When I interviewed Skype CEO Josh Silverman at CES 2010 in January, I had asked about the timing for a Skype IPO. Josh’s response:

“We’ll see. We don’t have a timeline for it. Our focus is to build a really great company. When we’re ready and the markets are ready, we’ll consider an IPO. At some point investors will want an exit, of course, but they’ re really taking  a long term point-of-view. This is not a quick flip; this is about building one of the great companies of technology.”

Today “long term” was defined as something between nine and fourteen months. Nine months after being taken private by an investment group lead by Silver Lake, Skype announced, through a blog post by Josh Silverman, they had filed a preliminary prospectus for an IPO. With a road show and other pre-IPO activities we’re probably three to five months from seeing the final transaction happen.

The prospectus makes for interesting read about both Skype’s business model and the communications infrastructure transition wrought by new technologies. Key Skype performance data includes:

• 2010 Jan-Jun revenues of $406.2MM vs same period 2009 of $324.8MM, an increase of 25.1%
• “Adjusted” EBITDA increase by 59.3% from $75.2MM to 115.8MM over the same periods
• $37MM in capital expenditures budgeted for 2010 vs $13.5MM spent in 2009

and some interesting user data:

One should really think of “Registered Users” as “Registered Accounts”. Especially with Skype for Business becoming more active, there will be a rise in accounts but lots of reasons for stagnant or dead accounts. (Personally I manage, via Skype Manager, over 25 accounts with about 15 users but really only use two of them for my own ongoing activities. The other users were created for one or more business activities and )

Most interesting are the “connected users” numbers, defined as “average monthly number for the three months ended [on] the date [shown on the x-axis]”. While Skype is showing a current number of 124 million“connected users” for the quarter ended Jun30, 2010  Hudson Barton’s “real users” number – which is more an indication of daily users on line is currently running at about 60 million.

The increase in paying users is the most significant number of interest. The prospectus confirms that SkypeOut represents Skype’s number one source of revenue and this number is the best indicator of how quickly these revenues can grow.

One other interesting metric relates to calling minutes, broken down as”

• Communications services billing minutes (SkypeOut minutes): from 5.0B in H1 2009 to 6.4B in H1 2010, a 28% increase somewhat consistent with the revenue increase, and
• Skype-to-Skype minutes: from 49.1 billion in H1 2009 to 88.4 billion in H1 2010, a 80% increase confirming that “free” really is the key marketing strategy for increasing Skype users and Skype usage.

Bottom line: Skype continues to grow at double digit rates but they are about to enter a phase where marketing activities and business communications services will become vital to sustaining its growth. Yet, regulatory and competitive issues will also become a significant factor and a real test of how willing governments are able to adapt to technological change as opposed to sustaining cost-inefficient legacy telecommunications operations whose fundamental business models are threatened. For the first time, we’ll be able to view quarterly the business success of Skype as an independent business operation.

There’s lots of other interesting marketing information and financial data in the prospectus but that leaves room for additional posts. And the statements re regulatory issues have the makings of several discussions.

Note that while $100MM has been put out as the amount to be raised, it was apparently only used as a metric to assist with determining SEC filing fees. The actual amount to be raised has yet to be announced.

Other posts:

• Dan York, Disruptive Communications: Skype, less than a year after eBay sale, files for $100 million IPO
• Business Insider SAI: Skype Spent $343.8 Million To Acquire Its P2P Software From Founders
• Andy Abramson, VoIP Watch: Skype To Go Public makes a couple of interesing points:

Now, going public brings with it a whole new set of responsibilities, not only SEC quarterly reporting.

For Skype’s lead investors, Silver Lake Partners, this is their opportunity to cash out. For many of the employees at Skype this is their chance for a nice reward for all the hard work they’ve put in over the past year.

• GigaOm: Skype Files for IPO

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“Fring is not a communications platform, but only a toy or at best a testbed for shiny objects.”

Comment by Hudson Barton on Andy Abramson’s post: Fring Fumbles on Cross Platform Video Chat

In observing the evolution of Skype and third party access to it over the past few years I have often wondered how far Skype would go in allowing third party services to deploy Skype as one communications mode in a multi-service communications offering. Fring and Truphone are two examples. Usually these offerings figure out a way to put up a temporary Skype client on a “gateway” server and then build their own interface to the Skype client on that gateway.

There are issues of scalability, service quality (especially voice and video quality) and the overall user calling experience that could potentially compromise the user’s experience in taking advantage of the resulting Skype connection. It’s one thing to show that technically one can make the relevant voice and video connections but the challenges rise to a significantly higher level when taking into account the overall user experience.

Personally I look for services that allow me to easily find and select a contact, select the calling destination (Skype, Home, Mobile, Office, for example) and then click on either a soft button or the hardware green button and make the connection within a reasonable time (say, less than 30 seconds). I find the multi-service communications offerings to be a bit overbearing and almost too overwhelming for a non-technical business and consumer user.

Today there’s lots of coverage about Fring and its use of Skype (or now lack thereof); Dan York has provided an excellent summary of the various viewpoints in his post: Skype vs. Fring: Is Fring not telling the whole truth?. Very significant is the speed with which Skype’s Vice-President, Legal responded to get their side of the story out; their legal personnel usually have stayed out of the public discussion on any of Skype’s market-related issues.

But getting back to basics, there are three considerations:

Skype is Fundamentally Communications Software: we have heard this many times from Skype CEO Josh Silverman; he repeated and emphasized this during our CES conversation last January. As a result they own the intellectual property rights to their software. But they have been successful largely because they make much of their intellectual property available free – they can afford to do this since the capital overhead for Skype-to-Skype calling is so low. We as users provide the key piece by using Skype on our PC’s or other Skype-embedded hardware devices. On the other hand they need the intellectual property protection not only to defend potential revenues but just as importantly to defend their brand.

Best examples of this include:

• Skype video calling – here’s the 1964 AT&T World Fair concept now going out thirty-five years later with no charge for one-to-one video calling and being used on ~35% of Skype calls.
• Skype has also made their SILK codec available royalty-free provided the licensee meets performance criteria. As demonstrated with Skype for iPhone over 3G, SILK has the potential to revolutionize voice quality on mobile calling (and I’ll pay one or two dollars per month just to have the superior voice quality after many years of mobile phone calls with somewhat challenging audio quality ). Blabbelon provides an excellent example of incorporating SILK.
• Skype mobile on Verizon: here is a software development and licensing agreement that generates sustainable revenue streams for both parties while delivering a significant benefit, namely free calling to Skype contacts worldwide, to Verizon customers when calling from the U.S.
• With the success of Skype as a commercial TV production platform, Skype has developed special licensing terms for users of this application.

The bottom line is that all these, including making basic Skype-to-Skype calls using the standard Skype clients, involve some form of license agreement that is being adhered to.

Skype is Ultimately About The User Experience: Skype’s brand focuses well beyond the enabling technology to incorporate the entire user experience. It was ease of installation and use that allowed Skype to be adopted so readily such that over 600 million user accounts have been created with around 100 million active users. Skype’s VP for Mobile, Russ Shaw, re-emphasized this during our conversation at CES. We witness this in the recent launches of Skype mobile on Verizon and Skype for iPhone over 3G. While I can only rely on third party reporting about the former (not being in the U.S.) which has largely been positive, for the latter I simply installed the software, looked up a contact, clicked on the Call button and made this excellent quality call to the U.K. using Skype for iPhone over 3G. Woops, did I mention the quality of the call again? Overall both applications set a higher standard for the user experience.

Skype is Opening Up to Developers: Yes, there has been a rough ride for developers over the past four years. PamConsult, Netralia, InnerPass and OnState have persisted with their offerings and have demonstrated the potential for Skype and third party applications. But the recent launch of SkypeKit beta – in a phased program to ensure control over quality and service level issues as the program evolves – opens up significant opportunities for third party developers. Suffice it to say that I know we can expect not only significant software partner offerings but also some innovative hardware offerings based on SkypeKit. Once again, however, there are licensing guidelines to ensure the integrity of Skype’s brand.

But the bottom line is this: sure Skype reserves the right to generate revenues where they see a significant value-add market opportunity but even with their free offerings they want and need to preserve their brand image. It would appear from Skype’s legal executive’s comments that they have been trying to work out a way to interact with Fring without success; Fring has certainly been around for over three years in one form or another, including attending Skype-sponsored events. As Andy Abramson says:

As we all know there are three sides to every story, but given Fring took the shot first, an old rule of thumb in a legal battle is get the word out first. And Fring did. Now Skype, whose legal minds are based on the West Coast, as well as their platform team and video folks for the most part have gotten in and replied.

We now are starting to get a better handle on how Skype will establish the playing field for third party applications, hardware and services. The evolution of the Fring relationship (or lack thereof) will provide a concrete example of how far Skype will go in allowing third party affiliations.

Full disclosure: yes, I tried Fring several times in the past (when it had Skype access). Simply put, I never found a way to use it comfortably and abandoned it. I have used iSkoot successfully in the past; however, they no longer support current BlackBerry platforms. But all this flurry does generate the background for a future post on what I would look for in a mobile smartphone calling experience.

Re Truphone: I mentioned Truphone at the beginning of this post as another example of a third party service that offers Skype as one communication mode. I’ll have more to say on my Truphone experiences – both favorable and unfavorable in a separate post. At least I find it a reliable backup when I have no other choice for calling.

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This morning, at the CEA Line Show in New York, Skype is taking the first step in the evolution of its revamped developer platform with the beta release of SkypeKit, “empowering consumer electronic and desktop software innovators to embed Skype into their products”.

In summary:

• Most importantly, SkypeKit allows developers to embed all the functionality of Skype into their offering without the need for the end user to have the Skype client open. They call it a “Headless” Skype toolkit whereas the developer community had been using the term “Naked” Skype.
• Initially SkypeKit is available as an invitation-only beta.
• Today API’s are available for Linux; API’s for Windows and Mac OS/X will be available in three to four weeks.
• The current program is targeted to consumer electronics and other telephony device manufacturers as well as desktop software developers
• SkypeKit includes support for Skype’s royalty-free ultrawideband audio SILK codec.
• SkypeKit supports Skype functionality beyond simply voice, including Skype video and H.264 processors embedded within hardware (such as with the FREETALK Everyman webcam).
• Skype’s developers have put significant effort into both security and scalability to sustain two of Skype’s key features.
• Skype will be promoting SkypeKit developers offerings through a “plugged into Skype” logo as well as making them available via the Skype Store.
• SkypeKit provides a long requested complement to the legacy Skype Public API’s used in applications such as Pamela, VodBurner, OnState, InnerPass and others.

This morning I had the opportunity to discuss the SkypeKit beta launch with Jonathan Christensen, Skype’s General Manager and Head of Platform. It provided an opportunity to dig deeper into Skype’s goals and strategy for the SkypeKit platform.

