Apple Should Buy Skype

I know. Enough already with the all of the predictions over the fate of Skype and who might acquire them, right?

But give me just five minutes of your time. I want to explain to you why I think Apple should buy Skype.

Let’s take a look:

  • Apple has the cash. Apple is sitting on $18 billion in cash. Spending $1 or $2 billion on Skype (eBay’s reported asking price) is a drop-in-the-bucket for them.
  • Apple owns distribution channels. Apple has all of the necessary sales and marketing channels to GROW Skype’s usage and bottom line. They don’t have to find or create – all they need to do is leverage!
  • Apple has the hardware, but understands software. Apple has an entire line of products that could run all or portions of the Skype technology. They can GROW Skype’s usage and bottom line by shipping Skype pre-installed on their desktops, laptops, cellphones and the iPod Touch. Oh and they have one of the best marketing department’s ever, so they can reach “mainstream” customers to drive adoption. Don’t forget about their retail outlets either, where Apple can take the time to explain Skype’s value to consumers and prosumers.
  • Apple loves tying their hardware to their software. The iPod is tied to iTunes. The iPhone is also tied to iTunes, but why is a cell phone tied to media software? Would it not make more sense to tie a cell phone to a communications software? I think so. Plus…
  • Apple’s got clout. And has shown it with cellular carriers (look what they got out of AT&T). They also have enough money and marketing might to ship an iPhone or iPod Touch with Skype as the native communications software – allowing iPhone and Skype users to have native VoWiFi and Vo3G capabilities, in addition to all of the other things that can be done with Skype.  If any company could push the hand of cellular carriers and change user habits, it is Apple.
  • All signs point mobile as the future of communications. When it’s all said and done, the future of communications is mobile and that is where Skype’s true promise lies. Who want’s to be tied to their computer or desktop phone? I don’t. Skype going to a fixed line telephony (or VoIP) company, a software company or a gorilla of a hardware player would be a waste.

Well, my five minutes are up. What do you think? Skype to Apple, or to someone else?

VoIP CommentaryApple Should Buy SkypeI know. Enough already with the all of the predictions over the fate of Skype and who might acquire them, right?

But give me just five minutes of y…

Comments

  1. iSkype sounds so good too.

  2. The iPhone is tied to iTunes because the iPhone is as much a media device as it is a telephony device (and they get lots of revenue from iTunes sales…). Also, Apple has shown that it does not have the clout it did in the first year through the new plans with AT&T and the guys in Europe that are more traditional. Further, AT&T will have nothing to do with Skype on the handset in terms of voice over 3G and that unlimited data plan.

    Indeed Apple would be an incredible marketing force for Skype if they acquired them, but I just don’t see Apple getting into the cheap minutes business which is where the bulk of Skype’s revenue comes from.

  3. Apple also has a few chat users already using IM on the desktop through ichat. They are using AIM as a back end which might make moving these users to Skype a bit sticky.

  4. @ Shawn K

    That would be great, except Google hasn’t really done a great job of integrating any of their acquisitions (with exceptions in their advertising units).

  5. @ Jason

    Cool to see you reading and participating here.

    I agree with your point regarding the iPhone as a media device and that it drives lots of sales for them (I never bought an MP3 until I got one), but I still believe that Apple could extract significant revenues from Skype – and I am talking about more then cheap minutes.

    The iPhone needs functionality such as IM (like BB messenger) for iPhone users, if it is going to be a business device, why not be able to do real conference calls, not to mention that video calling will eventually make it to the handset. As a company (Apple) who many state is on the “last legs” of a long run, wouldn’t some new cutting edge technology that can be integrated into all of their current offerings, give them back an “edge” so to speak?

    There is more then cheap minutes to be had with Skype – for the right company.

  6. @ Ted

    I agree that integration and migration are never easy – but it’s not impossible.

    On the iChat front, I never knew how damn popular it was until I started asking people…for some it is like crack…they use it all day long!

    Apple has the “type” of mainstream, yet savvy, technocentric customer that would love Skype.

  7. As an Apple fanboy and a Skype user I think it would be a brilliant move for Apple. As an Asterisk professional, one whom has been testing Skype for Asterisk, I see things down the pike in terms of PBX integration that would really be interesting and help Apple break further into Corporate IT.

    I look at it this way: Services like gmail have made it very handy to jump from phone to computer to pda for email. Imagine the same sort of ease with telephony…

  8. Honestly, I don’t see it. First, Skype has yet to demonstrate it is worth anywhere near what eBay paid for it (or now ludicrously is asking for it). Sorry, but it’s called math, and it doesn’t add up. Hence eBay shedding it (besides the fact no one ever saw the logic in their initially buying Skype to begin with, but that’s another matter).

    Yes, Skype is popular. It is also used world-wide. I’d be very curious to see, however, how many of Skype’s users have ever paid for a phone call (currently the only revenue stream Skype can show). Truth be told, every single person I know with the exception of one (and that was a few years ago) uses Skype as you’d expect: to make free Skype-to-Skype audio and video calls. Translation: the majority of Skype users are looking for something cheap. And this is not where Apple plays. It never has.

    While it is nice to think of Apple buying Skype from an emotional point of view, that’s the only way I see it happening. I see no compelling case for Apple to want to buy Skype.

    From a technical point of view, I seriously hope Apple does not. Skype’s protocol is anything but open, and while Apple’s been accused of doing all manner of things proprietary in the past, their corporate culture since shifting to OS X has been to incorporate far more open standards/protocols. Beyond all the standard open-source *nix goodness in OS X (Apache, Perl, PHP, OpenLDAP… the list goes on and on), even their latest foray into things like the mini DisplayPort adapter demonstrated this, as they are working to make it an open standard. Skype’s business model does not fit into this, nor does it push forward the openness I suspect most in the VoIP industry would like to see.

    Far more in line with the way Apple has done things would be for them to integrate some open-source telephony project such as some form of Asterisk or FreeSWITCH into OS X and build around that. It would involve using yet another open-source package (something they have no problem doing) and adding “the pretty”. Toss in using open standards such as SIP, and the possibilities are far more interesting from my perspective than trying to hook into a proprietary solution (e.g., offering a PBX solution with every copy of OS X Server).

    Unless, of course, Apple were to open the Skype protocol. Though even that I don’t see happening unless Apple thinks they can take on the whole VoIP industry, which I’m not sure I’d be keen on. Seriously, other than Skype encrypting their data and making use of the P2P concept with their Super Nodes, what exactly do they offer that can’t be done with open standards?

    But regardless, the math and differing business models just don’t make sense to me. So in short, I just don’t see the “fit” between the two companies.

  9. @ Frank

    Ahh. Feels good to be back :)

    Even though eBay overpaid – eBay’s fault, not Skype’s – they do have real revenues ($153m in the last quarter) and are profitable (I believe).

    I think the key you are missing here, since it seems like you agree that a telephony play would work for Apple, is the “build vs buy” scenario.

    Sure they could build from scratch, but why and at what cost? You’d have to compare the cost of buying something has a name, revenues and profits.

  10. Garrett,
    Seems like we both blogged about Skype on the same day :-)
    As much as this would be nice for Apple, Skype’s current moves doesn’t indicate any desire of being tied to a single device.
    The way I see it, Skype is trying to bring as many eyeballs as possible to their solution by integrating it over multiple mobile handsets and other consumer devices such as the Asus Videophone. Going with Apple will limit that move and hinder them against other VoIP players.
    Think of Nokia letting Skype on their handsets – it’s similar to Nokia holding Symbian and having the other handset vendors use it – they do, but they don’t like it.
    Apple can really cause mayhem to other vendors this way, but Skype might actually lose from it in the long run.
    Tsahi

  11. @Garrett

    Couple of points. First, revenue is not profit. I recently heard Hewlett-Packard did ~$118.3B in business last year, with ~$8.3B in net profit. Then looked up and saw that Apple, on the other hand, did ~$32.5B with ~$4.8B in profit.

    Now GM, on the other hand, did ~$181.1B. So you want a piece of that? I sure hope not, because their net profit was -$38.7B. To be clear, though GM had more revenue than HP and Apple COMBINED, they LOST almost 39 BILLION DOLLARS. So please don’t quote me “real revenue” numbers. That’s pure crap.

    Second, I never said anything about build vs. buy. That’s a red herring. You keep dancing, but you’re not saying anything other than emotional drivel. Sorry to be blunt, but you’re talking with your heart, not with your head.

    To put it simply, what’s in it for Apple at the end of the day? If you have illusions that Apple is peace and love, holding hands and singing “We are the world” while everyone drinks a Coca-Cola, you’re kidding yourself. Apple IS in the position it’s in because it is a very shrewed business. It has the cash because it operates AT A PROFIT. You don’t do that by spinning off in tangents that don’t support your business.

