With today’s announcement of Microsoft’s intention to acquire Skype, subject to regulatory approvals, Skype has received the endorsement required to be considered a long term, viable and stable service addressing both consumer and enterprise markets.

From the press conference and press release:

• Skype will continue as a brand and an independent business unit within Microsoft. There is significant value when your brand name has become a verb in the English language (and one that translates readily to all other languages).
• Skype will continue to support “Skype Everywhere” on Mac’s, Linux, iPhones/iPads, Android phones, TV and other devices – a key requirement to maintaining and growing its current base of over 170 million active users. (This was one condition of closing the deal but execution is key; the first test will be the revamp of the Skype for Mac 5 user interface.)
• Skype has a strong basic revenue generating business; at this point it should be profitable but certainly has had good EBIDTA.
• Skype now has 170 million active users (in the past quarter), as many as 30 million online concurrently at its daily peak and growing the accounts at a rate of over 600,000 per day.
• Outlook is a key initial application for integration into current Microsoft products; Microsoft Lync will be taking advantage of Skype’s underlying technology where appropriate and feasible.

My initial thoughts:

• Keep in mind that Microsoft has bought a communications software company; one of the biggest challenges will be the integration of the software development activities across what has to be at least two different product management and software development cultures.
• Microsoft brings to the table a new level of business process and product management expertise from which Skype will benefit significantly.
• Only Microsoft has the resources – technical, product and business – that can be leveraged to justify an $8.5B buyout price (and give the current investors ~150% return on their investment over 18 months). With opportunities to enhance Office products, add technology to Microsoft Lync and complement other collaboration product such as the Sharepoint platform, they can readily get their investment back within a few years.
• Skype has found a permanent home.
• Skype can now focus totally on product and service development without the distraction of seeking financing (and the associated endorsement).

Some questions:

• How will the two companies’ instant messaging services be brought together? Skype chat offers a richer chat experience, especially given the ability to rapidly escalate to a superior voice and video conversation and to provide complements such as file transfer.
• What will happen to the Skype Store and associated hardware? While Skype has supported and sold products from several hardware vendors, Microsoft’s limited hardware offering (of mice and keyboards) is sold via traditional PC hardware retail distribution channels. Yet much of the hardware has been designed, with assistance from the Skype-certified program, to take full advantage of Skype’s inherent technology.
• Skype has been attempting  to address the large enterprise market with its Skype Connect program; yet we have heard of no successes. Microsoft Lync is a large enterprise product that can probably take advantage of Skype’s inherent technology while delivering an offering that meets the concerns of enterprise communications managers. However, what will Skype be doing to support the small to medium business market – where over 35% of its users say they are using Skype in business?
• What impact will the time required to deal with regulatory issues be on the development and launch of upgrades and new products ? We were told at the press conference no road map will become available until these regulatory issues have been addressed such that the acquisition can be completed. Yet innovation, business development and product releases must continue during this period.
• What direction will the developer program take? Will Skykit survive its rather long birthing process or can Microsoft bring in developer program expertise that would finally get Skype an active developer program from which we can see results? (and from which third party developers can benefit.)
• Can we still expect to see evolution of the Facebook relationship in some way that supports real time conversations via Facebook?
• Since Steve Ballmer showed up on stage at RIM’s BlackBerry World event last week and is now deeply associated with Skype, can we expect to see a carrier-agnostic Skype client on BlackBerry devices? Or would that be too much conflict with Windows Phone?

Bottom line: while there have been overlapping products (such as Live Messenger and Skype Chat) there is so much synergy here that it’s going to be interesting to see what product evolution occurs over the next year and how Microsoft integrates an acquisition with what has become a brand onto itself. Steve Ballmer can be thankful that there was no Yahoo acquisition and that the Skype opportunity has come about with so many more obvious benefits.

One other benefit for Canadians: the Canada Pension Plan Investment Board cleared about $500MM on the deal above their initial $300MM investment 18 months ago.

Other thoughts:

• Dan York: The End of the “Skype as Bandit” Era where Dan provides an interesting  commentary on the barriers Skype has overcome, the Skype experience and the people behind Skype. Dan has blogged more about Skype than any other topic; his employer, Voxeo, lives and dies by Skype, especially the Skype chat.
• Alec Saunders: Does Microsoft’s acquisition of Skype change anything? where he talks about the impact on carrier relationships, video calling and handset manufacturers.
• Alec Saunders: Why is Steve Ballmer excited about Skype? where he provides an excellent overview of today’s Microsoft-Skype press conference and his conclusions as to why this is an excellent deal. (Recall Alec worked for several years at Microsoft.)
• Tidbits, Apple News for the Rest of Us: Microsoft to Buy Skype for $8.5 Billion “… Microsoft says it will continue to invest in and support Skype clients for non-Microsoft platforms. If Microsoft really loves us, they’ll throw out the Skype 5 interface as an initial gesture of goodwill.”
• Phil Wolff, Skype Journal: What Skype’s partners can expect from the deal and Why did Microsoft buy Skype?
• GigaOm: Steve Ballmer & Tony Bates Talk About Skype-Microsoft …

