Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

VoIP Hype: Could It Lead to a Bust?

Posted by: Olga Kharif on September 11, 2005

Every week, it seems Web-calling provider Skype is said to be for sale for a greater amount. In the past month, the company’s alleged price tag has jumped from $2 billion to $5 billion. My colleague Rob Hof had blogged recently on how ridiculously high this amount is, considering that Skype’s revenues are likely still tiny.

I think the Web-calling (or VoIP) market has entered what Alan Greenspan had categorized as “irrational exuberance.” Greenspan’s words related to the dot-com boom, which resulted in a bust. I believe that we’ll see the VoIP world coming down to earth sooner rather than later, too.

Consider, there are more than 1,100 providers of VoIP services in North America alone, according to surveys by gearmaker Sandvine. Lots of these companies, such as Vonage and Skype, are expected to go public. And investment bankers already expect these IPOs to take off like rockets even though these companies' long-term profitability is hardly assured.

Lots of these outfits are rumored to be in negotiations to sell out to, say, Google or eBay, for astronomical amounts -- entirely disproportionate to their revenues. Most VoIP outfits are still losing tons of money and are likely to lose even more as competition in this market ramps up.

In response to our Friday article on Skype, I got an e-mail from a reader who pointed out that all these services differ little in technology. They offer similar features.

So, that begs the question: Why would anybody be willing to pay billions for these companies?

The answer: Because we are irrationally exuberant once again, only, this time, over VoIP.

I bet that, just as the dot-com bubble imploded, this boom won't last, either.

Reader Comments

John Koenig

September 11, 2005 10:25 PM

I bet you're wrong about Skype. You miss the point. It's not about technology. It's about the network effect. The more people that use it, the more valuable it becomes. Other Internet related examples include eBay. Skype is no hype, and VoIP is no tulip fad. That doesn't mean Vonage couldn't go bust. It could. But Skype and Vonage are not the same animal by any means.

David Rossiter

September 12, 2005 12:59 PM

Very nicely put Olga. $2.6 billion is a lot of money in anyone's language, and you have to make it back somehow - or write it off ;-)

Plus Skype might be a hot brand - but does eBay know how to run a telecoms / communications company? Get it wrong and eBay's not just wasted its money: it damages its brand as well.

Jose Mendoza

September 13, 2005 9:33 AM

Dear Olga,

I'm working in The Netherlands but my family is in Spain. Using skype = free charge but If I use the local telephone company I have to pay XXX Euros. Therefore money stays in my pocket! and I'm convinced that step by step all the telcos will realize that VoIP will be a significant rival.

In Germany a local company has signed a deal with skype. This deal include free calls to mobiles phones for free!! and this is just the beginning!


September 14, 2005 12:51 PM

You are totally off base about VOIP hype being like the internet bubble. SKYPE HYPE yes is paying way too much for a simpletons VOIP on the desktop that can be no better than the worst internet congestion it encounters across the net and it can be pretty bad. I do not care how smart SKYPE is about building a dynamic topology map every 15 minutes ore whatever they do to route calls semi-intelligently- if they do that at all- I think they just connect the users however the net lets them and pray!

So you are confusing best effort with no Quality of Service VOIP-HYPE. With Carrier Grade VOIP which is sold by the RBOCS as in SBC/ATT Callvantage- I have had this service for 2 years at 30 a month it PAYS for my cable modem. The difference between my VZ POTS bill and the ATT Callvantage bill is easily and average of 50 a month and my Broadband cable modem from Charter at 3MB/sec- burning rubber- cost 40 a month if I pick up HBO etc. yadi yada- well guess what- so I also for 10 bucks more get EVERY HIGH END CABLE Paid network- and why not- I love HBO shows and heck for 10 bucks I get STARZ, CINEMAX, HBO, SHOWTIME, FLIX, SUNDANCE etc. and High Definition for my humongous TV with ON DEMAND for those high end channels INCLUDED! OKay so 105 a month bundle sounds price right but if you figure all of it including unlimited VOIP long distance, local, and international calls that are 8 cents a minute to SOUTH AMERICA that used to cost me 25 cents a minute minimum on VZ- with a 7.95 PLAN!

DO not tell me VOIP is hype- its a saviour and ATT runs without a bug for me for 2 years- they use SONS equipment, for the last mile I know Charter will sell me voice but I am not switching to their VOIP or Voice up the CHARTER wire for 39.99 as their is no incentive- they are not bundling it for a deal and so I wait- if they give me the same features of ATT and bundle it for 20 bucks then I will think about it but I am already pretty loyal to ATT as they know VOICE- cable does long as ATT can piggy back in on my big fat cable modem I am a fat happy VOIP bubble lover.

So now, what is the bubble you speak of.VOIP companies are not highly priced. SONS is in fact way underpriced at only 5 dollars a share, it stand to own the carrier incumbants like VZ, BLS, SBC/ATT,Qwest and CINGULAR as well, it has deals with MOT, SAMSUNG for OEM of its GSX where MOT uses their own Softswitch or in ATT they sell them the whole 10 yards- the class 5 softswitch, the class 4 long distance softswitch, the Media Gateways where translation from VOIP to legacy TDM is needed. This equipment will totally supplant the incumbant legacy TDM infrastructure- a bubble? No its nothing short of a revolution.

VOIP allows ALL, repeat, ALL data including now voice data to travel over a SINGLE NETWORK that had previously been 2 distinct networks, in fact 3 distinct networks when you consider that SONS and other VOIP vendors will allow for the migration of wireless carriers to a single network under the umbrella of its IMS insight management system.

I am not an employee of their company but I follow this industry closely as an investor and I can tell you that their is big money to be made by equipment providers like SONS, ARRS, NT/LU if they can get their acts together, and also by RBOCs as they introduce bundled services and add TV to their roster as they lay fiber to the curb or home and run IPTV- all this is enabled by VOIP- it is NOT a bubble or hype- it is the future- the holy grail of telecom is hear now and you are dismissing it as if it were just some niche technology- as an engineer for 20 years I have to say you just DO NOT GET "IT". The ITU has been trying to find a way to manage voice video and data and now wireless on a SINGLE DATA network for years- they tried ATM and failed then MPLS came along and so the core was solved- now VOIP is the final piece of the puzzle, once its solved then the killer APPS will come and it will all run on one network with open SW APIS that enable multitudes of revenue generating apps that are not even thought of. The world will change as much from VOIP as it did because of the net, that is how important this puzzle piece is...WOW- the street totally does not understand this or the valuations on these little cos. would be tech bubble like..they are real cos. not! :)

Withold name/email for privacy on web please...

BCP 9/14/05

Post a comment



Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



BW Mall - Sponsored Links

Buy a link now!