Primary goals of SkypeKit are:

• To provide developers with a “naked” Skype such that a Skype client is not necessary for the deployment of Skype on a hardware platform or Skype-enhanced application
• To provide an SDK that supports ALL the functionality of the current Skype clients, including video and SILK.
• To promote the incorporation of SILK into end point devices, making possible high quality audio calling such as experienced with the recent release of Skype for iPhone 2.0.
• Make the adoption of Skype into a device or application as friendly and readily adaptable as possible while providing appropriate levels of security and scalability
• To provide developers with a robust, scalable and proven channel for readily marketing their devices and applications worldwide.

In our discussion Christensen pointed out that Skype had not only reviewed developer requests for a revitalized and enhanced SDK but also incorporated the need to support all Skype functionality as well as maintaining the level of security and scalability required to meet the demand levels of Skype’s user base.

Christensen emphasized that Skype will be aggressively pursuing hardware vendors to license and adopt SILK as a standard feature of their offerings and to effect interoperability for Skype. IP-phones such as those offered by Linksys, Aastra, Polycom, snom and Grandstream would certainly be good candidates; their adoption of SILK would contribute significantly to Skype’s efforts to make SILK a standard. But it also means we could see the incorporation of SILK into, for example, the Skype for TV offerings available for certain models of Panasonic, LG and Samsung TV sets.

On another topic, Christensen emphasized Skype’s intention to facilitate marketing of the resulting offerings through both Skype’s “plugged into Skype” designation and the option to have them carried on the Skype Store. While any vendor can develop and market an offering on their own, it only receives the “plugged into Skype” designation required to be offered on the Skype Store  by meeting two conditions:

• it was developed using SkypeKit
• it meets Skype Certification standards when it comes to establishing a baseline for audio and video quality

Finally he pointed out that Skype launched this new SDK platform effort with this approach because “having an SDK for devices and desktop applications are a natural place for us to start extending Skype capabilities today”. As for supporting web developers, Skype only said, “We know there is demand among web developers, but we have nothing to announce at this time.”

To give a sense of developers intending to use SkypeKit, FREETALK (with their Webcam for Samsung TV), Panasonic, Litl with their Webbook and Grandstream are participating in the Skype booth at the CEA Line Show this week.

Bottom line: There’s quite a collection of legacy Skype hardware collected around my office over the past four years; most of it is no longer available due to  lack of ongoing support by previous Skype management, technology changes and vendor disappearance (who recalls US Robotics, for instance?). Frankly, if we look at Skype Certified hardware available on the Skype Store today, we only see offerings from FREETALK, Logitech, FaceVsion, RTX and some speakerphone vendors, such as Yamaha and ClearOne.

SkypeKit represents Skype’s first step in rebooting and revitalizing its hardware device support; it certainly fits in with Skype’s “Skype Everywhere” strategy. Last week at CommunicAsia, Skype CEO Josh Silverman was talking about his vision of “fixed-mobile convergence” for Skype where a user can transparently move from device to device and seamlessly continue a conversation without the need to even log on from one device to the next. But the final proof is in the execution:

• Has Skype made the business and ongoing support case for developers to employ SkypeKit and deploy offerings?
• Will SILK become an industry standard for audio quality? and will IP-phone vendors realize the value of SILK?

As for other Questions and Answers, check out that section at the end of Jonathan’s post today.

Full disclosure: In Store Solutions, producer of the FREETALK line of Skype hardware, has become a client of Denali InterConneXions, publisher of Voice On The Web, building on the author’s previous business development experience with establishing partnerships that can assist with the promotion of a primary vendor’s offerings. A more complete statement will follow shortly.

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Full disclosure: This post was prepared prior to today’s press conference using information that was publicly available prior to the conference. In the second post I’ll discuss the service as announced at CES today.

When you can advertise “Free phone calling internationally”, they will come! In the CES interview with Skype CEO Josh Silverman, Josh makes the point about how Skype draws in customers by offering a free service that is easily adopted by consumers and then offering “premium” services, such as SkypeOut calling, to generate revenues. This model has led to:

• over 580MM registered Skype accounts (probably 100MM are currently active)
• over 12% of international long distance calling minutes are Skype-to-Skype calls
• and revenues approaching $1B per year.

As mentioned in the recent CES interview with Russ Shaw, Skype’s VP & GM for Mobile and EMEA, Skype’s partnership with Hutcheson Whampoa’s 3 service in nine countries has delivered interesting carrier-friendly results from 3’s customers who take advantage of its free Skype-to-Skype calling:

• 20% higher margin
• 17% additional traditional voice minutes
• lower churn rate
• high ARPU (average revenue per user)
• over 1 billion Skype-to-Skype minutes delivered in the UK since Nov. 2007

Results that should get all wireless carriers’ attention! And Russ did emphasize these results to reinforce where some of Skype for Mobile’s current activities and resources are being directed.

Setting the stage in the U.S. market for today’s Skype-Verizon announcement:

• Verizon has a reputation as offering the best high speed (3G and faster) wireless data services within the U.S. and nobody’s complaining about their voice quality.
• AT&T’s major strength appears to be its iPhone arrangements
• AT&T’s network performance issues, especially with their data service, are well documented (even their voice channel failed me on my last two trips to the U.S.)
• The major failing of the iPhone that impacts Skype for iPhone is its lack of multi-tasking capability
• Skype has announced they will be making available Skype for iPhone running over 3G – a service that will only be available on AT&T for the duration of the current Apple-AT&T agreement
• Verizon needs an offering and drawing card that will compete with AT&T’s forthcoming ability to offer a Skype-based service on the iPhone.

So it should come as no surprise that Verizon is announcing an agreement to offer Skype on several devices including the BlackBerry line and the Android phones they support.

The Service Architecture

Based on information that has come out over the weekend and content archived on this weblog, this service is modeled on an architecture similar to the iSkoot architecture used for 3’s service whereby data (Skype chat messages, presence and call signaling information) go over Verizon’s data channel but the actual voice calls are connected to the phone via Verizon’s (robust and readily scalable) voice channel. As a result:

• Call quality is limited by the (3.7KHz) audio bandwidth of the voice channel (in particular, no SILK superwideband quality calls)
• Verizon has no termination charges for calls to Skype contacts (or what amounts to being a Skype-to-Skype call – a key factor in making this service cost effective from the Verizon perspective)
• There is no loading of Verizon’s wireless data network (and the associated backhaul demands) with the heavy demand that would be placed on it via a true VoIP client.
• The resulting “Skype for Verizon” Skype Lite client on the BlackBerry and Android devices  has no support of calls via WiFi access points.

So the Verizon-Skype announcement certainly builds on previous Skype technology and business model experience; it will take advantage of proven and demonstrably reliable carrier voice and data services. I’ll have more in the follow-up post covering the actual announcement.

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So it’s finally resolved. The Skype spinout from eBay will involve Skype’s founders as investors and board members while contributing a cash investment. Skype finally owns the core intellectual property required for Skype to operate at its current cost levels. eBay gets the cash they were looking for but 5% less of the new Skype. Canadians still get to invest $16.75 each through the government operated Canada Pension Plan. Marc Andreesen gets involved with another major Internet play. Mike Volpi and Index Ventures are out of the picture. Lawyers and consultants are probably heftily rewarded for all the litigation activity leading to the final resolution. Incessant speculation on Skype Journal’s Skype 5.x Public Chat about how to get around JoltID’s Global Index software will finally cease (well, maybe).

While I have put links to several posts leading up to the resolution below it has been most interesting to read various bloggers comments on the resolution and the future direction for Skype:

Phil Wolff at Skype Journal sums up the numbers in his post, Sold! The Bullets and values the JoltID intellectual property at $275 million. (Phil gets credit for the graphic above, by the way.)

Om picks the winners and losers on My Thoughts on the Skype Settlement: Winners & Losers Scorecard. He points out the “great spin quote” from Silver Lake as a leftover from the “PR spin” days prior to the transparency that comes with social networking. Come on, guys. We’ve all seen the depositions and emails. As for the future, Om comments:

No Silver Lining?: One person who I totally feel for is Silverman, the current CEO of Skype. He gets to run a company which will have the looming presence of its founders.

Whatever the press spin might say, the new investor group is like a poisoned well. It will be a polarized group, always looking over their shoulders. Silverman is going to need to keep a lot of people happy, and those board meetings with nearly two-dozen people aren’t going to be fun, either. But as Biggie Small once said:

“It’s like the more money we come across, the more problems we see.”

Both Kara Swisher at All Things Digital, in All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders, and Dan Primack at PEHub, in 5 Skype Questions for Marc Andreessen, interviewed Marc Andreeson of Andreeson Horowitz. The common statement about his relationship with Niklas and Janus:

We have not been in business with them before, so we don’t have any baggage at all. Our view is that they’re two super-creative founders. We’ve known lots of legendary founders, and they are all different and have things that make them unique. We include ourselves in that from past experiences. We view ourselves as a pro-founder firm, so we like the idea of founders being involved. It’s a net positive.

Martin Varsavsky. CEO of FON, a company partially financed by many of the same players in the Skype sale, restricts his comments to his thoughts on the future of Skype – where is Skype vulnerable?, where are its strengths? – in Why it may make sense to buy Skype back. His overriding statement:

Skype is simple. Michael Arrington and all of Silicon Valley may find Google Voice amazing but is the average global citizen ready to use it? Massively use it? You download Skype, you find your friends on Skype, you talk. And, if you don’t find them, you Skype out. And when you talk you can also do video. I LOVE video calls on Skype. I used to use them for people I really cared about, relatives, close friends. Now I even do business calls on video with Skype. It just gives you more of a sense of what is going through the other person´s mind. And Skype is the leader on video quality. So simplicity plus video may be a good way to beat flat plans from telcos and avoid being Tivoed. If the video services can migrate to mobile phones Skype is on to something.

Andy Abramson, in The Skype Suit Is Settled-Now Business Can Get On, comments:

I’m just glad the suit is settled between eBay and Skype. Now a lot of things that have been held back can finally move forward. In many ways the settlement is a good thing. The return of the original founders means disruption will continue, and new ideas will flourish. It also means Skype as a business or brand will now have a chance to prove its worth.

Alec Saunders, in eBay’s big mistake; Why the JoltID license was inevitable, concludes:

The lesson in all this? Deals involving technology licenses and acquisitions are common in business. When acquiring a technology asset, buyers must acquire the necessary control needed in order to protect the business.  Either buy, or license in perpetuity, what you need to prosper. Unless your intent is to immediately begin work on a substitute technology, a license for core technology that needs renewal is a sure way to find yourself caught by the short-hairs in a future negotiation.

The bottom line is that Skype is now in a position to focus on building future communications software and services without the distraction of depositions, legal wrangling and media curiosity. Provided he can navigate through a 23-member board with diverse interests and experiences, Josh Silverman can build the real communications software business of providing infrastructure for conversations while having a wealth of technology and business connections available in an advisory role.