Related articles

• Done Deal: Microsoft to Buy Skype for $8.5 Billion in Cash (kara.allthingsd.com)
• Microsoft to Acquire Skype (online.wsj.com)
• Microsoft targets video-calling with Skype (theglobeandmail.com)
• Microsoft’s Plans for an Office-Flavored Skype (blogs.wsj.com)
• It’s official: Microsoft to buy Skype for $8.5 billion (seattlepi.com)
• Why Microsoft Plus Skype Is An Enterprising Idea (informationweek.com)
• Microsoft Brings Skype from Living Room to Board Room (pcworld.com)

While participating in an interview session earlier today at the National Retail Federation’s annual Shop.org summit in Las Vegas, eBay CEO closed off questioning about the pending sale of Skype with “… there’s nothing new on that; this deal’s going to close.” AuctionByte’s Ina Steiner put out this video on her post, eBay CEO: Skype Deal Will Happen, Open to PayPal Spin-Off:

The Cy.Talk blog, in eBay CEO says Skype deal “is going to close”, reports:

Backstage after the presentation, Donahoe showed Reuters an excerpt of an email message he received that morning from eBay Chief Financial Officer Bob Swan saying no “show stoppers” were identified in the recent spate of litigation.

“We’re marching along,” Donahoe said, adding that he still expects the deal to close in mid-November.

Bottom line: It ain’t over til it’s over, but ….

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• Joost sues Mike Volpi and Index Ventures over theft of information used in Skype bid (venturebeat.com)
• The Plot Thickens: Skype Founders And Joost Sue Former Chairman And CEO Mike Volpi (techcrunch.com)
• eBay chief says Skype deal ‘is going to close’ (financialpost.com)

With the announcement of the Skype IPO a few weeks ago we are starting to see the devolution of any previous attempts at Skype – eBay synergy. Yesterday Phil reported on eBay’s removal of Skype voice and chat buttons in eBay listings effective June 10, 2009.

My major introduction to Skype personnel and the Skype ecosystem was the 2006 eBay Developer’s Conference at the Mandalay Bay Hotel and Convention Center in Las Vegas in June, 2006. One to two hundred developers interested in exploring how they could work with the Skype Software Partner program showed up. Some common themes developed in terms of developer needs. But other than to have a common meeting location, there was really no cross-pollination of eBay developers (who tended to focus on building eBay reseller websites) and Skype developers (who were deep into programming “Extras” for Skype, hopefully to establish a partner business for themselves).

This week I received a “snail mail” postcard inviting “Alumni” to attend this year’s eBay – PayPal Developers Conference – at eBay’s headquarters in San Jose. No mention of Skype anywhere. And no enticing Las Vegas (2006) or Boston Convention Center (2007)location but rather at the eBay home office location in San Jose. At the same time eBay Live 2009, eBay’s annual event for eBay resellers that normally ran immediately after eBay DevCon, was cancelled about a year ago.

Not simply a sign of eBay weaning off Skype but also a sign of the challenges eBay Markets is currently experiencing as they work their way through the current economic conditions and the challengers to their domination as the Internet’s leading e-commerce site. It’s all about rebuilding the eBay franchise. (Did anyone notice that eBay’s quarterly reporting in April led off with PayPal – with its ongoing success – and eBay being second?)

With Skype’s restructuring and the appointment of Jason Fischl as Director of Developer Relations, can we expect a dedicated Skype Developer Partners event to be forthcoming?

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.

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

If we go back to our early September interview with Josh Silverman where we discussed “The Way Ahead – Platforms and Partners”, Josh stated in response to our question about addressing ongoing partner communications issues:

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.

Skype is about to take “Step one” and has put up a job posting for a “Manager, Skype Developer Community“.

Interested in an extraordinary opportunity to win the hearts and minds of developers all over the world? Are you passionate about the promise of rich Internet communications? If so, Skype needs you to come help change the industry. We are seeking an individual who can help provide knowledge, expertise, and charisma for partners building applications on the Skype Platform.

A comment about the Skype platform:

The Skype Platform provides developers with an open communications development environment with unparalleled richness and reach. With the Skype platform developers can build and deploy differentiated and revenue-generating communications applications, devices, and services for businesses and consumers alike. Since its launch 5 years ago, Skype has grown to over 330 [370] Million registered users across the globe. Skype provides a breadth of rich and integrated communications experiences. Now we are looking for developers to take those capabilities and experiences to another level by integrating Skype into applications, devices, and services on the web. If you are interested in voice over IP, mobile devices, audio coding, video services, rich collaboration, gaming, next generation internet / interactive TV, Location based services and experience as a leader within a community of developers… this is the role for you.

And the challenge:

Your challenge is to drive the Skype Community program that moves the new platform forward, compliments our platform product investments and ultimately delights our partner community and users. Your success will be measured by your ability to work closely with the product teams to develop a comprehensive developer marketing plan, and work with our marketing, product, and business development teams to evangelize Skype’s tools, development environment, and unique value proposition to the development community.

