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Thursday, September 15, 2005

eBay + Skype = Stimulant for mass adoption of IMS?

What are the implications of the eBay/Skype on the telco industry? I don't think the financial analysts have quite got it yet. I also think this news could be a stimulant for faster IMS adoption.

I asked Dr Kenn Walters, Head of the IMS Practice at our parent company STL (www.stlpartners.com) to give his view. Kenn's been a senior exec at major fixed and mobile operators in 3 continents, and a consultant to most of the NEPs and IT vendors over the last 29 years of his career. Here's his take:

Ebay is a massively successful internet company based around online auctions and online payments systems. It has agreed to purchase Skype, which is a rather small, non profitable company specialising in VoIP and chargeable connections from VoIP to other telephone services. It's main assets are 54-60 million users. Skype has recently been moving towards becoming a VNO (Virtual Network Operator) and has started partnering with Mobile Operators (e-Plus in Germany is the big recent news).

Most financial analysts are saying that Ebay is paying too much money ($2-$4 Billion in total over the next 3-5 years) for a company that isn’t yet making money and whose technology could be replicated for $500 million - $1Billion, a substantial amount less than the purchase price. On top of that the service benefits that have been announced so far by Ebay and Skype execs don’t seem to be that exciting (e.g. allowing voice and video VoIP for Q&A in Ebay transactions).

So, are these financial analysts missing the point? How can Ebay secure the value potential that justifies the huge price tag it has paid for Skype?

There are 5 key points to be considered: 1.) Reach (number of users), 2.) Access to new markets, 3.) The move into new technology areas (e.g. Skype’s deal with German mobile operator E-Plus, and its discussions with other mobile operators), 4.) New service (synergy) possibilities for the merged company and most important of all, 5.) TIMING.

My strong view is that if Ebay and Skype can integrate quickly and seamlessly, they will become a major new player in the telecoms market, and this will justify the price tag. The key point for IMS watchers is that IMS will play a critical role in enabling them to realise this opportunity and, as a result, will stimulate mainstream operators (fixed and mobile) to speed up their adoption of IMS so they can compete.

Here's why:

Reach and Access to markets: Skype gives Ebay and Paypal (which Ebay owns) access to areas of geography where they have been previously weak, notably Scandinavia and the rapidly emerging areas of Asia such as China and India where they have also not progressed rapidly. Skype has between 54 and 60 million users currently, and is rapidly expanding its user base. This is not true of other VoIP companies, and is unlikely to be true of new start up services driven by other non VoIP companies such as Google etc.

New Technology areas: IMS will play a key role in allowing the integration of New Technologies within the new company. Skype was moving rapidly towards becoming a VNO (Virtual Network Operator), even before it started discussions with Mobile operators and signed a deal with E-Plus. A VoIP VNO, with Mobile access and Operator partners who have mobile clients loaded on the handsets, is something very new. Effectively it becomes a FMC (Fixed, Mobile Converged) VNO, utilising a VoIP/IP backbone… No other new entrant into the VoIP “boom” has announced anything along these lines (yet). Such a tie up with the Mobile world, as well as the fixed telephony world utilising either VNO or services such as “Skype out” opens a world of transaction and access possibilities to the merged company.

New Services Synergies: If the integration of new technologies comes into effect, IMS will also enable new services synergies. For example, Paypal (owned by Ebay, remember) could be used effectively as a micro payment system substitute, with payments for reservations, fines, tickets, top ups, “pay as you go” type Skype calls to fixed networks (building on the 'Skype Out' service). These will be able to be delivered via your mobile handset, or via Skype PC connections to Skype business users.

Imagine using your mobile or laptop to check out the local theatre listings, reserve and pay for tickets without having to give your credit card number via the phone, and when the call itself costs you nothing! The speed and simplicity of this will be compelling. This is only one of many new services that could rapidly become available due to this merger.

The merged Ebay/Skype company needs to rapidly adopt IMS to allow the effective deployment of these new technologies and services. A successful implementation of an effective IMS strategy now becomes vital.

Timing: Ebay has acquired Skype with its user base intact and growing, and with new technology areas/services in the pipeline. And this is just before Skype started to make significant revenue of its own. This is clearly an attempt not only to expand the Ebay business line up, but to beat off new start ups in the VoIP area while doing so. It's also an opportunistic attempt to make a quantum leap ahead of the competition, before the competition can respond with their new technology developments and deployments. The interesting thing is that, now, "the competiton" is redefined. And this is where I say, "Watch out, telcos!"

Implications: At STL we believe that IF Ebay and Skype can quickly integrate and deploy the new technology and services, using effective IMS systems and strategy, they stand a good chance of being the number 1 provider in the market space I call "the application/service-backed VoIP/VNO evolving into the fixed-mobile converged space" for many years to come. The implications for both competitors to Ebay/Skype in their traditional markets (such as Google), or traditional Mobile and Fixed operators could be enormous, with early adopters in partnerships with Ebay/Skype likely to benefit. Resistors or competitors will be forced to play “catch up” with very limiting price points for their services being set by the early adopters and partners.

Do let me know your views - kenn.walters@stlpartners.com

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