Previous Posts:

Om’s trail:

• Skype, Founders Settlement in the Works (Nov. 1)
• Further Details Emerge As Skype & Its Founders Close to Settlement (Nov. 3)
• Skype Founders Fight Their Way Into the New Skype (Nov. 5)
• My Thoughts on the Skype Settlement: Winners & Losers Scorecard (Nov. 6)

Kara Swisher (All Things Digital):

• Volpi and Index Ventures Out of Skype Deal, the Lawsuit-Happy Founder Twins In (Nov. 3 with lots of links to related stories)
• I Love the Smell of Settlement in the Morning: Skype Founders Set to Get 10 Percent, Option to Buy Three Percent More and Two Board Seats (Nov. 3)
• All Is Forgiven: “It’s a Clean Slate,” Says Andreessen About Lawsuit-Mad Skype Co-Founders (Nov. 6)

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Two announcements yesterday, when meshed together, create the setting for Skype to become, de facto, the ‘”unofficial” personal communications software provider for the 2010 Winter Olympics at Vancouver and Whistler, B.C. next February:

Skype President Josh Silverman today posted: “Good Move AT&T”:

Since launching our iPhone application six months ago, people have downloaded and installed Skype on 10% of all iPhone and iPod touch devices sold – making it clear that people are extremely interested in taking Skype conversations with them on the go.

All of us at Skype applaud today’s announcement by AT&T (in an FCC filing to be published shortly – update, it’s here in PDF format) that it’ll open up its 3G network to Internet calling applications such as Skype. It’s the right step for AT&T, Apple, millions of mobile Skype users and the Internet itself.

Bell Canada’s Mobility service and Telus yesterday announced both the launch of their new joint-venture HSPA+ network across Canada next month and their agreement to be selling Apple’s iPhone amongst other 3G/GSM phones such as Nokia’s line. In fact, as shown on the right, the existence of the new network, with the identifier “302880”, can already be detected via the iPhone’s Carrier settings .

The implications of this announcement:

• Bell Mobility and Telus expect their HSPA+ network to completely replace their current CDMA/EV-DO network within five years.
• Bell Mobility and Telus will be providing direct competition to Rogers who, to date, has been the sole GSM carrier in Canada and will be able to offer a full range of 3G GSM phones – not only the iPhone but also Nokia’s GSM-exclusive line of phones.
• As a benefit of their current monopoly Rogers has also been the only carrier offering Apple’s iPhone since its Canadian launch in July, 2008. Canada now becomes one of the few countries with multiple carriers offering the iPhone.
• As another benefit of their GSM monopoly Rogers has been the sole network available for roaming by visitors from outside the U.S. and Canada as well as AT&T and T-Mobile customers from the U.S. Since athletes and visitors coming to the Vancouver Olympics from outside North America will have GSM phones, Bell Mobility and Telus will now be able to draw away from Rogers a significant portion of the roaming business that otherwise would have accrued by default to Rogers.
• Bell Canada is the “official” communications carrier for the 2010 Winter Olympics and Paralympics. Bell Mobility has built out their new HSPA+ network from the Telus network connection in Vancouver along the Sea-to-Sky highway to Whistler, site of the alpine and cross-country skiing events as well as bobsleigh, luge and skeleton “sliding” races.
• Additional communications capacity between Vancouver and Whistler has been built by Bell Canada for Internet communications, the 35 to 40 Mbps voice and data backhaul required for each of the wireless towers and the HD 5.1 surround sound television coverage that will include all events. No doubt a lot of fibre has been installed as BC Highways rebuilt the Sea to Sky Highway over the past few years to meet the Olympics’ inherent demands both additional vehicle capacity and enhanced safety. Being the “official” carrier this will benefit Bell Canada’s revenue stream also.

This raises the question of whether an HSPA-only service can run on the iPhone or BlackBerry Bold both of which currently only support 3G. The answer is Yes; HSPA will support 3G devices.

However, an HSPA+ network can only fall back to a 3G network capability when full HSPA capability is not supported by a device. But the iPhone and BlackBerry Bold also support 2G/EDGE networks.

As a result should a Bell Mobility or Telus customer leave an HSPA+ coverage area, there is no EDGE available for fall back when outside these areas. For example,when we drive the freeway from Toronto to Ottawa, we see EDGE for most of the trip except near Toronto, Kingston and Ottawa where Rogers 3G coverage exists. Either Bell and Telus will require roaming agreements with Rogers to provide non-urban service or they will not be able to offer as complete coverage to their customers.

Of course, those landlines will be able to support Skype on laptop PC’s using Ethernet or WiFi connections. But combining the two announcements along with Skype for iPhone’s recent availability in Canada, can Skype become the overall de facto “unofficial” personal communications software provider for the 2010 Olympics? Questions to be answered:

• Will Skype release a version of Skype for iPhone that supports both WiFi and 3G as the underlying wireless protocols prior to the Olympics?
• Will Skype finally release Skype for BlackBerry? (to address Phil’s desire for Skype on a multi-tasking smartphone)
• Will we see execution on Skype’s agreement with Nokia?
• Will the various communications and “Internet cafe” rooms for athletes and press be equipped with enough power sources to keep the various smartphones charged conveniently?
• Will Bell Canada have the same policy re Net Neutrality as Rogers who has publicly stated their primary business in providing Internet access and not managing applications or specific customer uses?
• Has Bell Canada signed the appropriate international roaming agreements with carriers around the world?

Certainly it’s within the realm of current technology to support Skype over wireless networks, whether WiFi or wireless carrier. Bell Canada touts their 2010 Olympics commitment as being “The first all-IP Olympics”. The question that remain:

• To what extent will the Skype ecosystem actually be able to execute on, and take full advantage of, this underlying IP-based communications infrastructure?
• Will Skype’s popularity, ease-of-use and combined voice/chat/video feature set make it the de facto “unofficial” voice, chat and video personal communications software provider for the 2010 Winter Olympics and Paralympics?

Call it Skype Everywhere by Stealth…. but can Skype execute on the challenge?

Disclaimer: Bell Canada, including its Bell Mobility wireless business unit, is the official communications services provider for the 2010 Winter Olympics. Skype is a software application, with over 500 million registered accounts worldwide, that uses these communications services for the purpose of voice, instant messaging and video conversations; however, Skype is in no way affiliated with, or endorsed, by the 2010 Winter Olympics Committee.

Full disclosure: For over thirty-five years the author has personally observed the growth of Whistler from a small and remote “boutique” ski area with one tragically slow 4-person per cabin gondola lift and a few double chairlifts into North America’s number one rated ski resort covering two mountains and capped off last year by the opening of a 4.4km peak-to-peak gondola that takes riders as high 436m above the valley floor. Concurrently the Sea-to-Sky highway has grown from a twisty, up-and-down adventure (and risky) roadway with some sections on wooden platforms on stilts anchored to rock walls over canyons to a safe multi-lane, yet still scenic, roadway. (I still consider it one of Canada’s most scenic highways.)

• A fully redundant fibre-optic network between Vancouver and Whistler to support essential broadcast traffic. Bell has successfully laid fibre to the front door of every major Olympics and Paralympics venue, and will ultimately connect all of the 130 competition and non-competition venues to our dedicated Olympics network
• Bell’s fibre-optic network will provide all voice, data and broadcast services for fans, media, athletes and officials from around the world, and will be the backbone that enables all Olympics and Paralympics connectivity. This includes 400,000 private radio calls, 10,416 hours of dedicated TV broadcast coverage to more than three billion viewers, timing and scoring results delivered in the blink of an eye, and more
• The highest level of reliability and redundancy and the most up-to-date technology for the full range of Olympics telecommunications services, including voice, data, broadcast video and audio, wireless PCS and private radio
• Provision of all hardware, cabling, logistics and support staff
• An unprecedented level of support to the Rights Holding Broadcasters, in particular the Broadcasting Service for the Olympic Games
• Internet portal services enabling an interactive, multilingual window to Canada and the world
• The first all-IP Olympic Games
• All built to minimize environmental impact by co-locating equipment to minimize footprint, coordinating construction schedules to reduce waste and using IP-based technology to dramatically reduce cabling and infrastructure needs

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OK, now I have your attention with a headline different from the “Skype sold for $2.75 billion” headlines so rampant in the blogosphere yesterday….

By now the web has been saturated with stories about yesterday’s announcement of the forthcoming acquisition of a 65% controlling interest in Skype by a consortium of investors, led by SilverLake Management LLC and including a $300MM infusion from the Canada Pension Plan Investment Board. At this point the main story is “old” news but a few comments:

Who is Canada Pension Plan Investment Board?

Since 1965 every employed Canadian contributes a % of their employment income (up to an annual income cap of about $37,000) to the Canada Pension Plan (“CPP”). Between the age of 60 and 65 qualifying Canadians can elect to receive a (taxable) monthly payment from this plan until death along with a “death benefit” to the deceased’s estate. The Canada Pension Plan Investment Board …

… is a professional investment management organization based in Toronto. Our purpose is to invest the assets of the Canada Pension Plan in a way that maximizes returns without undue risk of loss. The CPP Fund is $116.6 billion. Canada’s Chief Actuary estimates that CPP contributions will exceed annual benefits paid through to the end of 2019. Thereafter a portion of the CPP Fund’s investment income would be needed to help pay CPP benefits.

Over 17 million Canadians currently participate in the Canada Pension Plan either as contributors or recipients. So we each effectively have a $16.75 investment in Skype.

And Canada, with its own geographical challenge of servicing a market where 90% of the population lives within 160 km (100 miles) of the 6,000 km (4,000 mile) long Canada-US border, continues its long history of having an interest in communications innovation.

Why was there no Skype-eBay synergy?

Meg Whitman made the same mistake I witnessed at a previous employer where the CEO and Board bought up companies but never got “buy-in” within the acquiring company of any major acquisition that required a rethinking of the overall company business focus and execution.

As a result there were no internal champions within eBay for executing on the stated intentions of the Skype acquisition. And the statements of the day demonstrated that eBay senior executives (and Board) did not understand a basic principle of auctions – there is no role for “conversational negotiations” during an auction; this is critical to maintaining the integrity of the auction process. You see the goods and make a decision as to whether or not you want them badly enough to pay the final auction price; the auction process itself is the “negotiation” of a price. Bidders have no opportunity (and do not want) to communicate with sellers; the auctioneer (in this case eBay) is simply a neutral third party who moderates the transaction to establish a price.

Why is eBay still an investor?

Back in the spring when a potential IPO was announced, we learned that eBay expected to continue to have a minority interest in Skype. With a $1.9 million cash infusion and a remaining 35% interest, eBay can still hope to recover, over time, the approximately $3+ billion it has to date spent on the Skype investment four years ago. At the same time it allows eBay executives to focus totally on getting their struggling “markets” business back into a growth mode.

With this strategy eBay can assuage Om’s concerns in Skype Sale Nears: Why eBay Shareholders Should Be Mad. As a sequel, once the sale was confirmed, Om states:

So Donahue gets to say that he got the higher valuation of Skype, got rid of a potential legal nightmare and can get any upside that comes with the initial public offering of the stock. Seems like a win-win, but that IPO — don’t count on it. To be honest, this deal makes much more sense compared to all the rumors that were floating around earlier. [My italics]

What are the positives about the acquisition?

#1 – Keeping the current executive management team. In his eighteen months as President of Skype, Josh Silverman has brought a lot of business process and experience into the company with the result that business processes and programs are being built to build sustainable and increasing revenue streams. Two recent examples of this are the availability of the FREETALK Everyman headset designed to improve the user calling experience at a very low cost and yesterday’s launch of Skype for Asterisk. Expect much more activity and announcements along these lines of building a stronger Skype ecosystem during the fall. This momentum can only be sustained with a continuation of the current executive team. Skype needs to focus on execution at this point; it does not need any further high level restructuring activity to distract from execution.

Two statements confirm this is the case:

• Josh’s own post, A new chapter, concludes describing “a new group of owners who believe passionately in our mission and in the ability of our team to deliver on it”.
• Egon Durban, Managing Director at SilverLake, states: “Josh Silverman has done a strong job leading the company and we look forward to working with Josh and his team to grow the Skype franchise.”

While there are some “technology heavyweights” becoming involved as investors, the real challenge is to build an effective and synergistic relationship between those “heavyweights” (who will probably become board members and/or advisors) and the current management team. This is where corporate culture and value sets, as established at the executive level, can play a strong role in leaving individual managers the freedom to execute on their goals most effectively.

What are the gotcha’s?

• Resolution of the patent dispute with JoltID. No deal would have been done without some understanding of the part of the new investors of the outstanding issues and prospects for how this issue can be resolved. On the other hand, with the experience of the various new investors, many heads can be brought into the negotiation of a resolution. My take: this will never reach the High Court trial scheduled for next spring.
• Why the $125 million note? My guess: it’s escrow funds to cover costs arising with any litigation issues that may arise in closing the deal. Is a first guestimate of a settlement with JoltiID in the range of $100MM? Can Skype develop a replacement for JoltID’s  infrastructure technology so critical to Skype’s business model for under $125MM? Again from Om:
  

  If you think about it, what Donahoe just did was follow the golden rule of business: If you’ve got a problem, make it someone else’s problem. And the problem for the new buyers is that the legal issues of Skype are not going away. Some of my smart friends think that Skype can sidestep these problems by switching to a SIP-based infrastructure, but I won’t hold my breath.

  Any SIP-based infrastructure would sharply increase the need for building a massive global infrastructure. It would also mean working with partners (that make Skype devices) to re-configure their products and getting 400 million-plus users to switch to a massive new model. In other words — like skating in the middle of a semi-frozen lake underneath a brightly shining sun.

• Employee motivation: what will be the stock option opportunities for employees now that Skype has effectively gone private?
• Financial reporting news: by effectively going private, Skype also has no investor reporting obligations. On the other hand if these investors intend to exit via an IPO in a couple of years, they must provide some level of financial reporting. (By being a minority investor, eBay no longer needs to report on its Skype investment any more that it does on its craigslist investment.)

What do Canadians want?

Now that 17 million Canadians have an investment in Skype can we expect to get;

• Skype Online numbers? Canada’s 911 regulations provide a roadblock. (Note to CRTC – when lightning struck my home’s Rogers and Bell communications lines two weeks ago, for four days Skype was my only landline service.)
• Skype for iPhone? Requires resolution of a G729 codec patent issue. (Sorry folks, it’s not a Rogers issue.)
• Skype for BlackBerry? Given that Research in Motion has become Canada’s leading technology company.

Bottom Line: With this acquisition Skype is finally free of what Andy Abramson describes as “an extremely conservative, bank-like culture”. Yes, Andy, “Skype is about the democratization of voice”; I would extend this to say that “Skype is about the democratization of conversations – whether voice, chat and video”. I certainly look forward to innovation and a much stronger Skype ecosystem as a result of this change of ownership.

Other posts of note:

• Omar El Akkad provides a great summary overview in today’s Globe and Mail: EBay hangs up on Skype Strategy.
• Globe and Mail Report on Business: What is Skype and Why is it important?
• Om Malik on GigaOm: Skype Sold for $2.75 Billion
• Andy Abramson at VoIP Watch: (after the announcement) Skype Sold, JoltID Suit Still Remains In Place As of Now; (adding to speculation prior to the announcement) Is Skype in Play?
• Update Sept. 4: Dan York, on returning from IT Expo adds his comments in Onward the disruption – Skype’s sale to private investors is a great step; includes Phil Wolff’s Skype Journal graphic showing the ownership post-acquisition based on Om’s reported numbers.

And previous Voice On The Web Posts;

• The Skype IPO: “It Ain’t Over ‘til It’s Over”
• Skype – eBay: Passive Separation

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• Skype – eBay: Passive Separation (voiceontheweb.biz)
• Stealthing Skype into Larger Businesses (voiceontheweb.biz)

We all know that Skype for iPhone currently requires that you be at a WiFi access point in order to make a Skype call from the iPhone, even though it supports 3G data. So, when highly respected technology reporter Larry Magid, attending today’s D:AllThingsDigital conference, sends out the Tweet, shown to the right, quoting AT&T CEO Randall Stephenson, many questions arise:

• Has AT&T heard that Skype really provides communications software? I think that is the message that Skype President Josh Silverman has been trying to deliver when he states, “software will drive the future of real time communications innovation and efficiencies going forward, not the existing telcos”
• Is failure to allow Skype for iPhone to run over AT&T’s 3G network a tacit admission that AT&T continues to suffer from 3G data network capacity and quality issues? Once again my most recent trip roaming on AT&T in Chicago four weeks ago demonstrated nothing to say service availability and robustness has improved over my previous experiences in PA, WV, VA, NC, SC, CA and NV.
• Is AT&T’s response to SlingPlayer Mobile for iPhone (or BlackBerry) one more challenge to, or subtle admission of, AT&T’s network quality and robustness issues. Is the following statement a cover-up for their failings:
  

  “Slingbox, which would use large amounts of wireless network capacity, could create congestion and potentially prevent other customers from using the network,” an AT&T representative said in e-mail to reporters. “The application does not run on our 3G wireless network. Applications like this, which redirect a TV signal to a personal computer, are specifically prohibited under our terms of service.”

I would invite Mr. Stephenson to Canada where I can demonstrate Rogers’ high quality 3G GSM data network that:

• has robust and reliable 3G data coverage in not only major population areas but also all our major tourist and recreation areas (Whistler, Central Ontario, Tremblant, etc.)
• is always there when I expect it
• has no issue with using SlingPlayer Mobile for BlackBerry (and has made no issue with SlingPlayer Mobile for iPhone either)
• Rogers is offering its Rocket Stick mobile data service over its  7.2Mbps 3.5G HSPA network, placing additional demand on their network capacity.

Bottom Line: Sorry, Randall, but AT&T has a long way to go to show that they understand the real potential of, and that they’re serious about, their mobile business.

For more amusement check out John Paczkowski’s report on Walt Mossberg’s Q&A with Randall Stephenson at D7.

Update: Om Malik reports this afternoon at GigaOm: AT&T Moves Up Its LTE Rollout, Admits To Network Issues. Seems that AT&T is finally admitting they have some issues to address.

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“I thought you were on at 4 in the afternoon”, says a confused Manhattan Best Buy visitor. “No, we tape at 9 in the morning”, replies Oprah. “Oh, then Hi Oprah!”. Placing a Skype webcam setup in a Best Buy store found an adolescent customer who was looking for a Mother’s Day gift and waiting for the neighboring Pottery Barn store to open.

Oprah: “So, do we have permission put this on TV?”

Ashra (Sp?): “On Oprah! Hell, yes!”

With this introductory clip of Skype video-induced spontaneity, Oprah’s “Where the Skype Are You” show yesterday became the world’s longest duration, most viewed Skype promotion. During the sixty minutes the show went to downtown Grise Fiord, Nunavut, Canada’s northernmost community on the southern tip of Ellesmere Island in the Arctic Ocean, the Palmer Station Antarctica research site about 200 miles from the South Pole, to 37,000 feet on a Virgin America flight 780 from Seattle to Los Angeles and 60 feet under the ocean to the USS Louisville submarine. Other highlights:

• Three setups were at locations where such happenstance as shown above could occur: a Manhattan Best Buy Store, Harrod’s in London and at the Oprah sign outside the studio in Chicago.
• The Oprah sign initially was missing the usual crowd of tourists taking pictures but a later return found five young ladies who were eventually invited into the taping.
• The Palmer Station Antarctica research team was going to use their Skype video equipment to do live presentations about their research activities to students at schools across the U.S. while it was still there.
• Oprah interviewed Skype President Josh Silverman from Skype’s London Corporate Office who gave a brief demonstration of setting up Skype.
• Obviously Harpo has figured out how to mix Skype video calls to come up with a video conferencing solution that allowed a ”virtual” wine tasting session to happen between a vintner at Bonny Doon Vinyard in Santa Cruz, CA, two Virgin Flight 780 passengers and Josh Silverman in London. Now if we could just get the Skype bit-to-atom converter working to virtually share the wine!
• The Virgin America flight connection was via Aircell’s recently launched  GoGoInFlight WiFi service, which as of yesterday, is now available on all Virgin America flights. However, only for this flight was Skype video calling allowed; from Wednesday’s press release:
  

  Although Virgin America does not typically allow Voice-Over-IP (VoIP) products like Skype video call in-flight due to concerns about maintaining a quiet, restful cabin environment, guests can currently use Gogo® to Skype via the instant message feature, in addition to e-mailing, tweeting, updating their Facebook pages and any of the myriad other ways the web is keeping people connected. The early roll out of the Gogo® service across the airline’s network makes Virgin America the first and only airline to offer consumers in-flight WiFi on every flight – regardless of route, aircraft type, or flight time.

• Local Toronto sketch artist Barbara Muir has taken a liking to doing sketches from Skype Video calls (that’s Barbara’s sketch on my Voice On The Web bio page). Barbara appeared on the show and drew a sketch of Oprah from her Skype video connection. I spoke with Barbara after the show; the interview experience with Oprah had overwhelmed her. She was impressed with how Oprah was up at 4:30 a.m. to prepare for the show; Harpo personnel were contacting her in preparation at 6:00 a.m. Chicago time. As mentioned above the show was taped at 9:00 a.m. Chicago time; and apparently there were two more Oprah shows to be taped that day. Barbara’s biggest issue was having to look at the webcam while Oprah appeared on the her display screen below – a protocol for doing any interview is to be looking the camera “in-the-eye”.

Overall an amazingly interesting production. What would be really interesting is to see if there was any significant post-show jump in Skype downloads and account registrations. But we’ll probably never know.

• Toronto Globe and Mail: Skype connects Toronto artist to Oprah
• Check out the Oprah.com user comments related to this show; read about the request for a “modem in the sand” (#12)
• A historical note from April 2007: Skype Video for “Live On Location” Television Amber MacArthur was the original reporter using Skype video for her reports to Toronto’s CITY-TV.

Next: what I have learned from this about how Harpo produces Skype video calls.

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Since first using Skype’s High Quality Video for remote interviews during her weekly “A New Earth” seminars in the spring of 2008, interviews via Skype have become almost a daily occurrence on the Oprah show. A recent one of significance was her launch of her own Twitter feed where she interviewed Ashton Kutcher who now has over 1.8 million Followers. Oprah herself has passed the 1 million Followers mark although she seems to post Tweets infrequently.

Well, it seems that her Harpo Productions team have been busy taking Skype to some “extreme” new end points. According to Skype’s Jennifer Caulkins:

This week, we’re expecting to see Oprah push the limits with Skype even further. Watch Josh Silverman, President of Skype, make an appearance on The Oprah Winfrey Show, Thursday, May 21st as part of the “Where the Skype are You?” episode. It’s going to be a fascinating Skype adventure not to be missed as Oprah takes viewers to some surprising places over Skype video.

But here’s where it gets real interesting: if you watch the teaser you start to get a perspective on where Skype has gone to new heights and new depths in this “extreme Oprah Show adventure”.

Thursday, May 21 from 4 p.m. to 5 p.m. EDT (GMT-4) is blocked out on my Tungle calendars. My only remaining decision is whether to watch an our TV set, via SlingPlayer on my PC or SlingPlayer for Mobile on BlackBerry.

Voice On The Web posts about Oprah’s use of Skype

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Yesterday’s announcement of Grand Central’s rebirth as Google Voice drew a lot of attention from both the mainstream media and blogger world. In following the IP-based communications world over the past three years, I have come to believe that the only potential real time conversation service provider challenger to Skype could come from Google. It has huge user registration numbers at a world class scale; however, its primary business is built around how many ways can one drill down within Search and then offer contextually relevant advertising. On the other hand, they appear to be looking to complement search-embedded activities, such as Search within GMail, with real time conversation capabilities.

For instance the recently launched GMail Voice and Video chat allows users to migrate to real time conversations directly off an email message. Great in the context of building a dialogue out of an email’s subject and content. I’ve tried it and it works but have not had reason to use it in my everyday activity; on the other hand, if I  find reason to use it, it’s there and easy to launch. A great example of voice-enabling a conversation in the context of an ongoing dialogue.

Show me a platform that is not supported by Google’s GTalk chat offering. Almost every PC and mobile device I receive for evaluation is supported by GTalk. Yet, I only have about ten contacts on GTalk and may get a message once every week or two. There’s a reason Alec Saunders came out recently to say “Ditching all IM Systems except Skype!”. On the other hand, GTalk is there; it’s handy if someone contacts me via GTalk.

While Google Voice lists its entire feature set here, Kim Peterson’s post, “Free long-distance? Oh yeah, Google;s going there”, on the Topstocks blog at Microsoft’s Money Central, highlights the the top ones:

In a nutshell, here’s what you’ll be able to do with the free program:

1. Get a single phone number that routes calls to your cell, work and home phones simultaneously.

2. Call numbers in the U.S. for free. And call internationally for ridiculously low rates — I’m talking 2 cents a minute to China.

3. Get your voicemail transcribed into e-mail or text messages.

4. Make free conference calls.

5. Get your voicemail on the Web.

Mainstream media, however, could only focus on how Google Voice would provide competition to eBay’s Skype. New York Times’ Miguel Helft starts out with:

“Google stepped up its attack on the telecommunications industry on Thursday with a free service called Google Voice that, if successful, could chip away at the revenue of companies big and small, like eBay, which owns Skype, telephone companies and a string of technology start-up firms.”

Ryan Singel at Wired’s Epicenter:

When Google announced its integrated phone service called Google Voice Thursday, it said something very loud.

Google is saying it wants to be the world’s communication hub, and hundreds of companies — ranging from mobile phone operators to Skype to Microsoft better be listening.

Further down the same article, Ben Lilienthal, now general manager of audio services for Citrix Online – and a Skype partner for full service audio conferencing, “isn’t convinced that businesses will move to the service very soon”, Ben went on to say:

“For a consumer, it is a pretty compelling service,” Lilienthal said. “But I think if you are a business user, it’s not necessarily a road you would want to go down. There are a bunch of things business users worry about that consumers don’t. If it doesn’t work, can I get a live person on the phone? Is it reliable? What kind of quality of service can I get?”

Many reporters and bloggers had a chance to upgrade their Grand Central service to Google Voice yesterday. However, being a Canadian I never acquired a Grand Central number for the same reason as fellow Canadian and Fonolo CEO Shai Berger:

….. this problem is not unique. Many similar services don’t extend into Canada. It’s still hard to get a Canadian Skype-In number for example. Ooma has the same problem and when I spoke to some senior people at Ooma last year they cited complicated regulatory issues (including a word I hadn’t heard before: “homologation“. Always like learning a new word). I don’t expect Grand Central/Google Voice to address this any time soon and I don’t hold it against them — the extra hassle is probably not worth it in the early stage of the game.

But Shai also gives a more generic reason for not being a user of Grand Central:

That 2nd item is a bigger issue because it effects everyone, not just Canadians. Our mental model for interacting with phones is that “if you called me from number X” I can hit redial to call you back. (Or I can store that number in my address book for later.) To fix this we either have to change user behavior (tough) or spoof the caller-ID (technically doable but quasi-legal). The only Voice 2.0 company I know of that has solved this problem is Truphone, which does transmit your Truphone number as to the destination. [Author’s note: SkypeOut also provides callerID using either your Skype Online number or your “Skype registered” mobile phone number.]

But there’s also a user interface issue when you look at how a call is placed. Further down in Kim’s post (and similarly described in the NYT post referenced above):

Here’s how it works: You call into your voice mail on Google Voice, and from there you get transferred to a dial tone. You can call any number at that point [author’s italics]. You also have a central Web site that will show your voice mails and manage your account.

So I have to call one number in order to call the number I want (and, at that point, there’s probably no linkage to my device’s native address book), eh?

And, finally, Om Malik points out a few issues, including how users will pay for international calls:

Just as a warning, the upgrade to Google Voice won’t allow you to take your Grand Central address book with you, since the new system uses Google Contacts. In addition, the service doesn’t work with those of you who have Google Apps accounts; you’ll need Gmail accounts. Lastly, they make you use Google Checkout to pay for international minutes. No thanks — I am happy paying with PayPal and/or credit cards. [author’s italics]

Let’s go back to Skype (and iSkoot):

1. I want to locate a phone number (or SkypeID) in my native mobile handset address book, hit the green “Call” button on my mobile phone and launch a voice call. Real simple UI here. On a mobile device, such as BlackBerry or Nokia N-series, I can do this with iSkoot for making both Skype-to-Skype or SkypeOut calls.
2. I have 14 years invested in my current office and mobile phone numbers. I’m not ready to make any changes. iSkoot, on my BlackBerry, and Truphone on both BlackBerry and iPhone work with each device’s existing phone number.
3. SkypeOut (and iSkoot, when making SkypeOut calls from a BlackBerry or Nokia N-Series S60 phone) provides my mobile phone number as a callerID. A party who needs to return my call can simply click on the number and reach me. (and, if in my native address book, readily see who has called).
4. With Skype I can make payments via PayPal or directly on my credit card.

While I will try Google Voice once they expand to supporting Canadian numbers, its modus operandi certainly does not come up to Skype’s standards for a truly user friendly calling experience. On the other hand its call screening, call management and voicemail handling features certainly provide some new challenges for Skype to watch out for.

Bottom line: today we all look for competition in the wireless carrier and mobile smartphone markets. But there are key differentiating features. It’s healthy to see two players such as Skype and Google, both with world scale user bases, in the real time conversation space. But there are differences, in the individual end users will adopt whatever provides the most convenience for his/her individual needs.

Full disclosure: the author has Bell Canada lines for his home office, including fax, requirements while using Rogers Home Phone for family voice calling. He also uses Skype for most of his business conversation requirements, especially long distance and international calling. Just as different smartphones meet different user needs, we’re probably going to find that many of us need multiple services for all our real time conversation needs.

Finally let’s look at one more slide from Skype President Josh Silverman’s analyst presentation earlier this week:

Google has a little bit of work to do to round out an equivalent ecosystem.

Check out Kim’s post for links to several other bloggers’ comments as well.

Andrew Hansen: Skype makes a small ripple, but no Splash with new VM features.

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Yesterday eBay held an analyst event at its San Jose headquarters location with a keynote by eBay CEO John Donahoe followed by presentations by various eBay executives and Skype President Josh Silverman.

Josh’s presentation broke a lot of new ground for Skype addressing issues such as:

• How does Skype generate revenue?
• What drives Skype’s cost model?
• How will a software company change real time communications in ways that legacy telcos cannot?
• How is Skype structured to address its various market opportunities?

In a long-term financial outlook issued by eBay in conjunction with this event, they state:

Skype is expected to more than double its revenue to over $1.0 billion in 2011. With more than 400 million registered users currently, Skype’s metrics continue to accelerate as the company further establishes leadership in free and paid Internet-based voice and video communications, with growth opportunities in core consumer, mobile, businesses and platform. Skype’s leadership position has strengthened over the past year, driven by a new management team and the launch of many innovative products.

The overriding aspect of Josh’s presentation was repeated emphasis that, fundamentally, Skype is a software company. As verified by many of the presentations at eComm 2009 last week, Josh stated that there is a communications paradigm shift going on where hardwired networks and devices are gradually being replaced by software-based networks and flexible devices. Skype’s “opportunity is to become the world’s leading communications software company.” Josh’s analogy: It was not the railways that invented air travel; in a similar manner, software will drive the future of real time communications innovation and efficiencies going forward, not the existing telcos. To reinforce his point, Skype will not simply be on familiar telephony devices, it will show up in intelligent TV sets, car dashboards and intelligent public access terminals such as bank ATM’s all tied to a common network.

Josh continued: Communications is no longer just about voice; it’s now multi-modal: mood messages, chat, voice calling, multi-party calling, video calling (did I also hear him mention multi-party video calling?) and online screen sharing. Where and how we communicate is expanding: laptop, mobile phone, flat panel TV’s – “any connected computing device with the addition of software becomes a communication device”.

He went on: With hardware and network access becoming a commodity, the opportunity for margin is to capture it at the application layer. Software companies will drive the innovation in the industry, drive the demand for new hardware and better access. (Did he effectively read from the Voice 2.0 Manifesto?) Solutions must be device and network agnostic.

How big is the market? The $300B EBITDA of the $1.4T communication industry revenue is almost equal to the total revenue of global ecommerce and Search.

How did Skype build its business last year? Inherent reliability; it “just works”. While so much of Skype’s operating environment stands outside Skype’s control, yet Skype must try to provide the ability, through its software, to readily adapt to these conditions, especially at the user end point.

How does Skype make money?

• From user services:
  • What’s free (at no cost to Skype)? Skype-to-Skype calling, video calling, Chat/IM, Multi-Party calling, File Transfer
  • What’s Paid? Subscriptions (unlimited calling), SkypeOut (pay-as-you-go), Online Numbers, Voicemail, SMS
• From a partner perspective, licensing opportunities. The Skype-Nokia and Skype-MySpace relationships are two examples. Hardware royalties are another source. Carrier relationships, such as the 3 Skypephone example discussed below, are a third source for what are effectively licensing revenues.
• The third leg of revenue generation comprises some advertising opportunities that have arisen.