You will be part of the newly formed Skype Platform team whose mission is to lead the adoption of Skype’s Platform with developers and ISVs. The team is resourced and chartered to secure the future of the Skype Platform with developer audiences that span corporate and commercial developers, device developers, next generation developers in startups, students and social developers that writes plug-ins, widgets and mash-up applications today.

It’s a senior management position with responsibilities for leading a renewed Skype Developer program – articulating the vision, analyzing the market space and established best practices, executing on building sustainable developer partnerships, driving the interface between internal Skype resource teams such as developers, business development, marketing and the external developer partners through various outreach activities.

After describing the skills and experience sought, the posting concludes with:

You will be responsible for managing a team of professionals that will support your programs and plans to create a significant and long lasting impact on the community of Skype Software developers. We are looking for a thought leader that can also motivate and raise the enthusiasm of all Skype developers. This is a position with lots of visibility outside of Skype and experience managing media and driving public events is critical.

Location: London, UK or San Jose, CA. (With lots of air miles guaranteed.)

As for Dan York’s question about “the team is resourced and chartered”, recall that earlier in the same early September interview, Josh mentioned:

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 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.

So, I have to ask, in the context of what we heard during the interview: Has Skype appointed the GM of Platform but not announced it yet?

Dan also comments:

For those of us watching the emerging communication/telephony space, we’ve seen Skype make several different attempts over the years to create a successful developer program. Given their incredible user base and platform, it’s been curious to see that they haven’t yet found the right formula.

The Developer Program has more or less stalled since my Primer series post last fall discussing the developer partner achievements to that point in time. Yet there remain some basic resources such as API’s, a base of about 50 partner applications, and what continues to be world leading technology that gives Skype a head start in architecting and building a complete platform from which developer partners can build successful businesses.

In the meantime we have seen the evolution of the Apple Developer Program for the iPhone where, even with my bias towards the BlackBerry, I have to admit that we have seen some very interesting, innovative and impressive third party applications and mashups. They link voice, presence, location-based services, social networking, search. The results include obtaining real time information for traffic and transit, contributing to a successful US presidential political campaign and finding the nearest Tim Hortons or Starbucks. The most interesting has to be this week’s launch of voice activated Google Search, often invoking location based information for assistance.

The overriding challenge for Skype’s Developer Community Manager will be to create a winning environment that can foster a similar level of creativity and innovation while generating business wins for both Skype and the developer partners. Or to requote Josh’s statement: “to make sure we build an organization that can support our partners robustly.”

From my viewpoint, it’s the position that will ultimately make or break the restructured Skype. Partner innovation and successful business development are key to the sustainable and increasing revenues required to justify eBay’s investment in Skype.

Hat tip to Dan York who first pointed this out in a Twitter tweet.

Tags: Skype, Developer, Skype Extras, Josh Silverman, iPhone, Dan York, Skype Partner Program

While doing a broad search through an agency for its new CEO, eBay went internally to announce this morning the appointment of shopping.com CEO Josh Silverman as Skype’s new CEO effective in four weeks (March 24). From the eBay press release:

Silverman, currently CEO of Shopping.com, an eBay company, brings more than nine years of experience in running hyper-growth global consumer Internet companies. Silverman will join Skype on March 24, 2008 and report directly to John Donahoe, President and CEO-elect of eBay Inc. Michael van Swaaij, who was appointed interim CEO in October 2007, will stay actively involved with Skype.

Josh is an eBay veteran, having served, prior to his Shopping.com role, as General Manager for Marketplaats.nl and been involved with building eBay’s classifieds business in Europe. Prior to joining eBay in 2003, he was a co-Founder and CEO of Evite, a social event planning service that I have used several times successfully, most recently for my high school’s 50th anniversary reunion.

Josh does get blogging; He’s already put up his first post:

So what can you expect from me? That I’m serious about wanting to build the greatest products — and the greatest company — on Earth. That doing so means listening well, being willing to think different and take risks. And in everything we do, one thing is certain: we’ll always have the best interests of the Skype community at heart.

I’m the new guy, and have a lot to learn. To really understand Skype’s cultural and technological DNA, my number one priority is to do a lot of listening and learning. With my wife and kids about to begin their adventure in Estonia as well, I have all the support I could ever need. I want to know everything about the technology, the team and the community. And I hope to share some of my observations on this very blog and see what you think, too.

So, with their business headquarters having been in London, but the primary development team in Estonia, the questions arises as to why he is planning a move to Estonia? Is this a precursor to moving out of that expensive London real estate?

And my second question has to be, given you want some time to learn-and-listen,: “How many days do you have to be on board to make some significant statements on the forthcoming direction of Skype?” (Recalling, tongue-in-cheek, Jerry Yang’s “100 Days” at Yahoo that eventually resulted in an unfriendly offer from Microsoft.)

Welcome, Josh! You have your challenges, but if you succeed, Skype can become one of the most powerful communications forces going for building a peaceful world as we witness power shifts from centralized enterprises and organizations to the individual. We wish you luck as you take on your responsibilities.

