements are clever. The blue-green coloring taps into democrat and lefty color palettes; you cannot win statewide in California without getting some of the left and center. Meg standing by a redwood tree for the environmentalists. The masthead typefaces are very Californian, going back to our Arts & Crafts movement.
I particularly like the use of "The Power Of Many." "The Power Of Three" was Whitman’s/Gomez’s campaign slogan for buying Skype. The "three" were eBay, PayPal and Skype, each helping the others speed growth and profitability; it convinced shareholders to spend billions buying Skype.
The Power Of Many is a bandwagon appeal to tell personal stories; we’ll see if that works. Personal storytelling is at the heart of political activation. It was a core grassroots cadre-forming technique used in the record breaking political campaigns of Dean, Kerry, and Obama. Encouraging those interested in Meg’s campaign to share stories of pain and loss, of hope and inspiration, those stories bond both teller and listener to each other and to the campaign that fosters those stories. The story sharing service runs on Tokoni, of which Gomez is a director.
Tokoni, a startup funded in part by eBay, is full of eBay alumni. Alex Kazim, another former Skype president; Mary Lou Song, eBay’s third full-time employee; Brian Sweeney, an eBay technology executive; Annette Goodwine, an alum of eBay’s corporate communications team; and Rajiv Dutta, another Skype president. According to MegWhitman.com,
Tokoni, Inc. – Website and Online Media Tokoni, Inc. is a company dedicated to shaping the next generation of social media by creating communities that allow anyone, anywhere, to have a voice. Founded in August 2007, Tokoni breaks down social content and connection barriers and leverages the Web’s natural ability to enable a shared understanding around issues, individuals and brands. Tokoni is developing Meg’s Internet presence for the campaign.
The campaign site is paid for by the "Meg Whitman for Governor Exploratory Committee." In the US, exploratory committees are how political candidates raise early money before officially launching their run for office.
While Tokoni is supporting Meg Whitman’s exploratory committee, that doesn’t necessarily mean all its employees endorse Ms. Whitman’s candidacy.
That was quite the quarterly report; lots of good news. Congratulations to the entire eBay team (including Skype, of course). But there is the Skype monetization issue to address. Following up on my other post Wednesday, I think I found one way to contribute to this while at CES. Bottom line: it can bring in more Skype registrations of eBay members (@ $0.38 Skype revenue per account per quarter), increase the fun and enthusiasm associated with participating in eBay auctions while minimizing desktop real estate and probably is the most virally intuitive way to justify the Skype acquisition.
In Wednesday’s post I drew attention to the eBay Tab for Skype available for eBay U.S. members. It has significant usability issues and definitely results in a negative user experience. You mentioned in the analyst conference call Wednesday that priorities for 2007 include a focus on improving the user experience and experimenting with Skype to increase the fun and excitement associated with an auction. (BTW, Jordan Banks, Managing Director for Canada, at a presentation in Toronto last night, reinforced that theme when he talked about the importance of understanding user behavior and finding an action point within 2 clicks.)
One of your eBay and Skype developer partners, Germany-based PamConsult, has already developed a solution. (Their Pamela-Systems Call Recorder is ranked third in terms of Skype Extras Downloads.) In fact, their eBay Skype Tab has been licensed by eBay Germany, eBay France and eBay U.K. Based on the slide show of screen shots below enhanced by an accompanying video and a discussion with one of the principles of PamConsult at CES, their eBay Tab for Skype:
provides a positive user experience,
allows an eBay member to carry out ALL their major eBay activities within a Skype Tab and
basically elevates their eBay activity to the level of Skype IM activity within the Skype client both in terms of delivering real time information and creating a truly interactive experience
has the potential to virally drive Skype subscriptions by eBay members.
The user experience provided by this version of an eBay Skype Tab brings to the table:
a user login that is accessible and visible — note the same screen also shows the day’s top auctions
an eBay search capability for logged-in members
complete item descriptions with the Tab itself (no need to open a web browser)
a bid confirmation screen
real time notification of the upcoming end of an auction
options for user determined parameters
as well as access to My eBay
appeals directly to both buyers and sellers (whereas SkypeMe buttons are targeted at sellers to install on their listings)
To provide a more real time experience (pardon the German but you get the flavor):
Bottom line is that all eBay members can participate interactively in the full eBay auction process within the Skype client, obtain real time information and switch quickly between eBay and Skype activities. Did I mention it also saves on desktop real estate? And, most importantly, it has viral potential.
Merging and integrating acquisitions is not trivial; been there, participated in that! But, aside from generating more revenue for both Skype and eBay, this situation demonstrates: the developers of a product must be passionate about what they are doing. The Pamela team understands both eBay and Skype infrastructure as well as the Skype and eBay user cultures in a way that would take months if not years for an internal synergy between eBay and Skype to develop. (I have had experience with situations where “big” companies thought they could do a better job than a dedicated solution provider on an infrastructure task and eventually came back to the solution provider to get the job done right.) And it did not go unnoticed that this solution has been licensed by the two eBay European subsidiaries whom you highlighted in the analyst conference call Wednesday.
Let me do a calculation associated with monetization: Skype generates $0.38 per registered account per quarter (~$1.52 per year). With 97 million eBay U.S. members that represents a minimum sustainable market size of $148 million for Skype. Now, if one could just raise the revenue per registered account! Or considering the North American Unlimited Plan, at $29.95 per year, the market size to consider booms to over $1.4B!
BTW, PamConsult was participating in the AMD booth demonstrating eBay auctions through an ATI set top box via the Windows Media shell within Windows Vista. Imagine eBay auctions for the SuperBowl championship clothing immediately after the game!
Meg Whitman (Republican) and Jerry Brown (Democrat) are in a close race for governor of the US state of California. Who would be better for Skype? IMHO, Jerry. 
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