One Day VOIP Calls Will be Free, says eBay

October 20, 2005 By Geoff Duncan

eBay CEO (and new Skype acquiree) Meg Whitman let slip an unusual notion yesterday: eventually, voice communication over the Internet will be free.

During its quarterly financial conference call yesterday, eBay CEO Meg Whitman responded to an analysts’ challenge of the online auction company’s just-completed acquisition of VOIP provider Skype with what might be an unusual prescient notion: eventually, voice communication over the Internet will be available for free, and service providers will have to earn money on advertising and fees for value-added services.

During the conference call, J.P. Morgan analyst Imran Khan challenged Whitman to elucidate how eBay planned to earn money from Skype, which many industry watchers have painted as an eventual victim of its own rapid growth. As Skype gains more users, the reasoning goes, an greater proportion of Skype’s voice service minutes will be unbilled “P2P” traffic between existing Skype users, rather than traffic between Skype’s network and standard telephone networks, for which Skype collects per-minute revenue. As the system adds users, the result would be a net decline in net revenue per service minute

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Geoff Duncan at 1:51pm 20th October 2005 Speak with the Journalist Objectivity switch in the OFF position for a moment, what I found interesting about Whitman's statements was that they seem to reveal eBay was not, in fact, utterly off its rocker when it purchased Skype. The standard wisdom was that Skype was due to implode under its own user base, and, after said implosion, would be acquired for pennies on the dollar for its core technology rather than its user network. eBay, conversely, is essentially saying: no no, the user base is one of the big reasons to buy Skype. Looked at from one persepective, eBay is essentially the only successful social networking operation out there: it's all about putting the right people together with each other at the right time. So they understand the value of a user community, and that cheap, appealing, best-of-class (free) communication within that community is absolutely crucial to its survival.

Anyway - the revenue model seems to be add-on services (potentially Skype-In and Skype-Out equivalents, along with commercial content, voicemail and other POTS features, audio streaming, etc., plus advertising, and that's where the economies of scale involved with an enormous user base pay off.
Ian Bell and Dan Gaul at 10:50am 20th October 2005 This isn't to be unexpected. As with any software on the web, once competition factors in, these things are basically handed out for free, built-in to IM software, etc.

But maybe I am missing something here. Why would eBay buy Skype and then turn around and say VoIP will be free in the future? What is the hidden revenue model here?