Tags: Skype, eBay, Shopping.com, Josh Silverman

Rising like a Phoenix out of the ashes of eTel, Lee Dryburgh has taken the leadership in establishing a new conference that covers the bleeding edge of emerging communications. To be held at the Computer Museum in Mountain View, CA March 12-14, 2008, eComm2008, the Emerging Communications Conference, features sessions led by industry gurus with visions into the evolving transformation of the telecommunications industry into an IP-based world.

eComm brings out the visionaries, emergent technologies, real-world startups, cutting-edge academic projects, views from the incumbent telecom players; garage based hacks and stirs required policy debates to create the ultimate three-day conversation.

The story of the decentralization of communications innovation has passed the second chapter which was VoIP. It is now regarded as a building block only. As a standalone service it is both uninspiring and unlikely to be highly profitable.

The excitement and profits will be derived from combining voice with other vectors we’re tracking … more here.

Recently Lee interviewed Jonathan Christensen, Skype’s General Manager for Video and Audio, as one of a series of interviews with several of the eComm2008 speakers, and covered several issues:

• Why eComm is so important?

I think it [Skype] really represents the first major innovation in this [telecom] space since the introduction of the telephone system. And right now, we are just at the beginning of where the possibilities are. And so, I think I see eComm is focused exactly on the right spot where there is going to be an explosion of new rich communication services on the Internet platform..

• What is the subject area of Jonathan’s keynote?
• What initiatives for analyzing and improving voice quality are you helping to lead at Skype?

Suddenly with the Internet, you have the possibility to do so much more but you also loose that deterministic quality. There are so many things that we have to do to get the whole thing right and it’s like a daisy chain. On the send side, you have to think about the microphone and then the sound card and the sampling and the coding. Then you have to send it correctly and you have to know something about the network when you’re sending it: is there packet loss on the network? is there jitter? is there delay? What is the bit rate that is supported on the network? All those things that you have to optimize for – all of those situations. Is there jitter in the system that you’re using because other applications are taking too much CPU? All those things.

• Can you comment of the evolution of Skype’s wideband codecs going forward?
• Do you see something less incremental (and more revolutionary than evolutionary) coming along out of Skype?
• Can you comment on the future of voice processing technologies? Where do you see them going?

We want to continue to make the whole experience as seamless as possible, as natural and as life-like as possible. And I think, as I mentioned before, there’ll be a trend towards the higher fidelity, better performance in the devices as well. So we need the help of the device manufacturers at this stage to realize that voice is not just about this old fashion PSTN-style voice. It’s really about, high quality stuff. Video is a major initiative for us and making life-like video available in the mass market is a big goal for us as well.

And, we think – we hope anyway – that we’re at the front of the pack. We’re certainly investing very, very heavily in these areas. And we’re hoping to make this stuff as good as it can be.

• When can we expect the average person to have Skype running on their mobile phone (aside from the 3 Skypephone)?
• Where do you see the future of communications going?

I just have to reiterate, I think that anybody who has not figured out that the Internet is the platform and that there isn’t any such thing as walled gardens that will survive, or sub-networks [such as AOL tried] that are going to survive, those people are doomed. The intersection of these worlds is going to be chaotic. It’s going to be violent. It’s going to be messy for a while but it is going to happen, and the Internet will survive as the one open platform.

• Can you elaborate on why you are so excited about open spectrum?
• (re SIP) Do you see fragmentation when it comes to signaling going forward? Do you see things becoming fragmented into different signaling systems according to the application?

Read the entire interview here. It provides more insight into how Skype operates and background for where they are probably going than we have seen from any Skype executive in some time. And the last question brings out a most interesting answer re Skype’s position on, and use of, SIP.

With all the recent interviews and participation in various public forums, is Jonathan becoming the successor to Niklas as Skype’s visionary and public spokesperson for future technology innovations? A very good reason to attend eComm2008 and learn more!

Additional references:

• Skype On The Go: A perspective on Skype’s current state on mobile devices.
• Skype say “No” to VoIP Interoperability – *because customers aren’t asking for it!* – Well I am! Dan York comments
• A SIP/Skype Gateway Is NOT In The Forecast Hudson Barton responds
• HD Voice: “Priceless”

Tags: Skype, eComm 2008, Emerging Communications Conference, Jonathan Christensen, SIP, Lee Dryburgh, HC Voice

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Guest Post: Hudson Barton is a communicatons consultant whose Borderless Communicator blog not only talks about Skype and related IP communications activity but also attempts to track Skype’s “real usage”. According to his analysis, Skype has just cracked the 30 million real or” currenlty active” user number (based on tracking Users Online vs time-of-day). What follows is his post earlier this week summarizing some issues that were raised and discussed on the Skype 3.x discussion Public Chat forum following Dan York’s recent guest post on SIP/Skype interconnectivity.

Skype’s competitors and critics continually point out that Skype’s VOIP architecture is closed and that its API is not adequate for creating a direct connection between the Skype “cloud” and the SIP “cloud”. This of course is true, but there are good reasons for it.

