Friday, November 07, 2008

iSkoot Pull Fast One on VCs

Congratulations today must go to iSkoot, "the company that brought Skype to mobile phones" (well technically, only one of the companies to do that as Skype themselves have done it too, as have a whole raft of other companies with even shallower business models than Skype itself).

They have now raised a $19m third round of funding from some people in suits, bringing their total fleecing investment up to $33m.

The purpose for this cash injection was to build an applications platform for AT&T. Presumably AT&T want this platform so much, they won't pay for it - but presumably the suits think it is worth at least $19m, and probably a lot more. AT&T have 71.4m customers right now, and operators usually give say a 30-40% revenue share to the people who do the work, so $19m would need $47.5m in sales, which is 66 cents per customer. If you wanted to also beat the interest rate a bank would give you on the same cash, you'd probably need to up that sale price; if you wanted a profit (shock, horror, etc) you'd want to clear over a dollar from every single AT&T customer.

Decide for yourself how ambitious that sales target is, given the usual proportion of customers who download premium applications for their phones on any given network (excluding the early iPhone App Store goldrush, that is, which AT&T can't access).

So - what is this app platform that will generate so much revenue? It's a service to bring "social networking, email, RSS feeds and eventually services like Twitter" onto low-end phones. Right. Forgive me but isn't Twitter (aside from being pointless and loss making) already available, through the wonder of SMS (that extremely high margin data service that operators love above all others)? Are AT&T crying out for services that cannibalise those SMS revenues by generating greater use of GPRS/3G bandwidth (given away for near-free these days, but costing the operator a lot to maintain and scale infastructure)?

OK, but what about the other (more useful) services? RSS and email have been available on all feature phones for a while, and things like the GMail Java app can be used even on the pretty low-end devices.

But wait! There's a USP! iSkoot have a very special magic at their disposal which allows them to integrate deeply into every phone - "Skype, for example, is so deeply embedded in the software stack that Skype contacts are integrated directly into the phone's address book". Would you pay $1 to have your Facebook contacts added to your phone? Personally no (all the ones I know well enough to talk to on the phone are already in there), but maybe some people would. But how is this deep deep deep integration achieved?

Well, the conventional way on the GSM range of handsets supplied by AT&T would be to use the JSR75 PIM API from inside JavaME, available (to any developer) on most of the mid- to high- end devices (and probably a few of the low-end ones too). Not really a $19m USP then...

Could it be something more? Well, iSkoot do appear to have done some of the customisation of the Skype-branded Amoi launched on 3 in some territories a while back. V1 was pretty flaky but a good effort if you have a high tolerance for bugs in your phone's UI - I haven't tried V2 yet... this does indeed feature a lot of customisation, achieved through a lot of customisation effort. This much customisation could be ordered by an operator with AT&T's clout, though doing it to their range are off-the-shelf Nokias, SEs, Motos, Samsungs etc would slow down handset launches, increase the risk of bugs and recalls (this has happened to Orange a few times with their simple front page rewrites) and cost a hell of a lot. iSkoot may well be able to do the work, but would AT&T want them to? It would appear AT&T at the very least don't want to pay for it...

Of course, I'm sure I'm not seeing the big picture here, every operator in the world will need this so there's got to be a hockey stick graph in the PPT somewhere - but, as most of the companies like Facebook are bringing themselves to mobile quite happily, Twitter is custom designed for SMS, etc etc, I remain uncertain why the whole world will need this $19m platform.

Please, someone, show me the light! Or if that is impractical, send me $19m to the usual address and I'll see if I can come up with something similarly world beating...


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