    Yes, Apple folks love music, and they created the iPod, iTunes Store, etc. But let’s not kid ourselves. What they did was figure out whether they thought they could make a PROFIT doing something they loved. When the math added up, they went for it. What helped was that they do love music, so when passion meets business opportunity, look out.

    Sure, the day may come when VoIP offers a profit center that’s worthwhile for Apple. But honestly, why are most folks involved in VoIP? It’s because it’s CHEAP. People are looking to save money. It’s pretty simple. It’s why I bought a few Call-In-One adapters from SIPPhone.com back in 2005, why I started playing with Asterisk then FreeSWITCH, and ultimately led our organization to replace an aging Nortel system with a Cisco CallManager. And it’s what I see most folks looking for today.

    Yes yes, “unified communications”, bonding your phone to your CRM software, blah blah blah, it’s all nice and well, and yes important to call centers and such, don’t get me wrong. But overall, I would bet you dollars to donuts that what the majority of companies using VoIP are after is nothing more than cost savings. VoIP means the potential to leverage the same IT staff that supports your PCs and networks also now handling your phone system (vs. the archaic old days of having to call in–and PAY–a major telco to do silly things like add extensions or adjust your auto-attendant). It means your phone system is just another computer to manage. And, obviously, it means lower phone costs if you can piggyback off your Internet connection (especially between branches/remote offices).

    Obviously, the VoIP industry has much potential for profit. Hardware device makers like Aastra, Grandstream, Polycom, Cisco, etc., make money from the physical gizmos they make. And outfits like Bandwidth.com hopefully are generating a profit by offering the “pipes” that companies use with their VoIP systems. And then there’s the myriad of businesses in the middle doing everything from selling the hardware/software (e.g., VoIPSupply.com) to VARs and consultants who offer their expertise to companies setting up new or replacing old PBX systems, etc.

    So how does buying Skype add to Apple’s bottom line? If the best you can offer is that Apple could integrate Skype into the iPhone, you’ll have to do better. Because I’m sure that’ll happen regardless, in one way or another. And right now, I don’t see Apple doing something that likely violates whatever agreement they have with AT&T.

    AT&T isn’t exactly my favorite carrier (not that I can think of one that is), I don’t think they were so stupid when they made their 5-year deal with Apple that it didn’t include some legal-ese to limit/cripple/prevent AT&T’s network being used in a way that truly hurt their own profits. (Hence the restriction of apps to use the 3G network for VoIP, etc.)

    My point was that if Apple were to get deeper into the VoIP space, it likely would NOT be as an infrastructure player initially. I could see them potentially offering some form of VoIP PBX setup on their server OS, and maybe putting their weight behind ENUM and other initiatives to help push open VoIP standards. And maybe one day they’d offer more in line with Skype’s business model (though I don’t really see what Skype brings to the table that’s worth anywhere NEAR what they’re asking for), but right now I just don’t see it. The math still just doesn’t make sense.

    If I’m missing something, please enlighten me. Give some concrete examples/conjectures/wild-a** guessing how within, say, 5 years Apple could have Skype pay for itself, beyond how it’s already generating revenue. I can’t think of anything. I’m not trying to be a jerk; I’m just being painfully blunt. If Apple integrated Skype into the iPhone, it would still remain crippled at the very least here in the U.S. until their deal w/ AT&T ends. So what does the Apple/Skype pairing add to the equation?

  12. Connor Kolb says:

    Garrett,
    I believe that this is a great idea, this is because of the price of skype making easy to market to the people. Also it would be great like you said the other day is to market it to people with family members that do not live close to home so that it is not just a phone call you can see them which i think is great.

  13. While the fit is nice I don’t see this happening. One sheer economics. Skype isn’t worth a billion. Apple already has more iPhone users with one in their hand than is logged into Skype at any one time. Two, Skype doesn’t provide an efficient presence service (I’d argue Twitter would be more interesting but it is not Apples business!) and Three the carriers simply aren’t letting them. I actually believe that Skype’s model is out of date just like the rest of telephony in terms of negotiating connections. That’s where the real opportunities lie.

  14. Apple, strategically, can’t miss out on Skype again. They were lucky eBay got it the first time and not Google. I don’t think Apple can afford to give Google more clout in the enterprise, and I think all who would read this blog realize Skype has not even begun to touch its potential in this area – if at all.

