Just stumbled on this excellent blog about broadband, VoIP and P2P super distribution. Very interesting datapoints about one of my preferred companies, skype!
Verisign thinks there are 900m internet users globally, and Point Topic counts 150m broadband lines (registration required, but free and well worth the effort) at the end of 2004. At c.30m registered users, Skype would appear to have penetrated 20% of its addressable market, and with around 2m concurrent users, more than 1% of the world's broadband population is running Skype at any given time. What's more, if the 155m user figure for MSN Messenger in this Financial Times article is correct, then Skype is ahead of MSN in terms of addressable market penetration, and in a much shorter period of time.
As a possible indicator of things to come, have a look at the recent breakdown of Skype users by country (top 20), which Niklas Zennstrom very kindly sent me this morning, and contrast with the previous rankings and percentage contributions (in parentheses) from October 2004 (keep in mind that absolute user numbers have at least trebled in many countries since the previous reading).
[1] United States - 9.13% (1, 10.3%)
[2] Poland - 7.87% (3, 8.78%)
[3] Taiwan - 7.80% (2, 9.24%)
[4] China - 6.75% (6, 5.89%)
[5] Germany - 6.06% (5, 6.18%)
[6] Brazil - 5.85% (4, 7.24%)
[7] France - 5.62% (7, 5.53%)
[8] United Kingdom - 3.50% (10, 2.94%)
[9] Netherlands - 3.47% (8, 3.50%)
[10] Japan - 3.17% (12, 2.61%)
[11] Spain - 2.64% (15, 1.82%)
[12] Israel - 2.36% (11, 2.94%)
[13] Canada - 2.22% (13, 2.46%)
[14] Belgium - 1.95% (14, 2.10%)
[15] Italy - 1.91% (18, 1.44%)
[16] Denmark - 1.73% (9, 3.07%)
[17] Sweden - 1.62% (16, 1.76%)
[18] Turkey - 1.59% (not ranked)
[19] Switzerland - 1.42% (19, 1.22%)
[20] Australia - 1.41% (17, 1.46%)
Why do I like this company so much ? Because it addresses straight on some of the key questions any VC has for a new company:
- vision = a global telephony operator (look at the countries above: it's global, and with SkypeIn + SkypeOut it behaves as an operator)
- market size = well its twice as good here: there are about 900m internet users, and I suppose 99% would have a phone, hence it's a nice market of almost 900m phone users. Imagine an ARPU of 20€/month for telephony * 12 months = 213,8 b$ ! And if only 10% ever get on VoIP, that's still 21,4b$ addressable market. With at 20% marketshare, that's still potentially a 4b$ turnover company. No need for great maths, the potential is there. You would of couse need to adjust that for a percentage of paying customers on Skype (10%), a skype ARPU vs. a normal telco ARPU (x3 ?), and that Skype will charge 10% of telco prices. You get about a 130m$ company. Play with any of the parameters to adjust them to your risk profile.
- got to have = this company solves a real pain in the market, that is very excessive pricing by incumbant telcos. Sure, they do not have any infrastructure to amortize, but that's the poing, they extract more value from the value chain than almost everyone.
- ease of use, hence high rate of adoption = other companies have been offering cheap prices (pre-paid cards) or VoIP, but none has achieved this simple interface
- hype / viral distribution: the companies customers are its own sales force. Customers love the service and evangelize other customers; That's the best way to grow very fast at a very reasonable marketing cost (they concentrate on producing those little goodies on their site)
- team: so far, execution shows that Niklas Zenstromm & al. kick ass. They had done it before with Kazaa, now they're on to the real stuff.
- barriers to entry, ie protecting the business model for a while. I can see at least 3 developping over time:
1) technology: quality of audio is very very good on Skype. I understand they sourced a fantastic codec in Sweden + some extra algorithms for P2P routing instead of using SIP + some echo cancellation algorithms, etc. Many companies have tried this in the past, but I believe this implementation is very good.
2) brand. Vonage is the USA for example offers a similar service, but no way near the hype generated by Skype. I keep getting pinged by a french company offering a similar service. I can't even remember their brand
3) peering agreements: any telco can of course get peering agreements with any player. Skype has been working on this for a long while now, and it would take many months for anyone to catch up. Peering is needed in order to enable SkypeOut and SkypeIn calls, + also authorization from telco authorities around the world to offer local numbers...
The only thing I haven't seen are the financials. But a quick calculation above shows the turnover potential. And looking at the product portfolio, you see that they make their money from selling cheap minutes (skypeOut), local phone numbers (SkypeIn), services (SkypeVoicemail), equipment with partners (headsets). I'd be interested to have a look at their margin structure ;))
My other candidate for a future great company? BitTorrent, in a slightly different space. I talked about its creator, Bram Cohen, here.
