The investment bank’s analysts think that the phone service in Gmail isn’t about the smaller Skype picture, it is about social networking and taking on Facebook.
In a note to investors today, Goldman Sachs analyst James Mitchell says that Google’s VoIP move will beef up its Social Networking status, rather than put it in a position to becoming a virtual telco. Verizon (VZ) and Google are very chummy these days so the move was likely discussed alongside the recent net neutrality negotiations.
Goldman anticipates that Google (GOOG) will be paying the telcos something in the neighborhood of tens of millions of dollars per year in termination fees. Google will eventually recoup that cost in keeping people in Gmail for long periods of time where they will be viewing ads. Google will charge fee on international calls which should be a break even with foreign telcos.
So what is the upside for Google?
The Google Voice move potentially makes Google one of the largest global VoIP providers with about 50 million US and 185 million global users. Skype, by far the largest VoIP provider globally has over 500 million users.
Google has been trying to differentiate itself from Facebook, recently by creating different levels of connections (friends/family/coworkers/etc) in its Orkut social network. Having the ability to make calls directly to friends’ landlines is certainly something that would get people excited. Google already houses users’ contacts’ phone numbers in its Gmail contact database so the voice integration is mostly seamless.
Skype is planning an IPO later this year which is certainly impacted by Google Voice. Skype is looking to use advertising as a revenue boost, something Google knows more than anyone about.
Goldman sees the implications as marginal at this point: