As an IPO looms, Skype is looking for new revenue streams that will help continue its growth and improve its financial prospects. Monday, it unveiled the next big revenue generator: ads on its Skype Windows desktop client.
Skype said in a blog post Monday it will begin rolling out test ads in the U.S., U.K. and Germany this week from big brands including Groupon, Universal Pictures, and Visa. The ads, which will be adjusted over time, will appear in the home tab of the Skype client at the top of the application. In an attempt to preserve the user experience, the ads will be limited, so users will only see one brand a day. Skype said it won’t use pop-ups, but will try to target ads to users to make them relevant using non-personally identifiable demographic data. Users can opt-out of those targeted ads if they choose. Skype said it has already tested some ads with Rdio.
The move to advertising has been tossed around for a long time and actually seems a bit overdue. Skype said it is almost wholly reliant on SkypeOut revenue, which made up 86 percent of its $860 million in revenue last year, according to its updated S-1 filing. Skype knows it needs to diversify its revenue if it wants to grow and have the money to invest in new features, and it needs the money to keep Skype-to-Skype calls free. By tapping advertising as a new revenue stream, it can ease its over-reliance on SkypeOut, which the company identified as a risk factor.
Skype recently announced it has hit 29 million concurrent users, and said in its S-1 that its overall user base is up to 663 million. It has a lot of people communicating, increasingly through video, which makes up 42 percent of calls. It’s an expensive setup, but it’s also a great opportunity for advertising. Fortune last year reported that Skype could rake in $200 million from advertising, especially for video chats, which could host ads alongside the chat. Overall, Skype said its users made 207 billion minutes of Skype-to-Skype calls last year. All that engagement can be monetized well if done with some restraint.
That seems to be Skype’s main concern with advertising. The company said it is moving slowly because it believes the user experience is paramount. And it’s still not clear to Skype how big an opportunity it has on its hands. Here’s the important language from the S-1:
…it is still uncertain what level of revenues can be generated through advertising. Furthermore, we may face difficulty in successfully implementing advertising on certain platforms, such as mobile devices. Finally, our users may respond negatively to receiving advertisements through their Skype software client, which could negatively and materially affect user engagement, our Skype brand and our results of operations.
Skype said in addition to advertising, it will ramp up its enterprise efforts and is also looking at gaming and virtual goods as other potential revenue sources. The advertising effort is Windows-only for now, but if all goes well and Skype avoids an uproar, expect it to appear on Mac and mobile platform as well.
For all its success, Skype is still in need of some revenue diversification. It’s getting there with these ads, which should slowly beef up revenues. A rumored deal with Facebook to provide video chat could also provide some oomph with a boost of new users. Look for more announcements as the Skype money-making machine starts to crank into high gear.
Related content on GigaOM Pro: (sub req’d)
- Report: The Consumer Video Chat Market, 2010-2015
- Mobile Operators’ Strategies for Connected Devices
- How to Market Your iPhone App — A Developer’s Guide
YouTube is still trying to figure out how to link up with Hollywood. Maybe Alex Carloss will help.
Until last week, Carloss was head of digital distribution at Viacom’s Paramount. Now he’s a Google employee, working on YouTube’s content acquisition team. [UPDATE: Readers tell me Carloss left Paramount last fall.]
He’ll work with Robert Kyncl, the Netflix veteran Google hired last year to figure out its strategy for working with Hollywood and other professional content-makers, which have yet to give the giant site all the video it wants.
A Google rep confirmed the hire; I’ve asked Paramount about their plans to replace Carloss, who had been at the company for six years. He’d previously worked at MGM, RealNetworks, Electronic Arts, Warner Bros, and Disney.
After Google brought Kyncl on last fall, I assumed he would follow the script he’d used at Netflix, and start writing huge checks to the studios in order to get their movies and TV shows on the site. But while Google did buy the digital rights for the Miramax catalog last fall–I’m told the company paid out about $100 million for that deal–so far that seems to be an outlier.
Google/YouTube/Kyncl have been reaching out to content-makers in other ways, though. As New York magazine reported last month, the site has been talking to Hollywood talent about creating cable tv-style “channels” for the site. The basic idea: Famous people would help create and curate content for the site, and share ad revenue.
While that doesn’t sound nearly as sexy as, say, locking up the Warner Bros. catalog for a YouTube exclusive, there is a logic there. YouTube is already striking up partnerships with lots of people you’ve previously never heard of, and making mini-stars out of several of them. And the main reason the company is set to buy Next New Networks is that it likes some of that startup’s acumen in building out new video franchises.
And while Google has denied a report that it was looking to create a Netflix-style streaming service in the U.K., I wouldn’t be surprised if it did spend money to procure content outside the U.S.. It’s already begun making noises about buying the rights to American sports leagues for streaming deals in other countries–the Web video market outside the U.S. isn’t nearly as established, or as expensive, as it’s become in this country.
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