What are Skype's REAL Subscriber Numbers?

I had an interesting comment this morning on Friday's 4Q07 Consumer VoIP Rankings, from Hudson Barton, taking issue with the way that I estimated Skype's subscriber numbers.  As I noted in the post, since Skype does not report real subscribers the way that other consumer VoIP companies do, it is hard to do an apples-to-apples comparison of Skype subscribers to other consumer VoIP subscribers.  That's because, as I noted in another post last week, Skype sells a fundamentally different product than the "residential line replacement" consumer VoIP companies.  It makes it hard to draw comparisons of subscribers, since many Skype users (myself included) don't use Skype as a residential line replacement service, and instead use Skype to augment a suite of communications tools. 

I chose to "normalize" Skype's subscriber numbers by using the one statistic that all of the consumer VoIP companies publish: quarterly revenue.  I took the average monthly revenue per subscriber for all of the companies that do report their residential line replacement subscribers, and I divided Skype's average monthly revenue by this figure to reach a total of 1,073,763 subscribers for Skype in the 4th quarter of 2007. 

Now, how does that square with Skype's reported 276.3M registered users, or with the Borderless Communicator's 31M "real users"?  The simple answer is, it doesn't.  The 276.3M "registered users" reported by Skype over-counts real users because so many registered user accounts are seldom or never used.  The Borderless Communicator's 31M "real users" count is probably a much more accurate count of active Skype users, but it still leaves the problem of comparing apples to oranges. 

For example, I use Skype and would count as a "real user" of Skype, but I make 2 or 3 Skype calls a month, mostly for communicating with folks working for a non-profit in Romania.  Otherwise, I'm using a VoIP business line for work, or a cell phone, or a Qwest home phone line for strictly local calls.  Should occasional Skype users, "real" as we are, count just as much as Comcast Digital Voice subscribers that pay almost $40 a month to Comcast to provide primary line residential phone service?  I don't think so, so I normalized the "subscriber" results by the one consistent metric I had: revenue.

In doing so, I knew I was risking the ire of folks who track Skype closely.  Hudson Barton has several good points in his comments, including:

• If you wanted to use Skype to replace your residential phone service, you would pay about $6 a month, rather than the average of the other consumer VoIP companies, which is $35.70 per month.  So, if all Skype users used the service as a primary line replacement (which they don't),  Skype would have 6.39M subscribers (worldwide), making them the largest consumer VoIP company.
• Skype has not slowed down in "real user" growth, having added nearly 4 million "real users" (as measured by Borderless Communicator) in the first two months of 2008. 

On the issue of Skype's growth rate, I need to point out that while Skype may be adding "real users" at a rapid clip, Skype's revenue growth is not accelerating...it is slowing down.  Skype added $12.7M in new revenue in 4Q07, and added $14.7M in new revenue a year ago in 4Q06.  So, while Skype is adding users quickly, it is not adding what really counts, revenue, at a corresponding rate.  in the 4th quarter was $17M higher than in the third quarter, for a quarterly growth rate of 17.3%, which is not has high as the quarterly growth rate in the first quarter of 2007, which was 19.7% (1Q07 revenue of $79M vs. 4Q06 revenue of $66M).  However, early indications in 1Q08 are that Skype is returning to the rapid growth rate seen a year ago, or possibly even better.

Still, Mr. Barton has done me the favor of pointing me to the Borderless Communicator site for a Skype "real user" metric, and has also given me a $6/mo Skype primary line replacement cost to use in calculalations in next quarter's Consumer VoIP Rankings.  Next quarter I'll modify the report in some fashion to help draw attention to the different measurement techniques.

Comments

[Ike Elliott]

Chaim,
Thanks for spotting the error. I'll update the post accordingly.

I had intended to compare the quarter over quarter growth in 1Q07 to the quarter over quarter growth in 4Q07, but looked at the wrong row in a spreadsheet when I did the math and therefore, didn't get it right. Please accept my apologies.

Thanks,
Ike

[Chaim Haas]

Ike,

I'm not sure where you've gotten Skype's "new revenue" figures from, but they're incorrect, as you'll see from Skype's reported revenue figures for the last 6 quarters.

SKYPE'S TOTAL QUARTERLY REVENUE
End of Q3 '06 - $50M
End of Q4 '06 - $66M
End of Q1 '07 - $79M
End of Q2 '07 - $90M
End of Q3 '07 - $98M
End of Q4 '07 - $115M

You'll also note that Q4 '07 marks the company's fourth consecutive quarter of profitability.