Skype Dials Up Display Ad Dollars

Popular Internet-Phone Software to Begin Showing Ads From Visa, Universal, Disney, Volkswagen and Others

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Skype, the popular internet software that allows people to make video calls for free, will begin serving large display advertising tomorrow as part of its larger revenue strategy as it gears up for a planned public offering sometime this year.

The Luxembourg-based company has secured deals with major advertisers that include Visa, Universal Pictures, Disney, Microsoft, Nokia, Volkswagen and British Telecom. The large-format ads will appear on the "home" tab of the Skype software and could feature video and interactive elements. Only people using the service on a Windows-based computer in the United States, the United Kingdom and Germany will receive the ads.

The company has 145 million regular monthly users with around 8.1 million regularly paying subscribers who have bought into an enhanced version of the service or who have used it to make calls to landlines or mobile phones. Skype-to-Skype calls are free. The company said paying users may also receive advertising, though that may change over time.

"Driving international usage of Visa cards is a key priority for Visa and users of Skype are more likely to travel and transact internationally than the general population," said Alex Craddock, head of U.S. marketing at Visa.

The company had experimented with advertising before, but in a fairly limited form. In partnership with call advertising firm Marchex, the company converted clickable Skype phone numbers of businesses into ads. The businesses pay based on the number of calls they receive through Skype, and can set a monthly budget based on the number of calls they would like to pay for. This advertising is still ongoing, according to the company.

But this is the company's first foray into display advertising with marketers who are looking to promote particular products.

"We think this is an interesting opportunity for advertisers," Doug Bewsher, Skype's chief marketing officer, said. "This is a premium placement to engage with our users."

Mr. Bewsher, who used to head the digitally focused agency Publicis Modem, pointed out that though people are spending a lot of time on today's socially oriented sites, ad placements on those sites are typically small and out of the way, such as on Facebook.

"What's interesting in our case is you can link our level of engagements with a large, very rich, very shareable format," he said, underlining the fact that the average user on Skype spends around an hour and a half each month on the service. The ads will also enable Skype calls within the ads, though it was unclear to whom a user would make a call to in such a case.

Skype has become a highly popular service, largely because of its free and relatively easy interface. Concerns about how ads may affect that experience were considered as Skype began to build out this advertising program. "Skype has built a very strong franchise, and we've done that because we have a great user experience, and we wanted to make the user experience paramount."

Users will see only one ad ad per day, though it was unclear how often they may see the ad. The advertising program is designed as a sponsorship, meaning that an advertiser will own the ad space for a full day.

Interestingly, the company has partnered with another internet startup, Meebo, to do the ad sales for Skype in the U.S., rather than hiring its own sales force, much like its partnership with Marchex.

"They have a lot of experience working with premium advertisers," Andy Sims, Skype's director of advertising, said. "We think of them as a premium play on the web. It matches our strategy."

Meebo will also be bundling its own placements with Skype as part of the selling strategy. "That to me is the real opportunity," said Carter Brokaw, Meebo's chief revenue officer. "More and more brands are looking for franchise opportunities; a large enough canvas to story-tell and they want to do it at scale."

Skype is looking to cash in on the hot IPO market, and hopes to raise $1 billion in a public offering, which most likely will be slated for later this year. Despite the software's popularity, investors and analysts have raised concerns over its revenue potential, as only a small portion of its users bother to pay to use the service. Instituting large ad formats is clearly a move to establish more revenue potential. The company booked $406 million in the first half of last year, according to its S-1 filing with the Securities & Exchange Commission.

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