What some people, including I, may have been missing about the Microsoft Skypedeal

Buried on page 97 of the Skype S-1 filing March 4, 2011 is the little tidbit of where Skype currently gets its revenue. 

Right now, Skype revenues are approximately $900 million per year.  The average revenue of $100 per paying customer represents around 9 million paying customers, which is nothing to write home about.   This revenue is virtually 100% from customers that use SkypeOut minutes (that is minutes of voice non-Skype termination).   Although not exactly representative, Vonage’s revenue for 2010 was approximately $890 million with an average $360 annual revenue per customer.

So, what is the difference?  More than 83% of Skype’s revenue is from sources outside of the USA.  This may be the target that Microsoft was actually looking to capture.  International customers are apparently trying to reduce their cost for international calls, using Skype as a mechanism.

Microsoft could be trying to exploit this in one of several ways (some of which have been discussed elsewhere).  Here are a couple of ideas:

• Drive international Xbox sales and Xbox-Live:  My kids use Xbox-Live to chat with their friends.  Being able to impulse call their friends’ phone numbers when they are not online will drive up the number of Xbox-Live points purchased.
• Continue the Services Push: Use Skype drive into the international audio, video, and Web conferencing business.  Make this seamless on mobile devices, Xbox, smart TVs, desktop, and Microsoft 365.
• Unified Communications: Push Skype as the best method to connect business communication systems to the public voice network (PSTN doesn’t seem to be the right acronym anymore) and integrate into mobile device directories.  The idea is that a company could contract with Skype for all international voice services in the countries where it operates without having to deal with multiple service providers.

All combined, Microsoft could use this to make a set of integrated international services.  By Skype for:

• Voice termination for a company’s VoIP environment, in virtually any country
• Audio and video conferencing, and Web collaboration
• Seamless directory services between corporate VoIP and employee mobile devices
• Expand the capabilities of Microsoft “Cloud”-based offering to tie communications with applications

However, even with the rosiest estimates of paying subscriber growth, Microsoft will lose billions of dollars simply because of the cost of money used to by Skype.  The upside is going to have to be pretty substantial to eventually recover this cost as well as the initial investment and additional investment in development, integration, and marketing.

On another topic, this is another analysis (albeit from Macworld) on the state of RIM and Blackberry is here.  It is very much consistent on my previous post on this issue.