Skype becomes MySpace friend

John Delaney/Ovum
18 Oct 2007

MySpace and Skype have announced "ËœMySpaceIM with Skype', integrating MySpace's IM client with Skype's voice-calling capability. The service will enable MySpace users to place free Internet calls to other MySpace or Skype users. The partnership will also enable users to link their MySpace profiles and photos or avatars to their accounts on Skype. The service will be available to end users starting in November.

It seems pretty clear what MySpace gets out of this deal: a competitive differentiator. MySpace is big, with 110 million users, and still fast-growing; but it has been feeling heat from the more rapid audience growth seen by rival Facebook in recent months. Facebook's surge has largely been attributed to its introduction of widgets, whereby developers can make applications available free of charge for Facebook users to incorporate into their profile pages.

The widgets have proved highly popular, not only with users but also with advertisers. For example, US fast-food chain Buffalo Wild Wings reportedly paid $80,000 to the developers of a popular "food-fight widget "to have its logo placed on all the chicken wings that are flung in the game.

So, MySpace needs to regain some of the initiative. We think that incorporating Skype into its profile pages could prove an effective way of doing that. Communication is an essential element of what people do in social networks. The ability to add voice communication to the text-based messaging facilities in MySpace is likely to appeal to many users - albeit more probably at the higher end of the age range if, as conventional wisdom has it, "kids do SMS & IM, grown-ups do voice & email". Integrated video communication could perhaps be even more popular (this is the YouTube generation, after all!), although there is no mention of video in today's announcement.

It's less clear to us what Skype gets out of this. The terms of the deal were not disclosed, as usual, but we're reliably informed that Skype will not be getting a share of MySpace's advertising revenues. Nor do we believe that this is likely to drive very much revenue from usage of the Skype Out service: most interaction between MySpace users takes place between PCs, so most embedded Skype usage will be also be PC-to-PC (ie, free of charge). Skype may be receiving licensing revenues from MySpace for the use of its service, but that's not clear from today's announcement.

It's likely, then, that the main benefit that Skype will get from this deal is not money, but brand exposure. Most of MySpace's users are in the US, and Skype's brand has not been as strong in that market as it is in Europe. The ability to link MySpace profiles and content with a Skype account, in particular, may prove to be an important means of boosting the number of US consumers who are aware of and use Skype.

John Delaney, principal analyst at Ovum

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