Yet Skype has inherent fundamentals that have made it profitable for the past six quarters:

• negligible customer acquisition costs (mostly word-of-mouth; compare with Vonage whose customer acquisition costs are in excess of $250)
• negligible capital expenditures and network maintenance costs (being peer-to-peer it’s Skype’s users who invest in capital items, such as PC’s, routers and Skype hardware, and in network maintenance through their Internet subscriptions)
• pre-funded accounts which result in negative working capital where subscriptions and Skype credits are paid up front but the revenue is recognized on a pro-rated quarterly basis (Have you ever noticed there’s no “phone bill” sent for payment once a month? – Skype has no collection costs)
• strong free cash flow conversion ($1.00 of EBITDA for Skype is almost $1.00 of free cash flow)

The results: Skype’s profitability has grown to the point where they achieve 20% “segment margin” an amount that Skype contributes to eBay’s overall profitability (segment margin makes no allowance for allocation of eBay corporate costs).

Additional data provided:

• Skype continues to add over 350,000 new account registrations per day
• account registrations are distributed geographically as shown on the map to the right; he labelled North America as a “developing” market with rapid growth
• A year ago Skype celebrated support of over 100B cumulative calling minutes since its launch; in 2009 Skype expects to do this same number within the year
• Over 8% of the world’s international calling minutes are on Skype
• from December 2007 to December 2008, video calls increased from 27% to 34% of calls
• due to its peer-to-peer architecture only Skype can deliver a video experience for free, and at performance levels unequalled elsewhere.
• while active users rose 39% in Q4 2008, engagement, defined as ‘calling minutes per active user’, rose by 72%
• while calls under 2 minutes duration dropped from 41% to 33% comparing October 2007 to October 2008, calls in excess of 10 minutes rose from 37% of calls to 47%. Josh attributed this to higher reliability and call quality.
• small changes make a huge difference:
  • increasing penetration of paid products by 1% brings in $60MM of additional revenue
  • to be a billion dollar business, Skype needs its existing paying users to make just one more call per day
• Skype’s marketing approach was to drive awareness through embedding Skype into the “popular culture”, where it has been used on Oprah, Who Wants to Be a Millionaire?, CNN and other news reports.

Going forward Josh talked about three markets where Skype has barely scratched the surface: core consumer (size: $240B), mobile (size: $603B), and business (size: $203B).

For the consumer market, Skype has four approaches:

• continue driving new users (by building “communities” or leveraging social networks)
• better promote its paid products (make it obvious, upon registration, where paid products can be found – not buried three levels deep in the “My Account” tab)
• increase revenue per paying user (encourage adoption of revenue services based on calling patterns; continued focus )
• monetize free users via advertising (but be smart about it, do it tastefully and carefully all the while protecting the core business)

[Author’s note: Execution on the last will be interesting, given some experience with “free” voice services that have attempted to “blatantly” introduce advertising into calls themselves.]

Josh went on to discuss mobile, but that’s the subject of a separate post. However, take a look at the Skypephone on 3 success story:

• Over 500,000 units have been sold; this generates a monthly revenue stream to Skype
• 3’s margin on Skypephone is 20% higher than their average margin across all handsets
• 79% of Skypephone customers are new 3 customers

As for Skype’s business offering:

• 35% of users use Skype primarily, or often, for business
• adoption into business often grows out of individual employees using  Skype to call friends and family when on the road, start using Skype for multi-party calls, do video calls with customers and vendors
• leads to a call to Skype from IT managers who are getting pressure from their colleagues’ experiences (and, by the way, you can charge for it)
• needs to expand from being a product to being a solution that fits with other PBX and software solutions they are already working with
• create the infrastructure required to provide service and support services (revenue opportunity)
• build out a channel that reaches out to businesses that are familiar with dealing with VAR’s

Going forward:

• Act 1: (completed) one platform (PC’s), one revenue stream (SkypeOut), one market segment (long distance calling), one primary service (voice), one primary market (mature Internet markets – Europe and Asia) and one target user (consumers)
• Act 2: (now to 2011) is about “Many” – many platforms (PC, mobile, TV, web), diversified revenue streams (subscriptions, licensing, advertising), including business subscriptions; many conversation modes (voice, video, chat, collaboration tools), many regions and many target markets
• Act3: (2012 and beyond) “Any” – any mode, any platform, anywhere, multiple market segments, established products, regional ubiquity and mature target markets.

Josh’s forecast for 2011:

• More than double revenue in excess of $1B annually
• Maintain segment margins of 18% to 20%
• More diversified revenue streams: telecom, service and licensing fees, advertising)

His summary:

• Accelerating growth, outstanding fundamentals
• Attacking an enormous opportunity and positioned to win
• Business is getting stronger

Bottom line: For the first time a CxO level Skype executive has put out an extended set of benchmarks and guidelines against which their activities can be measured by all; the challenge now lies in the execution. And analysts finally get a more detailed view into this “mysterious” and oft-questioned Skype acquisition by eBay in 2005.

The audio recording and complete sides can be found for 30 days: click here and then select “Analyst Coverage” in the left sidebar. (viewer registration and Windows Media Player or Real Audio Player required). Or go directly to this link. Josh’s portion starts at 2:37:15 into the recording.

Related articles by Zemanta

• Nokia to preload Skype onto handsets beginning in Q3 (mobilecrunch.com)
• eBay: Good in Parts (readwriteweb.com)
• Is Skype for sale? (news.cnet.com)

This afternoon I came across this article by reporter Chris O’Brien in today’s San Jose Mercury News: “Video Chat has entered the mainstream“. It appears that the worlds of Oprah viewers and Silicon Valley geeks and reporters have more than six degrees of separation. The story starts out by talking about an email he received from his mother:

Seemingly out of nowhere, this note from her landed in my inbox: “Have you heard of Skype? Apparently you can use it to do free video calls on the computer.”

My mother, who lives just outside Kansas City, tends to be a reliable barometer for when a technology is gaining adoption outside the hermetically sealed bubble that is Silicon Valley. Well, my mom, and Oprah. As one of only a handful of people on the planet who don’t watch Oprah’s show every day, I had missed the fact that she’s recently begun using Skype to make regular video calls with her audience.

Chris goes on to report on a brief interview with Skype President Josh Silverman whom he quotes with:

And Skype has a new version in beta that will make video calling much more central to the service, according to Skype President Josh Silverman.

…. And in its new release, Skype users will be able to enlarge the video to fill the entire screen without degrading the picture quality.

Well we now know what Chris is giving his mother for Christmas. For his benefit, listed below are previous Skype Journal posts on both Skype High Quality Video and our reporting last March on Oprah’s use of Skype Video.

• Skype Sponsors Oprah’s “A New Earth” Web Event
• Three Big Milestones in Skype’s Fifth Year
• High Quality Video: What’s the Benchmark?
• High Quality Video: Definitely a Winner for Skype
• Expanding the High Quality Video Experience and Observations
• To Be Restored: Camera Flexibility for Video Hackers
• Installing a Logitech High Quality Video Camera: The Experience.

Chris, keep up with Skype Journal and you won’t be learning about how Skype is used from your mother.

By the way, how did I know to follow up on Chris’s interview with Skype President Josh Silverman last Wednesday? He set it up via Twitter messages with Skype PR. At the time Twitter was their sole available source of contact information.

A final question: will we be seeing a new version of Skype High Quality Video (or better) introduced at CES in January?

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Over the past few months, announcements have been few and far between with respect to Skype product news. But at the same time I have often discussed Skype’s restructuring moves; the first official disclosure of a restructuring was disclosed in our September interview with Skype’s new President Josh Silverman. Well it appears that Josh has been busy doing interviews; today three top level appointments were announced:

Daniel Berg, previously Sun’s London-based Chief Technology Officer for Global Sales and Services as well as Vice-President of Systems Engineering for EMEA, has been appointed as Skype’s Chief Technology Officer, starting January 2, 2009. In a summary statement from Skype’s blog post:.

As CTO, Daniel Berg’s primary responsibility will be to drive innovation and ensure Skype continues to develop great software. With a mandate covering Skype’s full range of products, he will develop and maintain a global team of more than 300 staff.

Daniel has authored several books. But since he has not made any statements on his appointment yet, we could paraphrase a statement he made about his Sun activities last April in a post entitled “Travel, Talk, Repeat” on Sun’s “Contrarion Minds” blog:

So he travels. A lot.

“I actually spend 25 percent of my working day, on average, in the air,” says Berg, who is based in the U.K. “That’s not going to the airport, not coming home from airport, that’s in the air.”

He knows this because he sticks to a time budget.

“I know I need to be spending this much time with customers and this much with organizational matters and this much with employee development, to make sure I’m staying focused and balanced,” he explains.

His biggest challenge?

“Articulating the value Sun [Skype] has,” Berg replies. “I know this has been said before, but I’ve been at Sun 15 years and this is the best lineup of technology, products, and offerings we’ve ever had. Yet when I go talk to customers, one of the first things they say is, ‘Oh, I didn’t know you guys did that.’”

So we’ll be expecting you to become one of the more “public” faces of Skype. And that those air miles will keep on building up.

The second appointment is Christopher S. Dean as Chief Strategy Officer. From his LinkedIn profile, Christopher has a long history of working with startups, including periods on the venture capital side in Silicon Valley, most recently as co-founder of Texada Capital. At one point he and Skype’s GM Audio and Video Jonathan Christensen were colleagues in a San Francisco-based venture capital firm called Sweetwater Partners, whose Internet traces seem to have disappeared. From the Skype blog post announcement:

Christopher S. Dean will focus on Skype’s strategy, including the development of partnerships and strategic alliances with other like-minded organisations and the acquisition of companies and technologies for Skype. His team will act as the incubator and strategic planning hub for new ideas and projects which support Skype’s technology vision and long term corporate goals.

It appears that Christopher will be based out of Skype’s San Jose office; his responsibilities will be a key to driving Skype from a $500MM per year revenue business into the the multi-billion dollar revenues needed to justify eBay’s initial investment in Skype. Why the “S.”? I assume that Christopher is trying to avoid confusion with the U.K.’s Olympic Ice Dancing multiple Medallist Christopher Dean.

The final appointment, another key to ensuring Skype hires and maintains appropriately skilled and motivated employees, is the appointment of Anne Gillespie, whose long history of EMEA positions with Compaq and HP, brings the experience required to serve as head of Skype Human Resources.

There’s still one more major executive move I am expecting – a Chief Marketing Officer who bring the badly needed messaging and market communications strategies and disciplines required for a business that’s expected to attract sufficient usage to generate those multi-billion dollar sales.

And I’m sure Lee Dryburgh has no problem with my publicly inviting Dan and Christopher to join the rest of the Emerging Communications community at eComm 2009; after all Skype is a Platinum sponsor.

Best wishes for success, Dan, Christopher and Anne from Skype Journal.

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The Motley Fool has become a popular and widely respected  investment community site since the origins of the commercial Internet in the mid-90′s with the objective of helping people take control of their financial lives. It has evolved into a multi-media financial services operation; they have free and premium services; suggest portfolios and try to pick recommendations, host discussion forums amongst other activities. “The company’s name was taken from Shakespeare, whose wise fools both instructed, amused, and could speak the truth to the king — without getting their head cut off.”

In a post yesterday about “5 Free Internet Winners” they discuss the five biggest winners if free WiFi comes to pass as a result of anticipated rules for forthcoming spectrum auctions in the U.S. Google, Logitech, Amazon, Nintendo and “eBay | SkypePal” are the selections. Why SkypePal?

Forget eBay.com itself. By the time free access hits the masses, PayPal and perhaps even Skype will be bigger parts of this portfolio of verbs. Heck, even the name eBay may be toast as you crack open the 2012 annual report of SkypePal Incorporated.

Skype and PayPal will be the biggest winners of blanketed coverage. Skype remains the global voice chat leader with 370 million users worldwide. If you don’t think that Skype will replace a few landline telephone accounts once connectivity is pervasive, you may as well Skype me to tell me otherwise.

PayPal is already the leader in micro-payments. It will become an even bigger force in real world transactions under Martin’s scenario of access for all.

Certainly an opinion contary to all those thinking that eBay is about to run out and sell Skype. And it reinforces my long held opinion that the new executive team has one primary goal – to drive up the value of Skype to the point where eBay can not only fully recover its over $3B total acquisition cost of Skype but also provide a reasonable return, whether as an ongoing operation or through an exit involving a sale or IPO. Motley Fool goes further and feels that Skype will become one of the primary value drivers of eBay shares going forward, given that eBay’s online operation is struggling to find new ways to grow.

As for more reliable indicators of Skype’s current growth than Skype’s published number of accounts (not subscribers, not users), check out the peak number of users daily shown in the Skype client, Jean Mercier’s note on the tripling of Skype downloads and Hudson Barton’s “Real” User tracking showing that Skype is has returned to a growth rate comparable to its 2006 rate.

But in the background the new executive team has been working on the restructuring discussed in Skype Journal’s interview with Skype President Josh Silverman. In a recent “Home Improvement” post, Josh gave an update on the the efforts required to “right the ship”:

Excited as we are about bringing new colleagues aboard, there’s more to reorganizing our structure for continued growth. Back in the summer, we set out to be smart about it. And transparent. And fair.

Which is why we held numerous workshops to gain input from the team on how our structure and ways of working need to change. Change that we hope will lead to sustained growth, better products and an even more empowering work life at Skype. One of the things we’re doing is to create smaller “companies” within the company: consumer-, business-, mobility-, and developer-focused business units vaccinated against shackles that curb innovation and risk-taking. Each new business unit is designed to emulate the feel of a start-up and to cultivate a deeper sense of ownership.

This is just a low-resolution snapshot from what’s a continual journey of change. There’s much more to it, of course. Replotting our roles, responsibilities and accountability takes time. While we think that we’ve done most things right, some won’t come through as intended. Tweaking them for a few months should make life at Skype work well for everybody.

And he concludes with:

Our structural rethink isn’t about change for change’s sake. From day one, everything at Skype has boiled down to delighting the customer. With a bit of home improvement to support further growth and innovation, we’re just making sure it stays that way.

At least Motley Fool and the Skype executive team are in sync with respect to the primary goal at Skype. The next few months and the subtle indications of forthcoming new product and service announcements will tell if the foundation is being built to achieve these goals. From restructuring will now come the challenge of execution.

Tags: Motley Fool, eBay, Skype, PayPal, Josh Silverman

As a four time graduate of the University of Toronto, I am glad to see the atmosphere for investigative research is thriving at my alma mater. A researcher at their unique Citizen Lab, “focusing on advanced research and development at the intersection of digital media and world civic politics”, is responsible for uncovering the Tom-Skype security breach that has widespread coverage.

Globe and Mail reporter Matt Hartley has obviously gone to the lab for an interview with researcher Nart Villeneuve for his article in today’s editions: How a Canadian cracked the Great Firewall of China. …. the irony of where “lost passwords” can lead you:

When he couldn’t remember the password to his Chinese MySpace account he decided to take a look at Skype.

…Using a TOM-Skype account on one computer and a regular Skype account on a nearby laptop, Mr. Villeneuve would type a word into one computer and see if the other computer received the message, to see what information would be filtered out by the service’s censorship tools. When he typed in a common four-letter expletive and hit send, it didn’t show up on the other computer. But he noticed something else.

Read on. Further along Matt reports:

After he contacted Skype on Wednesday to inform them of the breach, the company moved quickly to plug the holes in the TOM-Skype servers, Mr. Villeneuve said.

And, as Phil has already reported, Skype President Josh Silverman responds here, including this comment:

It’s important to remind everybody that the issues highlighted in yesterday’s Information Warfare Monitor / ONI Asia report refer only to communications in which one or more parties are using TOM software to conduct instant messaging. It does not affect communications where all parties are using standard Skype software. Skype-to-Skype communications are, and always have been, completely secure and private.

New York Times, Oct. 2 (registration required)

Wall Street Journal (may encounter a walled garden), noting that TOM-Skype has 69 million users, places this story in the perspective of other “Doing business in China” stories involving Microsoft, Google and Yahoo.

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This is the fourth in a series of posts resulting from an interview a week ago Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about addressing the small-to-medium business market as well as various geographical markets.

Over its five years, Skype has built up, almost totally virally, a significant base of users who take advantage of Skype to not only reduce their business communications costs but also to communicate more effectively with colleagues and customers around the world. At the same time various Skype software partners have built offerings, such as Pamela, PamFax and Skylook, that either focus on Skype as a business communications tool or include Skype amongst their options for calling. Within Skype’s own offerings, the Business Control Panel provides the tools for a system administrator to handle both the deployment of Skype and the administration of Skype accounts within a business’s operations.OnState is a primary example of the latter. They have built up a call center offering that takes full advantage of both instant messaging chat and voice in dealing with both inbound and outbound calls; they also take advantage of the three founders’ combined over sixty years’ experience participating in the call center market. Yet, they encountered many opportunities where they had to go back to Skype for assistance since, for one reason or another, Skype’s program were insufficient to address business users’ requirement. The result is that today OnState offers their customers “one stop shopping” whereby, on acquiring a customer, OnState takes on responsibility for addressing Skype subscription needs, hardware requirements (headsets and handsets, implementation issues and first level technical support.

The Business Control Panel has had its limitations also; the main fear has been to mitigate potential for fraudulent or unauthorized activity through purchasing and licensing limits.

As for geographical markets, Skype met a much larger need for communications cost reductions in Europe and Asia than in North America. As a result over 80% of Skype’s revenues continue to come from outside the U.S. The two primary needs met in North America are for “Friends and Family” calling outside North America and small businesses who are working to grow internationally – both internally and with their suppliers and customers.

In growing internationally, there has been the challenge of building user bases in widely diverse markets; “free”, “easy-to-install” and a whole lot of viral marketing action have introduced significant adoption around the world. But this success has led to more business-oriented challenges in working out termination agreements, establishing effective multi-currency transaction systems (although being an eBay co-unit of PayPal certainly helps), multiple language versions of software (27 at last count) and providing multi-lingual, internationally available technical support. (We’ll talk about marketing and more about technical support in future posts in this series.)

We asked Josh about the Skype’s approach to the business market:

JS: Skype in the business market. There’s more that needs to be done. (you guys are smart, you’re asking all the right questions). Platform is a huge opportunity for us; business is another big opportunity for us. About half of the communications market is business; we have a great solution, especially for small-to-medium size businesses. We haven’t tailored that solution to businesses very much; we haven’t communicated to businesses that we have that solution. In the new organizational design one of the pieces of that will be to build out a business unit focused on small-to-medium size businesses where we’ll have some resources available to tailor our product and some sales and marketing resources to work … I don’t think that we’ll be directly selling to small-to-medium size businesses but we can work with VAR’s to help support them in bringing Skype to businesses.

(Note this interview occurred two weeks prior to last week’s announcement of Skype for Asterisk, a program that leverages Digium’s Asterisk reseller channel for sales, implementation and ongoing support requirements.)

We then moved on to ask about various geographical markets:

SJ: North America. (Thank God for Oprah!) Skype has become much more a household name this past year (with an acknowledgement to Don Albert, GM North America). What does it take to keep that business going forward in U.S. and Canada and what are the strategies for U.S. and Canada?

JS: We’re very aware that the number one way to grow Skype is to build products the users love. That is our first mandate always. Once you have a product users love, we can accelerate it by some smart marketing programs. (By the way if you don’t have a product that users love no amount of marketing on earth will save you, right?) So we do have a product that users love and I don’t think we have done as much as we could to communicate that.

Oprah is a great example. It is not our intention and people should not expect massive multi-million dollar marketing budgets from Skype. But there are some smart tactical things we can do working together with evangelists like Oprah to build awareness. It’s our belief that once you’ve grown awareness, people will try it; once they try it they’ll love it. and the rest takes care of itself. At the Democratic national convention we were quite happy to see many of the national broadcasters using Skype as a way to expand their coverage and you should be looking for more programs like that in the United States in the year to come.

SJ: China is your biggest market?

JS: In terms of total users it’s one of our top markets; the answer is yes.

SJ: QQ is still kicking butt in China? What strategy do you have in your existing partnership with Tom?

JS: We have a great partnership with Tom who knows the local market very well. Tom is also a very entrepreneurial, innovative, fast moving company. We’re very pleased to be partnering with them; they’re the right partner to continue building our presence in China.

SJ: Do you have your own people in Asia?

JS: A couple of people in Asia who work with our partners to make sure they’re getting the support they need and also giving us real feedback from the market on what we need to be doing on [our] core platform to be able to support Asia better.

SJ: How about India?

JS: We don’t have anyone working in India. We don’t have a partnership in India to announce but we are seeing good growth in India but we think it’s a terrific market and we are expecting to have more focus on that in 2009

My observation, five months in, [is that] markets where Skype has the most power are markets where you have high broadband connectivity, you have a large ex-pat population, and where the local telephony system is not as efficient as it could be. Many of the developing markets meet that profile so we think we have a huge opportunity in developing markets such as India and it’s our intention to focus more on that in the coming year.

SJ: To succeed in the mobile market place, mobile device manufacturers have had to build carrier relationships. What does Skype need to do with either handset manufacturers and/ or carriers to succeed in the mobile market?

JS: I don’t think the carriers should be able to dictate what software the users get to use. any company,. the smallest startup in the world, if it has really outstanding software ought to be able to take on the whole world and not have to hire 50 people to develop relationships with 300 carriers.

Just in case you’ve been on vacation on a remote island not reading Skype Journal the past few days, Phil and Michael Robertson have been having this debate about Skype and interop with SIP-based services (more here and here). It even spread to last Friday’s SquawkBox call.