    In the right pockets (deep pockets) Skype has enormous business potential – eBay has demonstrated they simply don’t get it, or don’t want to.

    I am also of the mind that the iPhone and Skype has fascinating synergies, this alone may make the purchase worthwhile.

  15. In regard to your response to Fred’s comment, I have to say that Apple would be much better off acquiring skype rather than building a platform from the ground up.

    Apple’s core competencies do not lie in voip telephony and they would end up spending gobs more trying to build a platform as compared to buying one.

    Skype would simply add another revenue stream to Apple’s top line. Now I understand that this would be something new for Apple and it would require some time to learn how to manage the platform, but like you said, with the amount of cash on hand, Apple should have no qualms about trying to acquire skype.

  16. I used to think Apple should buy Tivo. But they don’t really need to do it. Andy buying Skype is risky to the core business. Apple generally sticks to what they know and they do it extremely well.

    As a side note — can you provide any feedback on Bandwidth.com’s Phonebooth VOIP product? Would be interested in your perspective of this service that seperates hosted voip from SIP trunks. We’re considering it for our office.

    Thanks!

  17. @ Frank:

    I have thick skin – don’t worry.

    I did mention revenues, because profits are not disclosed. Everything I have heard (and I am pretty close to the scene here) is that they are profitable. What is that profit number? I don’t know.

    My experience in working with Skype directly, though, is that the eBay team has no idea how to monetize Skype. I mean really monetize Skype. There are hundreds of millions in profits with what is there today – they just need a company that knows how to make money.

    Apple is such a company (as their balance sheet tells you).

    Secondly, you did talk about Apple being better of “building”, when you wrote:

    “Far more in line with the way Apple has done things would be for them to integrate some open-source telephony project such as some form of Asterisk or FreeSWITCH into OS X and build around that.”

    So are you saying that when you said that they should build a top an OS platform, that you did not open-up a discussion about build versus buy? C’mon Frank…

    Third, I think you are way too linear in your thinking. I once read somewhere that entrepreneurs think with their right brain, while management thinks with their left.

    Use the right side of your brain for a moment (that means you’re going to have stop thinking in a straight line and get past the balance sheets) and think like an entrepreneur would.

    You said that Apple “loved” music (besides, love is an emotion and according to you, emotions shouldn’t play a role in a business decision). Bullshit.

    Apple foray into the music biz has little to do with “love” at the core. Apple is an entrepreneurial company that saw a way to revolutionize the music industry and make a handsome profit at the same time.

    I don’t think iTunes and the iPod came out of love – it came from right brain thinking (because I am sure there were a gazillion reasons why both would fail).

    Do you think that the iPhone came about due to a love of cellphones? If your logic of Apple doing what they love is true, then the fact that they came out with a cell phone implies that Apple has a love of voice and that would support my idea.

    So, here’s my point.Today a Skype acquisition doesn’t make much financial sense, but tomorrow (I.E. the future), it makes a lot of sense.

    As WiFi and or Wimax become more widely available, why do you need AT&T? Imagine transitioning the iPhone’s huge user base from AT&T to Skype in tandem with a WiFi/WiMax provider. Folks who now pay on average $100/m, can now pay half that. Easy switch.

    By the end of the year, there will be what, 45 million iPhone owners. You are smart – take a look at what type of monthly recurring profits can be driven with even small conversion numbers.

    Remember, this isn’t about monetizing current Skype users – it is about having a platform so they can take customers away from the incumbents – customers who are paying out their noses today and likely will do so in the future.

  18. @ Connor Kolb

    Very true. You could raise the price of Skype’s service 10-fold and still save folks a bucket-full of cash. Thanks for pointing that out :)

  19. Wow, where to begin. Will try to keep this one shorter.

    Regarding “build vs. buy” and “So are you saying that when you said that they should build a top an OS platform, that you did not open-up a discussion about build versus buy? C’mon Frank…” Uhhh… I’m seriously trying to understand what you mean here. No sarcasm. Just having a little difficulty, so bear with me. If this is a rhetorical comeback to my comment that I never said anything about build vs. buy, it’s a bit weak.

