Alec Saunders SquawkBox

Google and EBay have just announced a Click to Call advertising partnership, and Andy Abramson thinks that Google got the better it.  I think he’s probably right.

I’ve built a quick model based on my own experience with Google Adsense, and some assumptions about terminations.

Let’s assume:

1. Click through rate: 2.3%.  That’s my actual today.
2. Average revenue per click: $0.25.  My actual is just under $.24. Let’s assume that Google earns at least as much as I do after they pay me.

If Google wants to build a $100 million / year business from selling advertising to EBay, then they need about 400 million clicks in a year, or 1,096,000 clicks per day.  Assuming a click through rate of 2.3%, and a paltry 2 impressions per day, gives a requirement of roughly 24 million users to earn that $100 million.

Clearly, as Russell Shaw pointed out in his piece, if Google is serious about Click-to-Call, GTalk is not going to cut it.  GTalk doesn’t have users.  Hence the reason for the deal with EBay. The writing is on the wall, especially since Skype is going to be integrated with the Google Toolbar. 

But what about on EBay’s side?  Let’s assume that the average call duration is 10 minutes, and that their costs are a very aggressive 0.5 cents per minute, and they’re able to monetize their terminations at 4 cents per minute (that’s what I currently pay for my personal toll-free 800 number, and that’s the market that EBay is going to try to displace).  At 400 million calls per year, EBay can expect to earn $160 million dollars, with costs of $40 million dollars in terminations.  That’s $20 million more than Google… so long as EBay can sustain 4 cents per minute, and that’s the rub.

EBay will argue that those clicks should be at a premium to non-voice enabled clicks.  Is that really such a good assumption though?  Google’s clicks are already among the cheapest in the industry.  Their appeal to advertisers is that they deliver volume.  Google could charge more, but would then risk losing market share. I’ll bet they follow the same strategy with Click-to-Call.

Incidentally, you can extend this reasoning one step further, and figure out why a strictly ad-funded telecom service may never be a reality.  If, instead of assuming that you’re paying termination charges for each click, but rather for each impression (as might be reasonable, if people are viewing ads while making telephone calls), then you could expect to be paying out hundreds of millions of dollars in termination costs in order to realize perhaps one hundred million dollars in revenues.

Aren’t spreadsheets the cat’s meow?

For a contrary view, read Peter Cohan. 

It’s a pretty exciting time around here.  My oldest is heading off to University in a few days time.  We’ve been working on planning and budgeting.

Over the weekend we did some digging into the cost of communications. We compared a Bell Canada land line, a Bell Student Cellular plan, and  Rogers “Campus Calling” Student Cellular plan.  Our current plan is for him to have Rogers Student Cellular plan, plus Hullo.  Here’s how all three stack up: 

The Bell Landline includes nothing more than unlimited local telephone service.  No voice mail, no call waiting, caller ID, or any of the other things you might expect in a package.  On top of that you pay a $4.95 per month Network Charge.  To get the basic call waiting, voice mail, caller ID combination, you have to buy the “Flexibility 4″ package for an additional $15.95 per month.  Bell’s long distance package is $.10/minute, or, budgeting for 150 minutes per month, $15.  The total package, with taxes, comes to $62.18 / month.  Setup fees are waived if you buy the feature package (the “Flexibility 4″), giving a total cost over 8 months, after purchasing the phone, of $527.40.

The Bell Mobility Student Package has a service fee of $20, which includes 250 minutes of daytime airtime, and unlimited nights and weekends (9PM to 7AM).  The features package is include.  However, at 250 minutes per month usage, we’ve budgeted an extra 50 minutes (at $0.30 / minute) for overage, given that the average household uses 300 minutes per month of talk time.  Your mileage may vary.  In addition, the system access fee is $8.95 / month and the cost of long distance on Bell Mobility is a little higher, at $.12 / minute.  It works out to $71.48 per month, with a onetime $35 connection fee, and a budget of $70 to buy a telephone on a 3 year contract.  Total for 8 months of phone service: $676.82.

The Rogers Student Package is the best of the bunch.  $40/month includes all the features, 250 minutes of daytime airtime, unlimited incoming local calls, unlimited calls between other Rogers “Campus Calling” student customers at his school, unlimited evening and weekends and 150 minutes of LD.  I haven’t budgeted for an excess usage charges, reasoning that  between the unlimited incoming local calls, and unlimited evenings and weekends, there shouldn’t be any excess.  In any case, all in, the Rogers package costs $54.09 / month, or (with setup costs) about $537.74 over 8 months.

When on campus or out with friends, he’ll be using his cell phone to make calls.  In his dorm room, he won’t have a landline.  We’ve given him a headset and a very nice HP DV1000t laptop that he can use to make calls with Hullo to friends at other Universities, as well as to friends at school. Essentially, Hullo has replaced his dorm room landline.  And we’ll make our calls to him with Hullo also, because it will reduce our costs and Hullo’s find / follow feature will allow us to always find him the most cost effective way.

With Hullo and a Rogers cell phone, he’ll pay less to talk more from wherever he is, and his friends and family can save money too. 

What could be better?

P.S.  If you would like to do your own calculations, here is a link to my Excel spreadsheet.

This is an interesting academic study of how the Skype network operates.  Some of the findings:

• Skype usage peaks during normal working hours.  Usage is significantly reduced during the evening — by 40 to 50%.  20% fewer users are online during the weekend as well.
• Calls on Skype are longer than PSTN calls.  The average Skype call in the study lasted nearly 13 minutes, versus the well known “3 minute average call length” cited on the PSTN. 

This is just a single study, but it suggests that a significant proportion of Skype calls may be business calls, and that, because of the Voice 2.0 ”voice is free” phenomenon, people are talking for longer.