1. The security and reliability of the Skype cloud would be seriously compromised if SIP hackers were given the tools to create direct VOIP connections between Skype and the outside world.
2. A SIP gateway to Skype might work if it were handled like SkypeIn/Out. However, I don’t think there’s a large enough population of SIP users out there to justify the cost of SIPIn/Out. Skype is growing at a rate of 500k-1000k “real users” per month, which is probably 10x faster than the rest of the VOIP world combined. A third party could build these gateways with the presently available API, but nobody is trying it to my knowledge… presumably because there is no demand for it. In any case, the developer (even if it were Skype) would have to justify the cost of such a gateway.
3. An IM (text-only) gateway is very possible and would not compromise Skype’s security or strategic position. Look for future interconnections with major players like AIM, gTalk, Yahoo, and MSN.
4. The Skype cloud is far more complex and has far more features than the clouds of any of its competitors. It is not rational to expect any of them to create a feature-for-feature mirror of Skype even if this were something that would be good for Skype (which it is NOT). A partial list of these features: video, SMS, encryption, and file transfer.
5. Relationships between Skype and social networks like MySpace are already possible if there is a partnership agreement. It does not require a change to the Skype API. Note that MySpace is a social network… not a VOIP carrier.
6. Skype may double its revenues this year and it’s already profitable. No other VOIP carrier is profitable (unless you want to count a few of the hosted VOIP services from the Telecoms and cable companies). A gateway to Skype will help Skype’s competitors far more than it will help Skype, so from a strategic perspective it makes no sense to help the competitors survive. Without Skype’s help, they (SunRocket and Vonage for example) are failing at a rapid rate. Meanwhile, “successful” competitors like Packet8 are monetizing themselves by selling off intellectual property. Obviously they “see the writing on the wall.”

Tags: Skype, SIP Gateway, Hudson Barton, Borderless Communicator, Packet8, Dan York

Having reflected on Skype’s accomplishments in 2007 and some of the more interesting devices and technologies that have crossed my way, now for my projections for 2008. (In the interest of enhanced objectivity — not that I can be totally objective — I have yet to read Phil’s 37 Sketchy 2008 Skype Predictions or Andy’s The Road in 2008 (links below after you have read this <gr>).

1. eBay will appoint a new Skype CEO in the first quarter. Andy has his insights into the search.

2. The new CEO will focus on “Delight the User”

• Introduce customer support plans (limited free and premium paid)
• Provide <24 hour response time on customer support requests
• Hire a Chief Marketing Officer who understands the role of, and process for, marketing a technology platform to both consumers and small businesses.
• Provide guidelines on optimizing end user configurations for highest quality voice and video.
• Set challenging goals for increasing SkypeIn and SkypeOut minutes used.
• Change Skype business and management structure to support the development and marketing of platforms as opposed to services
• Build a “Skype Inside” marketing program for Skype hardware
• Build a blogger relations program
• Improve dialogues with Developer Partners

3. Skype will introduce multi-party video conferencing (may initially only be three party)

4. Skype will focus on licensing two platforms:

• Skype real time conversation infrastructure (to additional social networking platforms beyond MySpace)
• Skype Developer API Toolkit: to include web services support

5. Skype users will rush out to replace their PC’s with Dual Core processors and their webcams with Logitech Carl-Zeiss optics webcams to take full advantage of Skype High Quality Video.

6. Skype will revitalize the Skype hardware program, improving hardware partner relationships, building a more effective hardware distribution channel (especially in North America) and building consumer awareness of Skype as a premium real time conversation offering.

• Skype will figure out how to open a Skype store for the 3.5 million Canadians.who have registered on Skype.

7. Skype will have to support emergency services for customers with SkypeIn numbers in countries requiring this.

• SkypeIn numbers for Canada will become available within three months of providing emergency services access for UK SkypeIn numbers.

8. The Skype Partner program’s business solutions providers will start to gain significant traction amongst the small and professional services business community.

9. Skype will execute on some form of significantly enhanced business relationship with Google.

10. Skypephone will become available in the U.S. via T-Mobile (and the Skypephone will be modified to support the required additional 850 MHz GSM band.)

11. Skype will upgrade its presence engine to deal with the fact that we may have multiple concurrent logins, especially on at least one PC and one mobile device.

12. Skype will gain significant placement on mobile devices.

• How extensively this goes depends on the (low cost) availability of “public” WiFi and./or 3G network access.
• note that I did not necessarily say there will be a mobile device Skype VoIP client.
• Should more (GSM) carriers invoke UMA/GAN we will see Skype continue the current “mobile” trend of IM over the data network with voice connectivity over the carrier’s inherent voice network.

13. Skype will conclude deals for local termination services in many more countries to improve SkypeIn and SkypeOut call quality.

14. Someone at Skype will review all the SkypeIn provider contracts to ensure we can keep our SkypeIn numbers permanently. (And Londoners will learn that their area code is simply “020″, not “020n”.)

15.eBay will begin reporting Skype usage numbers that are meaningful, such as number of users who actually made at least one Skype call in the previous quarter.

Will be interesting to see how much of these predictions actually play out but one can always hope for the best.

Happy New Year and Happy Skyping in 2008!

And for other predictions:

• Phil Wolff’s 37 Sketchy 2008 Skype Predictions
• Andy Abramson: The Road in 2008
• Ken Camp articulates his perspectives on Mobility, VoIP, Video, SOAP/SaaS and Social Media/Social Networking in his Unified Communications Watch List 2008. Well worth a read, especially for his comments on the decline of Windows Mobile — a trend I have also noticed.

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While this blog tends to focus on new developments and the role they can play in our future real time conversations, it sometimes pays to look back to see what has been accomplished. For 2007, these are, from my perspective, top ten accomplishments for the Skype ecosystem:

1. eBay CEO Meg Whitman states at an eBay quarterly analyst conference call, “Not enough focus on ‘Delight The User’”. Hopefully this is a high priority guiding principal in the search for a new Skype CEO. Great technology but needs the business development, marketing and leadership skills of a seasoned high technology executive to truly make Skype happen on a world market leader scale. End users need a delightful “total” experience, including user support, adequate and well timed announcement of changes to calling plans, more participation in the blogosphere, higher awareness and broader availability of Skype hardware … and the list goes on.

2. Skype High Quality Video: because it brings a whole new dimension and level of realism to real time conversations. Yes, to take full advantage requires a new webcam with enhanced optics, but my final selection came because of the very positive reaction and response of those whom I converse with and who receive my High Quality Video (Recipients don’t need all the requirements of senders — the past two weeks two parties have observed “my” High Quality Video on their Macs.) A success story involving not only Skype software but also hardware specifications and co-operative device driver development.

3. HD Voice –nobody has called it that specifically but here I pick up a term used to name a Fall VON session. I refer to wideband voice transmission covering a minimum 8Khz audio bandwidth (twice that of conventional telephony). Over the year Skype has been making gradual improvements to the Skype voice engine, including the codecs, such that today most Skype voice conversations can be held with a basic laptop, and no additional headset or microphone (provided one is available in the laptop) is required. Over Christmas I helped my son with a Skype for Mac installation; he made a call yesterday from his home that was very clear using his basic Mac speakers and mic. Each new version of Skype since Skype 3.2 has had some improvements but with Skype 3.6 I am getting many unsolicited comments about how it better handles lower Internet connection bandwidth configurations. And, should you use a headset, such as the FreeTalk Wireless Stereo headset, for, say, personal privacy or office etiquette reasons, you will find your other parties on the call “in your head”. HD Voice received additional support this fall when HiDef Conferencing became equipped with the ability to ensure all Skype participants on a conference call would experience HD Voice quality when conversing with other Skype users on the same call.

4. Mobile Access to Skype. We still don’t have a Skype client for three of the most popular mobile devices (Nokia, Blackberry, iPhone); true mobile VoIP requires not only either WiFi or 3G connectivity but also appropriate wireless network infrastructure to handle the capacity demands VoIP would place on a wireless network. However, we have seen the release of several offerings that provide a combination of an IM client for these platforms along with a protocol that allows easy access to the wireless network to complete a call from a mobile device at reduced costs. These include the 3 Skypephone, IM+ for Skype (even works on not only the iPhone but also iPod Touch), iSkoot and Fring.

5. Skype Developer Partner acquired: Pioneering Skype Developer Partner Webdialogs was acquired by IBM’s Lotus Sametime division in September. Certainly says that with the right technology and offerings there is potential for other Skype developer partners to lead the way to expanding the Voice 2.0 world where applications are the value generator. Question: will IBM’s Lotus Sametime license Skype technology for their own real time conversations capability?

6. Skype Developer Platform. While still requiring web services support to be offering a complete mashup development platform, the Skype Mashup contest and announcement of the Skype Public Platform Roadmap have brought enhanced awareness to this program. Partner PamConsult has led the way in demonstrating, with PamFax, how Skype technology, digital rights management and transaction engine can be combined to offer a carrier independent, worldwide service that requires only a Skype user account, an Internet connection but no additional hardware beyond a basic PC.

7. Disruption Rules: While PamFax can reduce the cost of those $1.00+ per page faxes from hotels, two Skype Partners have introduced products that portend for significant business model disruption:

• OnState’s Call Center brings a “no hardware” solution to the call center space. Whereas a full call center previously required a low six figure investment in a PBX, as well as IT support and other infrastructure, OnState’s Call Center has the cost of a PC for each agent along with a $30 per month per agent ongoing subscription fee with no long term commitments.. Suddenly call centers become viable both for even the smallest business and for remotely located, geographically distributed employees.
• Vapps, Inc.s’ HiDef Conferencing provides hosted business grade conference calling (with HD Voice support as mentioned above) that is robust, reliable, scalable and supports up to 500 participants on a call. For as little as $25 per month to as much as $200 per month you can have 10 to 500 Skype participants with unlimited minutes as well as 300 to 5,000 toll-free minutes for callers from the legacy phone network. Six years ago $200 got me one hour of a five-party conference call. (Jan 2009 Update: HiDef Conferencing has been acquired by Citrix and is offering free trial calling until February 15, 2009.)

8. Innovation Rules. Whereas disruption requires the displacement of legacy business processes, innovation brings new services that allow new, previously unavailable (business) processes to happen:

• For instance, there is a Vosky distributor in Texas who has worked with a local social service agency to provide much more effective counselling services by bringing into the monthly review of “challenged” children’s education the child’s teachers located at the school during a social worker’s monthly visit to parents at home.via Skype conference calling.
• But we also are seeing innovative new services such as Evoca’s Media Service. This involves a hosted “Get a Phone for your Website” audio service that provides for asynchronous voice conversations being used, for instance, by Discovery Channel, with user access from either Skype or a legacy telephone.
• Collaboration: there are three different collaboration services, each addressing its own market niche. I label these services as innovative as they bring entirely new processes to business for both internal and external conversations, especially businesses that are geographically disbursed.

9. Skype Toolbars: For some time Skype has offered toolbars which make Skype calling more readily accessible in common applications such as Outlook, Internet Explorer and Firefox. In fact, the Skype Outlook Toolbar and Firefox extension have both become routine elements of my everyday communications operations. (Remember, I don’t dial phone numbers, I call people with real names.) Two weeks ago, Skype released a new version of the Skype Outlook Toolbar which has optimized Skype-enabled operations within Outlook while eliminating a couple of “nuisance” bugs in the previous version. However, the browser toolbars became embedded into the standard Skype installation but should you elect not to install them, you now have to re-install Skype itself. This is one example where Skype needs to “Delight the User” by restoring the ability to install these Toolbars individually when they were not installed at the time of Skype installation.

10. Skype Public Chats: Since first introduced in May, I have been a participant on several group chats, the most enduring being the Skype 3.x Discussion chat where several Skype enthusiasts share their thoughts and ideas. One interesting aspect of this particular chat is that a few members of the Skype Developer team and Skype PR people monitor the session and, when appropriate and not in conflict with “company policy”, participate in the conversation as well as provide notification about new releases, etc. It was a rather heated discussion on this public chat that lead to this Skype Journal post about restoring a “geek” feature buried in Skype related to Skype video. Another Public Chat was open during the beta testing of the Skype Outlook Toolbar; no doubt its input, and ability to bring out common issues, contributed to the robustness of the newly released Skype Outlook Toolbar.

11. (I can’t stop at 10): And for the 11th accomplishment: Skype Technology Licensing: In my recent interview with Sten Tamkivi, GM of Skype Estonia (a detailed post to follow), he mentioned that Skype is migrating its development focus to becoming a platform developer from simply a client and services developer. In addition to a platform for Partners (discussed above), the recent licensing to MySpace is the first in the series of what they hope becomes Skype infrastructure technology licensing deals with other services as their route into, say, providing social networking infrastructure.

From my perspective these have been the top accomplishment within the Skype ecosystem in 2007. It has resulted in a cost effective conversation ecosystem that has no equal amongst VoIP service providers. However, this ecosystem is not near demonstrating its full potential; hopefully eBay will announce a new CEO soon who captain the ship into providing a “delightful user experience” at full sail.

Next: My projections for 2008. Related “Skype Primer” posts:

• A Backgrounder
• Enabling Real Time Communications
• Skype Hardware – If and When Available
• Skype’s Extras Gallery and Developer Partner Program
• Mobile Conversations

Tags: Skype, eBay, Meg Whitman, High Quality Video, HD Voice, Skype Developer Program, OnState, Evoca, PamFax, Convenos, Yugma, Unyte, PamConsult, Skype Public Chat, MySpace, HighSpeedConferencing.com, FreeTalk Wireless Stereo Headset, Vosky, Skype Outlook Toolbar, IBM Lotus Sametime

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At this point I am going to provide simply links to other stories; my commentary will follow later.

Top Executive Changes at Skype: Niklas resigns as CEO (remaining Chair of the Board) and Skype President Henry Gomez have resigned their positions effective immediately. During the search for a new CEO, Michael van Swaaij, eBay’s Chief Strategy Officer will serve as interim CEO.

Of interest would be to know what is behind the additional “impairment charge” mentioned here:

eBay expects that the €375 million payment (approximately $530 million), together with an additional amount of €630 million (approximately $900 million), will be taken as an impairment charge to be recorded as part of its Q3 financial results.

This statement particularly piques my interest as I was personally responsible for helping to establish an impairment charge in a NASDAQ company restructuring 13 years ago. (In that case it mostly involved getting an assessment of inventory in the distribution channel and estimating how much would come back for replacement of stale product but we also had marketing development fund liabilities and other “gotchas”.) You can throw everything but the kitchen sink into such a charge to cover a lot of sins. But we’ll probably never know in this case.

eBay has also negotiated a release from the earn-out agreement signed with certain Skype shareholders when eBay acquired Skype in 2005. Skype Co-Founder Jaanus Friis, in his post (not) just another Monday, provides a nostalgic retrospective on the past four years while ruminating on his ambitions for Joost:

Skype has been an incredible adventure and I am proud to have been part of it. Looking back at 2003, at two guys running around with a crazy idea of building a global phone company purely on the Internet, moving from one rented apartment to another, still battling a major lawsuit from our Kazaa days, 2003 seems a long time ago. It is amazing to think that it is only four years!

Andy Abramson at VoIP Watch, who has recently been voicing his criticism of top Skype management, has his usual insightful commentary:

This tells me a few things. First that the eBay leadership is not happy with the direction Skype has been going and is looking for a leader who can really run the company globally as a telco 2.0 oriented business.

