Yahoo Declares Price War on eBay-Skype, Threatens Vonage IPO (EBAY, YHOO)

Includes: EBAY, IDT, T, VZ, YHOO
by: David Jackson

Yahoo has upgraded its Messenger chat program with improved dial-out and dial-in features. Yahoo's "Phone Out" offers calls to regular and mobile phones for $0.01 a minute in the U.S. and $0.02 a minute to about 30 other countries, and unlimited in-bound calls to a user's PC via a number of your choice for $3 per month or $30 per year. The key point: that signficantly undercuts Skype (recently acquired by eBay), which charges 2.3 cents a minute for PC-to-phone calls to anywhere (including the U.S.), and $35 a year for unlimited inbound calls from the PSTN.

Three quick investment take-aways:

  1. eBay paid a rich sum for Skype. Even if Yahoo doesn't gain significant market share, this announcement suggests that it may be harder for Skype to turn its free service into a highly profitable revenue-generating service. If traditional telcos are suffering from price pressure in plain-vanilla telephony, there's no reason why the new VoIP players won't face the same problems.
  2. According to Om Malik, Yahoo is switching network providers, dumping Net2Phone in favor of connecting directly to SBC, Verizon and Bell South. IDT (ticker: IDT) recently launched a tender offer for Net2Phone.
  3. Will the Vonage IPO make it out? Would you want to buy stock in Vonage with the VoIP market changing so rapidly?

Coverage from, Associated Press and PC Magazine; more commentary from Susan Mernit, The Kelsey Group and VoIP Watch.