Looking at the recent Telecom Paper report about Skype and their profitability one has to realize that the law of large numbers is starting to apply to the telecom minutes mover. Their growth by percentage actually is slowing down in percentage of registered users logging on by month, but that's to be expected as the user base increases, the actual percentage will decline for a while during a customer acquisition phase. When it comes to paying users, the number that is actually more important, they saw a slight increase, but unfortunately, how much they were paying per user was down, and that's a problem, as Skype's ARPU drops as more people join their "network." That's why they are looking at advertising as a way to offset the "free" service.
Also revealed was the purchase price of QIK, at $150 million total over time. That makes Google's purchase of GIPS (a former client of mine) and Gizmo seem small. As a matter of fact, Google has likely paid less for GrandCentral (another former client), Gizmo and GIPS than Skype paid out to QIK's investors as a hedge against Google's patents with GIPS and the On2 purchase, which was likely the basis for the QIK purchase. Skype previously paid $27 million for Camino Networks. All this rolls into how Skype handles audio and video compression, and helps to reduce their cash payouts to others for licenses.
Now, what's not in the numbers. Skype made some moves to a new office in Palo Alto and is hiring more. There also have been some layoffs or ousters in the UK where employees were rumored offered to move to the USA and live in Silicon Valley, some to Estonia or to simply leave the company. Those moves have had a nice impact on the bottom line. Much of this was done under the guise of Josh Silverman, but executed under the new CEO Tony Bates, so this is not really a fair scorecard for Bates to be measured by yet. The next quarter though will be his third, so by then his efforts and those from their lead investor, Silver Lake Partners will begin to show. Silver Lake is heavily involved in the decisions at Skype and the management team that's there now. Also likely impacting profits was the payout to Josh Silverman to leave. Check the Edgar filings to see what that number was.
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