Why Skype Can't Make A Profit

Two developments in the last day show why Skype can't make a profit. First, in an eBay earnings conference call, eBay execs clearly were trying to hide Skype's real performance. And then today, the Gizmo Project announced that all VoIP calls to landlines throughout most of the world will be free -- forever. As Om Malik points out in his blog, the eBay conference call provided only "meaningless statistics...Skype???s performance is a riddle wrapped in an enigma."

For example, CEO Meg Whitman claimed on the call that Skype added "nearly 19 million users for a total of 113 million users worldwide." But how many of those users are in the U.S., where Skype is weakest and where it desperately needs to grow? And how many are active users, not just people who downloaded the app, then never used it again?

We simply don't know, because eBay wasn't talking.

Whitman also proudly said that Skype users spent almost 7.1 billion minutes talking with each other via Skype in the second quarter of this year.

My response -- so what? If those minutes don't translate into revenue, it doesn't matter if they spent 7.1 trillion minutes talking.But again, eBay provided no details.

The only hard number it provided was that Skype took in $44 million this quarter, which is up 25% from the previous quarter when it brought in $35.2 million.

Very nice...but remember, eBay paid $2.6 billion for Skype. So $44 million per quarter simply won't cut it.

The fact that eBay was so stingy with real information on the call is no accident. If Skype was going like gangbusters, you can be sure they'd tout it.

Even worse for Skype is that the Gizmo Project today announced you can make free calls to landlines in 60 countries throughout the entire world for free -- and those calls will be free forever. You can talk as long as you want to anyone, essentially anywhere, and no charge.Given that, how is Skype going to make significant money? Gizmo will cut into the number of new Skype subscribers, and ultimately will eliminate Skype's ability to charge for calls to landlines.

It's this simple: Skype will never pay out for eBay. There goes several billion dollars.