Skype Outruns MySpace
by Natalie Pace
08.11.06
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Skype's flown past MySpace. But both cases are even more confirmation that "free" rules cyber space.
Skype, which all but gives away long distance across the globe, reports it has 113 million users worldwide, while MySpace, a social networking site, celebrated its 100 millionth registered user on Aug. 8 (during the News Corp. (nyse: NWS - news - people ) annual earnings call, as if on cue).
Both these companies exploded out of nowhere less than three years ago, and both are in the top 10 most trafficked sites, behind Yahoo! (nasdaq: YHOO - news - people ), Time-Warner (nyse: TWX - news - people ) Network (AOL), Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ). (Skype is included with eBay (nasdaq: EBAY - news - people ).)
It turns out that free VOIP (voice over Internet protocol) long distance on Skype is slightly more attractive than cruising cyberspace for new friends on MySpace.com. But the world’s two fastest growing sites have a couple of things in common. While their main product is given away to the consumer, the companies are starting to rake in a whole new generation of revenue for giant corporations, like eBay and News Corp, owners of Skype and MySpace, respectively.
As Rupert Murdoch noted in the last News Corp. earnings call, "One out of four people in America are interacting with [MySpace] content and services. To have achieved this in just one year is remarkable."
What's even more remarkable is that News Corp. picked up MySpace last fall for $629 million at a time when Wall Street thought the crazy Australian was overpaying by at least $400 million. By comparison, Skype was purchased by eBay on October 14, 2005, in a deal reportedly valued at a total of $4.1 billion.
While News Corp. does not break out the numbers of MySpace, the company signed a $900 million "search" deal with Google this week, which means that MySpace has paid for itself in under a year, with significant upside left. According to Peter Chernin, chief operating officer for News Corp., "We would hope and expect that we would deliver a greater amount of profitability. This should be a deal that generates significant, incremental profits." Both Chernin and Murdoch admitted that they are pleased to be attractive to so many partners, and should "easily" exceed their previously projected $500 million in annual revenue from their Fox Interactive sites.
Total Internet : Total Audience 172,907 492,975 1,793.6 Yahoo! Sites 128,671 39,680 326.5 Time Warner Network 120,606 17,939 293.9 Microsoft Sites 117,679 19,266 193.3 Google Sites 102,802 10,154 42.7 eBay 77,752 11,488 77.7 MYSPACE.COM 52,342 30,187 188.1 Ask Network 52,339 1,874 21.6 Amazon Sites 49,040 1,793 21.1 New York Times Digital 38,132 471 11.9 Weather Channel, The 36,296 844 11.5 YOUTUBE.COM 13,364 613 37.9
Source: comScore Media Metrix (Note: comScore Media Metrix is a division of comScore Networks, Inc.) Top 10 Internet Properties: June 2006
Total Unique Visitors (000)
Total Pages Viewed (MM)
Average Minutes per Visitor
But there are others also making money off these hot companies. Just as a new breed of miniature speaker components has flourished under the halo effect of Apple Computer's (nasdaq: AAPL - news - people ) iPod, new products, partners and monetization models are sprouting from the enormous success of free VOIP long distance. NetGear has a new Skype phone that fits in the palm of your hand and allows free wireless long distance for Skype users, who are free to roam anywhere in the house or office. NetGear's Skype phone should be available this year. Preorders for the Skype phone are available now on Skype.com's shopping page for $299.99, taking eBay even further into online retailing, striking first in a colossal new marketplace.
NetGear's CEO Patrick Lo reported on Aug. 3, on the Forbes.com Video Network, that preorders for the NetGear Skype phone are "strong and healthy," and he hopes to attract at least 12 million to 15 million "diehard Skype users" from its user base. Of course, there are plenty of other companies that want to take a piece of the VOIP phone market from NetGear. Belkin has a Skype wireless phone with a price of $189.99, and Earthlink has vowed to bring the price point lower--indeed as low as $50 to $100 according to some reports -- with its own model . But even a million phones at $100 each would add a significant chunk to the top line of NetGear's $491 million in annual sales, and positions it to stake out territory in one of the most robust new marketplaces in the world.
Will Earthlink, with its fee-based, bundled Internet and VOIP service, make significant gains into Skype's dominance of the VOIP market? Will NetGear continue to expand its presence as an award-winning provider of wireless technology products, and produce and sell a few million Skype Wi-Fi VOIP phones before Christmas? Will free wireless Internet phone calls destroy Ma Bell and the cell phone business?
What is true is that there are a number of small cap technology companies that are positioned to do well, under the aegis of the new Internet giants--MySpace and Skype. When free rules, you, the consumer, win. But in this case, so do eBay and News Corp. (owners of Skype and MySpace respectively), and, potentially, a whole new breed of small cap companies, like Earthlink and NetGear, that are still largely flying under Wall Street's radar.
