Skype’s Ad Revenue Plans May Increase Competition

As the IPO market starts to show signs of life, investors and marketers will be closely watching what happens with Skype’s planned offering. The company filed its S‑1 form earlier this month.  Skype is yet another player in the online universe with plans to make money by convincing consumers and businesses to upgrade from the free services they’ve been enjoying. In this case, it’s all about expanding its user base and getting them to pay for features such as ‘group video calling’.  And yes, there’s another plan to make money – advertising.

The company claims to have 560 million users globally. And in the first 6 months of 2010, Skype recorded $406.2 million in revenue. Assuming this growth rate continues, Skype would be approaching nearly $1 billion in annual revenue.  Currently, only 7% of users actually generate revenue for the firm.  So it makes sense that Skype is looking to other sources of revenue. According to the firm’s S‑1 form, it generates “ a small portion of our net revenues through marketing services (such as advertising) and licensing, which we expect will grow as a percentage of our net revenues over time.” One revenue generating tool linked to advertising is named Click & Call  which “allows businesses to market their products or services selectively to our user base.”  A local advertiser paying for a highlighted phone number to appear in search results can receive calls placed by potential customers directly from their computers. Skype is also expecting to launch a display advertising product.

Writing for Fortune, Jessi Hempel estimates that Skype’s ad revenues could reach $200 million. She notes, “the real advertising play for Skype comes in new formats, many of which don't yet exist.” As the Web 2.0 industry matures, competition for consumer attention will increase. Marketers may find that advertising via a company that provides a tangible service such as Skype may provide better returns than some of the other options out there.

[Sources: Hempel, Jessi. “Skype’s $200 million ad opportunity.” Tech​.fortune​.com. 11 Aug. 2010. Web. 27 Aug. 2010; United States. Securities and Exchange Commission. Skype: S‑1.  Edgar Online. 2010. Web. 26 Apr. 2010] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.