    Let’s be clear. If you look at OS X… here, hang on. I’ll do you one better. Take a look at all the open-source technology Apple has in OS X:

    http://www.apple.com/opensource/

    Now, how much of that did they “build”, if you’re determined to continue with this bogus track? That’s right, almost none. Yes, they contributed Rendezvous/Bonjour/zeroconfig code, as well as contributing to various other projects, but on the whole, they simply integrated the work that others have done. So if anything, this is an example of “buy”, just as your case for Skype. Ditto if Apple were to integrate some telephony engine like FreeSWITCH into the next release of the OS.

    And just to be clear, the whole FreeSWITCH is OS X thing is just pure fantasy on my part, as I’ve been toying with it on my MacBook Pro for awhile now. My point is that I see far more likely that Apple would integrate some other open-source package, since the cost would be next to nothing, than spending a ridiculous sum.

    No, it’s not a “platform”, but then honestly, other than Skype’s arrangement with whatever carriers it uses around the world to provide Internet-to-PSTN gateway services, what do they really offer? And as for that one piece, other companies like SIPPhone/Gizmo and a plethora of others have similar setups, so what’s so special about Skype? It’s fine for what it is, a consumer grade VoIP solution for basic communications. And yes, it’s better/easier to setup than straight VoIP. But it is NOT carrier grade service. The whole beauty of Skype is that it “just works”, bypassing firewalls and NAT issues by using their Super Node concept, where a system out in the open acts as an intermediary between 2 users both behind NATing firewalls. But if you’ve ever used Skype, you also know that when you’re in one of those Super Node-intermediated sessions, when the Super Node goes away, so does your voice/video call. And to get around that, you need to open ports on your firewall/etc. to avoid having to rely on a Super Node, and then, hey, you’re right back to needing about the same skills as any standard VoIP setup in the enterprise.

    Now the whole left/right brain bit, beyond being a bit outdated (the whole idea’s been debunked in research awhile back, but the metaphor continues) is also a bit aimless. But you at least did give a possible scenario for what Apple could do (the whole WiFi/WiMax angle). Yes, true. But again, what does Skype really bring to the table that’s unique here? Seriously. Why not buy another VoIP provider for far less and do something similar using open standard protocols? I just don’t really get the lovefest with Skype.

    Also, Apple already has IM, audio, and video support in its iChat program, so there’s redundancy there that I don’t see Apple doing. One thing Apple is notorious for is keeping their product line simple/clean. It’s one of their defining characteristics as a company.

    And on a similar topic, was listening to a podcast recently and one of the hosts made a very interesting observation; namely, that every product in the Apple line reinforces/supports its other products. That is, you buy an iPod, and it’s a natural progression to use iTunes… possibly on Windows initially, but hey, why not get a Mac at some point?… and then off you go. Ditto for the iPhone, etc. I’ve been trying to think of an Apple product that just hangs out there by itself, and I haven’t been able to come up with one.

    If this truly is part of Apple’s DNA, then any telephony play would also have to reinforce this dynamic. While Skype fits as well as any other solution, I just don’t see what makes it uniquely qualified in that regard. That’s all.

    Regarding my comment about Apple folks loving their music, that’s in reference to every MacWorld keynote (and even some Apple-only media events), where they always bring out a musician at the end (e.g., John Mayer, Tony Bennett, etc.) and always talk up how they like to remind themselves why they’re doing all this. Sure, it’s Jobs’ RDF at play. Good marketing and all that. But it seems clear that many of the folks at Apple DO love music. Odds are the iPod was thought of by someone at Apple that did. That Jobs & co. saw an opportunity there is pretty obvious. I harbor no illusions that Apple is altruistic. Hence my point that they are a shrewd business.

    But if you know your Apple history, you also know the iTunes Store didn’t show up with the first iPod. It wasn’t launched until almost 2 YEARS after the first iPod was introduced. Initially the iPod was just a competitor to every other MP3 player out there, just with a clickwheel interface. So it even took Apple awhile to really see the potential.

    There are far more thoughts in my head regarding Apple than I have time to enunciate, but let me just finish with this. It seems pretty clear that Apple is packed with very intelligent, hardworking, creative folks. How many other tech companies have the hardware/software capability Apple has to create their own motherboards, etc., and then matching software? Not many. And it’s often been written that the number of projects/ideas floating around in Apple is staggering. The best quote I can remember is one about how the way Apple continues to be successful is not in coming up with new/good ideas, but having the ability to say “no” to 1,000 good ideas in order to focus on one great one (heavily paraphrasing, but I think you get my point).

    Skype might be a good idea. I just don’t see Skype being a great one.

  20. By the way, sorry. That wasn’t so short. :-/

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