This morning Dan York, who sits on IETF forums on VoIP security, weighed in with his perspective in a post: Skype and SIP Interop – the two sides of the issue raised by Michael Robertson where he lists all the various posts on this subject and comments:

About Wireless Openness:

So with that view, you can expect I applaud Skype’s efforts to open up the wireless networks and allow consumers to have a choice of what apps they want to run. I want the *wireless* carriers to be big, fat, dump pipes… give me an IP address on the *mobile* Internet and let me do what I want with it. Sure, the carriers can offer their own services, and maybe if I like them I’ll pay for them…. but I want the option to use other products and services – without degradation or prioritization…

To put it another way, I pay the wireless telcos for *dialtone* now. Once connected, I can call anyone and use any *voice service* over the PSTN. I could use someone else’s voicemail if I want (like GrandCentral), although the carrier’s offering may be more convenient (and is usually free). But I can call anyone on the PSTN and use any voice service I want. The carriers just provide me dialtone.

I want “IP dialtone”. I want a Big, Fat, Dumb Pipe.

So… go, Skype, go

About Skype Openness

We need to build the interconnect.

Yeah, there are a TON of issues out there that we still need to address to build that interconnect. There’s a whole host of security issues… there are billing issues… there are trust issues… there are network plumbing issues. Yes, there are all those issues. But if we are to succeed in ultimately bringing about the rich communication experience we want, we need to make this happen.

And for that, Skype’s walls need to come down…. at least a bit.

What we need is that Interconnect from Skype’s cloud out to the emerging IP infrastructure. Think about it… Skype right now has a two-way interconnect between Skype’s cloud and the cloud we know as the PSTN. It’s called “SkypeOut” and “SkypeIn” (or whatever marketing names they are being called now). If you dial my SkypeIn number, you can reach me on Skype wherever I am. From my Skype client, I can call anyone on the PSTN. The two-way interconnect is already there.

So why not offer the same on the IP side?

My feeling is that we are at a stage in the evolution of IP-based communications where the interconnectivity agreements between service providers still need to be worked through. While technically one can make the connection, it seems that every SIP gateway also requires a business agreement and transaction – similar to the agreements amongst PSTN carriers that are so transparent to our ability to make calls anywhere on the PSTN. I’m not a technical expert; I just want to be able to call as many of my contacts as possible – at as low a cost as possible – but I also want the privacy, security and authentication of Skype when connecting to other services.

In a Skype Journal post earlier today, Skype President Josh Silverman is quoted as mentioning that Skype is looking for a GM for Platform whose initial responsibility will be to lay out Skype’s future platform architecture. But Josh also assured us that user perspectives will be considered while designing this architecture. It would seem that, once the appointment is announced and Skype has a forum for user input, the debate engendered by these posts would be a good starting point for consideration of one aspect of Skype’s platform ambitions.

This is the fourth in a series of posts resulting from an interview a week ago Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about directions for the Skype platform and partner programs.

When I first attended a Skype developer event in June 2006, there was lots of enthusiasm for the Skype partner program and for its integration into various third party applications and service offerings. Several of the feature requests, such as call transfer and access to the voice stream, that had come to the surface by the time of this event, have since been implemented. In December 2006 Skype announced the Skype Extras program for which there are over 100 offerings available, mostly for the consumer user but the list also includes about ten in the small-to-medium business space. Most importantly, partners have been asking not only for a platform roadmap but also for execution on that roadmap.Skype Extras included a publishing and transaction platform, yet to date, only PamConsult has taken full advantage of these feature for its well received (and award winning) PamFax offering. On the other hand, OnState has been able to figure out how to provide a friction-free full services program for its call center customer base. However, over the past eight months market visibility of any significance for the entire Skype partner program has just not been there. Yet we see “Skype access” continue to be built into various platforms such as Ribbit and Voxeo. Skype Certification exists for only seventeen offerings. InnerPass has received Skype Certification two weeks ago (review). At IT Expo last week in Los Angeles I came across several service providers and application developers who wanted to have a Skype presence in their offerings.

On the hardware side there have been many innovative offerings; I have experienced many of them. As confirmed by 3 executives at last Thursday’s Mobilize 08 event, the Skypephone has met with phenomenal acceptance in the nine countries serviced by 3. Yet several hardware partners have drifted away to the point where we only see limited visibility for Philips, GE and IPevo dual mode (Skype and landline) phones and a few accessory products, such as the FreeTalk Wireless Stereo Headset, from InStoreSolutions (who largely address the European market). Beyond the Skype Store availability, WalMart is carrying Skype hardware in the U.S. (and I found some at Fry’s in Sunnyvale this past Saturday).

Frankly, sorting out its platform strategy and partner relationships, and giving them appropriate visibility, is perhaps one of the biggest challenges that Josh and his team face in sustaining Skype’s presence in the IP-based conversation space. In our interview with Josh it became quite apparent that these issues have not missed Josh’s scrutiny leading up to the business reorganization we have been discussing in the various posts in this series:

SJ: In your interview with Om Malik yesterday you mentioned as one of your key growth initiatives “Skype as a platform, embedding Skype as the conversation infrastructure for devices and services”. Tell use more:

JS: We’re incredibly lucky that almost everyone in the world wants to do something with us. That’s fortunate because we need to be everywhere. For Skype to be successful and to fulfill its full potential we need to be part of every device and every communications experience. and we can’t do that on our own .so we need a really robust platform that allows us to be part of other people’s experiences or devices and allow other people to be part of us. We all recognize that we have a long way to get from where we are today to there. With the relatively small program we have and small investment we have made we have 15,000 partners who have signed up for our program today. I think that’s a great indication that if we really invest behind this we can do something magical.

SJ: What would that future platform look like?

JS: What we want to do is lay out a set of principles around the platform that say:

• we want people to be able to incorporate Skype into their experience.
• It should be the full Skype stack of functionality
• it should include all of our feature set and not just hive off one piece or two pieces.
• When you use Skype you should know you’re using Skype and
• you should have a SkypeID which works across all of our experiences,

So somebody who wants to take Skype and build it into their experience but create a walled garden of “only within their experience” doesn’t build value for the greater ecosystem. If you start with Skype on one experience and then you go to another experience with another platform partner, you still need to be able to communicate. There needs to be one SkypeID that works everywhere and then it needs to hold true to some basic sense of brand principles around what the Skype brand should be. Beyond those principles we really want to allow people to innovate and use Skype and do what they will to extend the functionality for our users.

SJ: Has the architecture for this started?

JS: Right now we have created the job of GM of Platform; I hope to very soon name a GM of Platform. That person is going to have to really work on what does the architecture need to look like to support this, what are the API’s are going to be – reference UI’s, technical documentation – as well as evangelizing to the broader community forming some of our partnerships, so we have some work to do.

SJ: Is the job posted on your job board?

JS: Not yet, we have some candidates; but if there are folks in your community that are excited by this and we haven’t already filled this in the coming days [faded away but implication was to apply].

SJ: Is there a timeline?

JS: I don’t want to speculate too much. We do have a API [set] today, we do have lots of people working with the API’s so we have something to build from. I’m not an expert. I wouldn’t be able to lay out a timeline but we are going to get an expert who can lay out a timeline. … As with everything at Skype, we want to be fast but also make sure we do it well, in particular with a platform. It’s got to be well thought through so we support our partners really well. We know there’s a big responsibility in there and we take it seriously.

SJ: Would you be looking at getting the partners involved in helping designing that platform and getting some feedback on it?

JS:I think that would be essential. One of the things I’m pretty passionate about is always bringing the voice of the customer in early to anything we’re trying to do and I think that, for the platform, that would be absolutely essential.

SJ: What are you looking at to address ongoing partner communications issues with respect to the partner program?

JS: I take the partner program really seriously and we’re aware that we’ve not invested adequately behind it and want to do more. The first thing we are going to do is hire an experienced, capable leader of that organization who will pull together for me a plan for what resources do we need to invest in — engineering, partner support, evangelism, technical documentation — to make sure we build an organization that can support our partners robustly.

What I don’t want to do is over promise. Step one is, when you get somebody good in, lay out a plan and then when we’re ready to announce some more forward looking things we’ll do that.

Changes are not going to happen overnight when Skype is acquiring 300,000 new registrations per day and profitable. But, based on the strategy and principles outlined by Josh in this interview, going forward we should be looking to see within a three to six month timeframe:

• Announcements of the appointment of two key senior executives who bring along experience in building platforms and partnerships
• A platform architecture and developer roadmap
• Revamped plans for Skype’s hardware and software partner programs

It will also be most interesting to see what forums or other means Skype provides for input into the platform architecture and developer roadmap strategy. Execution is everything, especially at this stage of Skype’s growth within the IP-based conversation space.

(For background on Skype’s partner program history check out: A Primer for Skype’s Direction – Skype’s Extras Gallery and Developer Partner Program. And for an example of what attracts developers to Skype as an ecosystem check out “On Spotlight: Don Kennedy AKA TheUberOverLord”.)

Next: Markets: Business and Geographical

This is the third in a series of posts resulting from an interview last Friday with Josh Silverman, Skype’s recently appointed President. In this post we talk about Skype’s value set, getting the business side right while benefiting from the experience and skills of the current employees and the role of product marketing.

In the last post we talked about the major issues Josh has identified for addressing along with a strategy for employee empowerment to reduce the complexity of decision processes while driving towards business success. But a critical requirement for employee empowerment is the need to establish and communicate a sense of core values that flow throughout the company and make employees more comfortable in making decisions, especially with decisions that may involve some risk. As a follow-on question to our discussion of employee empowerment I asked about the need to drive a value set through the company. Josh’s response:

Skype has a great set of values. Coming into the company I’m very humbled by what they’ve accomplished, what a great culture and values we have. I want to make sure we nourish and respect that. So some of the values I see are:

• thinking disruptively and differently about problems, not just incrementally innovating
• wanting to have an impact on the world
• caring a lot about what we do for people and doing that globally
• a big desire to win
• a big desire for excellence
• a passion for the customer

Those are qualities that I would hold dear and want to make sure we nourish as we grow.

We then went on to the “people” challenges of getting the business side right while building on the inherent passion of the current employees.

I think everyone at Skype would agree that we, in a very short time, in about a year, hired over 150 people into marketing, product management and [other] non-technical functions. [We] essentially evolved those functions from scratch in a year. Given the pace of change at Skype, we needed to bring a lot of that expertise into the company. Of course, the challenge is that, when you grow that fast, making sure everyone knows what their role is and how to do that well … training … getting a common culture … takes a little bit of time. So what I’m focused on now is clarifying the accountability of all those business roles.

By the way, to your point about ‘we have a lot of passionate technical people’, I couldn’t agree more. Often time the best ideas come from that team. It is my belief that what the product and marketing organizations need to do is understand what problems the customer needs solved, and then to work together with engineering to think of the most creative, best way to solve that problem, hopefully better than anyone’s ever thought of in the past. If you’re doing an “ok” job of that, you’re understanding the articulated needs of the customer – like I can’t pay easily enough … it takes too long to download … I can’t configure my devices . If you’re doing a great job, you’re understanding the unarticulated needs of the customer .. things like “I’d like to be able to call anyone in the world for free” …

We then got into a short discussion about the role of the product manager as the mediator managing a balancing act between the user market and the engineering and design teams:

… It is not the job of the product manager to come up with the solution; it’s the job of the product manager to quarterback the design team and the engineering team and the marketing group together to come up with the world’s best solution. I think engineering and design play huge roles in that process.

Next: The Skype Platform …