Thursday, September 22, 2005

I give in...

(...wasn't planning to blog on Skype, but I couldn't resist.) Lenn Pryor, head of Skype's developer program, came to eBay yesterday and gave us a download on the Skype platform. Lenn pointed out some pretty amazing (and fairly well known) results (55M users, 171M downloads, users in every country in the world) since Skype was founded two years ago. He also walked through Skype's efforts with developers (some really interesting apps coming out like Festoon, Jyve and SkypeForce).

Now, I can understand why there's concerns around eBay/Skype, focusing on things like fit, acquisition cost, competition, etc. That said, the value in any community-based online company (including MySpace, eBay, Paypal or Skype) boils down to how deep the moat is around that user community. If the moat is there and users are compelled to stay with the service/company, there's HUGE value per user based on layering paid services to that user. eBay, Yahoo! and Paypal are great examples, with massive communities enabled with free services (no cost to search and buy on eBay, find content on Yahoo or send $ to another individual via Paypal). How a site monetizes these communities ultimately should drive the market value, but given the prior success of these business models, one can safely assume some lifetime $/user as the basis of an acquisition.

So first let's start making some comparisons. MySpace was purchased for $580MM with 28MM profiles (~$20/user). Alibaba's market value was $2.5B ($1.0B investment/40% stake) with 18MM users ($139/user). Skype was acquired for $2.6B with 55MM users ($46/user). Hmm. Skype is growing 2-3x faster than Alibaba, with a third of the cost per user. Revenues for Alibaba and Skype (~$60MM for 2005) are also similar.

Now someone might rightfully point out that Alibaba is an eCommerce company where each user is more easily monetized. Two points here. First it's an eCommerce play in CHINA (with almost all of Alibaba's revenue coming from B2B subscriptions and NOT Taobao users). While the Chinese online market is growing fast, the $ revenue/user in China is safely 5-20x less than the $ revenue/user outside China (hence the value per user should be 5-20x less as well). Second, this is exactly why eBay's acquisition of Skype makes sense. What better way to make Skype more eCommerce/transaction oriented than combine its services to Paypal and eBay? Layer on an eCommerce/transaction service on that moated 55MM Skype users (growing 1MM users per week) and you have a revenue juggernaut on your hands.

The second question is as important. Does Skype really have a moat around its users? At first blush, it seems very simple for one user to switch from Skype to lets say Google Talk or Yahoo! Talk. But how easy is it to switch every one of the contacts that each of the 55MM Skype users have over as well? Would you switch from using AIM to Yahoo! Messenger because of a better Yahoo! commercial? Obviously not. You stay using AIM because of the network of friends, peers, workmates you communicate with through that service. Easy to move 1, very hard to move 100. That's called a moat for AIM, for Yahoo! and yes for Skype.

eBay/Skype might confound the nonbelievers, but thanks to Lenn, I've been fully converted (and yes I'm a mite biased). And for everyone who loved Yahoo's investment in Alibaba (per the above) but frown upon eBay's purchase of Skype, go to, download the app and Skype me :) SkypeID=RoChoy.

Erm... this is news?

According to Cnet yesterday, author Stephen Arnold believes Google will build an empire to rival Microsoft after "closely analyzing Google patents, engineering documents and technology".

Mr. Arnold "has concluded that Google has a grand ambition--to push the information age off the desktop and onto the Internet. Google, he argues, is aiming to be the network computer platform for delivering so-called "virtual" applications, or software that allows a user to perform a task on any device with an Internet connection."

Umm. Ok. Thanks for that update ;) Here's some more news. After a detailed analysis of my left foot, some gum wrapper and my daughter's Tickle-me-Elmo I've discovered that "Apple has a grand ambition to build a platform for delivering so-called "virtual" music. Rumors abound they may offer portable 'hardware' to play this music as well". It's probably just crazy talk...

Thursday, September 08, 2005

No I'm not blogging about eBay-Skype

Ah... entrepreneurship. Someone else blogged the blog I was meaning to write over at Check out Don't_Drink_the_Kool-Aid. Here's a blurb from the aforementioned blog which holds very true.

"If you want to be an entrepreneur, stop believing that ideas matter. That isn't what entrepreneurship is about. Entrepreneurs aren't idea people, everybody and their brother has ideas. Entrepreneurs are people that exploit ideas by matching them to market needs, executing them despite scarce resources and designing a business model that makes the idea profitable. If you want to be an entrepreneur, stop waiting. Start doing something. That is how you learn. Make entrepreneurship your hobby, until you can make it your career."

My wife and I graduated biz school in 2000, charged up by stories of friends and acquaintances who had ridiculous success founding start-ups, finding VC money and living the entrepreneurial dream (one of them happened to have founded, which was acquired for $400MM by Ariba - he now flies his personal jet to functions). Enlightened, we went to work for a start-up and ended up founding our own company within a year of leaving school. We sank every cent we had into the company (and loaded up on debt) and happened to raise $2MM in angel money as well. Two years later we had 17 employees, 70 automotive dealership customers and a break-even business. Ultimately we sold the company to the professional management we brought in.

Here's a few bits no one tells you.

1) First time entrepreneur (and no PhD/engineering degree)=No VC funding (no matter how many edits to your business plan). Without VC cash, the money came in ridiculously frustrating spurts. I can honestly say that I have never had more sleepless nights fighting ulcers, racking my brain for sources of funding. We traveled door to door selling our software, we eeked investments from friends of friends of friends, from customers and even asset sales (eBay was a great way to meet payroll).

2) Salary and Bonus (rofl). My wife and I made a whopping $35K in salary over two years. Every dollar raised went to payroll, sales calls, marketing or working capital. At some point when the electricity went out in our apartment did we realize we needed to get paid enough to cover the basics.

3) Entrepreneurship=Blue Collar. I was COO of my company. As COO I had two critical jobs. First was to test our software, over and over and over again (our solution was telephony software so that meant answering 500+ calls a day). Second was spending 30-40 hours a week on the floors of offices and in closets, fixing the very issues I'd missed testing. I stopped working on the business plan with the first customer we signed...

4) Luck is everything (but you have to make your own luck). The first distributor of our software came from us cold-calling hardware distributors (about 100). One of them thought we were 'Siemens Systems' and actually called us back (our company was 'Cima Systems'). The call woke me up from bed. The guy on the phone asked if Lisa was there. I told him she was in the shower. He laughed and said "Siemen's VP of Sales is in the shower? Who are you and why did you call us?" I then turned on the sales pitch and they ended being our first distribution deal.

Starting a company can be a hugely rewarding experience. In my case, that reward wasn't monetary. Personally, I learned to cope with significant personal risk, to take rejection in stride, to stick it out to the point of sheer stupidity (things curiously seemed to work out somehow) and to laugh a whole lot at myself and at the quirks of life in general. The experience was searing but left me a lot more capable to follow my own nose.

So have a great idea? Want to be an entrepreneur? Just remember its a blue collar job...
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