….

Third, this likely means something is up with Joost and Nikki Z didn’t need to stick around to be a straw boss. For Gomez, who is not a tech guy, this puts him back where he was most effective at eBay and where he can do only more great things to keep the company’s reputation on the high side.

Andrew Hansen has also expressed his viewpoints.

Tags: Skype, Niklas Zennstrom, Jaanus Friis, eBay, Andy Abramson, VoIP Watch, Andrew Hansen

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Skype revenue up, profitable for 2nd consecutive quarter, but usage down?

eBay’s quarterly earnings conference this afternoon revealed little about Skype; we got the usual numbers:

In the more detailed presentation by CFO Bob Swan, he provided two additional numbers:

• Skype-to-Skype Minutes: 7.1 million, down from 7.7 million in Q1
• SkypeOut Minutes: 1.3 million, flat from Q1

and stated that Skype’s activation numbers were not where they would like them to be. In her earlier summary presentation, eBay CEO Meg Whitman mentioned the WalMart retail partnership, three objectives for Skype:

• build the user base
• expand the Skype ecosystem
• improved call quality,

and closed with the single remark Skype “needs more user activity” as an issue to be addressed in Q3. During the Q&A with questions from analysts, who are supposed to be tracking the company’s activities, there were NO questions about Skype. Maybe being 5% of the overall eBay revenue, yet profitable, is the formula to not attract their attention.

Over the past 24 hours I (i) attended my 10th Research in Motion Annual Meeting in Waterloo (makers of the Blackberry) where I came away with a very detailed understanding of RIM’s business activity and where they are going and (ii) this afternoon listened to the eBay earnings conference where I came away with little additional understanding of eBay’s Skype business. So here’s my take:

The positives:

• sustained revenues and a second consecutive quarter of profitability
  • update: impact of new pricing (see link below)
• US user registrations grew 20% to 25% compared to 12% overall growth
  • based on the assumption above tying revenue to user registrations
  • is this a direct result of the WalMart retail effort?

The concerns:

• user voice activity is in decline
• US revenues remain in the 15% to 16% range
• total user accounts becomes more of a meaningless number. In my experience with direct marketing, you know that customer databases became stale over time.

Om questions “how is the revenue growing when everything is either trending down or flattening”? Update: Alec Saunders reminds us that Skype introduced a couple of pricing changes which had minimal impact for those of us who primarily use Skype’s Unlimited North American calling plan but have do help to explain both increased revenues and lwoer usage.

While eBay provides the bare minimum of information required under SEC regulations, many companies will provide additional information that does not compromise their overall competitive position. Based not only what I heard from RIM but also what is provided by other telecom carriers here is what I would like to hear in their quarterly earnings report:

• actual number of active accounts at the end of the quarter
  • accounts that actually placed at least one call during the quarter
• % breakdown of revenue by communications services, hardware royalties, partner software services and other
• Skype margins and the three usual cost lines: Sales & Marketing, R&D, G&A

eBay has to be an analyst’s nightmare, given there are three basic businesses: marketplaces, financial services and telecom services, each of which have different financial models and financing requirements. At least these numbers for each of eBay’s units would provide better shareholder and analyst guidance in valuing the company. AT&T does it (requires Excel); RIM does it: 76% devices, 16% service, 5% software, 3% other.

And when I asked at the RIM meeting why they had shipped 2.4 million units but only had 1.2 million activations, it came out that the difference can largely be attributed to users buying upgrades. So effectively it comes out that there is huge loyalty amongst Blackberry users, so much so that new features and services are driving a significant portion of their hardware revenue. In my mini-analysis above, it come out that Skype’s US user growth is substantial (even if the actual numbers are off by as much as 10% to 15%). What other information could we learn about Skype without giving away the business from having these types of numbers?

I’ll leave it to another post for my suggestions as to how to increase user activity; but suffice it to say I had three Skype partner experiences today to suggest that they look hard at the Skype Developer Partner program as a key element for driving new user registrations. Oh, and read the Voice 2.0 Manifesto. SunRocket didn’t; Vonage hasn’t. Skype’s Developer Partner program now has the Voice 2.0 seedlings to be positioned for success.

Tags: eBay, Skype, Voice 2.0 Manifesto, SunRocket, Vonage

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Jeff Pulver yesterday brought to our attention a petition by Skype to the FCC “making the eminently reasonable request that the FCC ensure that its (and, by extension, all) users of mobile devices and networks have the freedom to communicate over wireless networks.” Jeff goes on to comment:

I think this petition should have important ramifications for all those that wish to attach devices or provide Internet-based voice and video applications over wireless networks. As things stand now, users are beholden to the wireless gatekeepers who unilaterally determine what devices, what functions, what applications may attach or ride or be accessed from the wireless networks.

One specific request – to start a rulemaking proceeding to determine the legality of the carriers’ restrictions on subscribers’ full access to Internet-based applications – has significant implications for encouraging application innovation in a Voice 2.0 world. I’m sure developers such as OnState with their recently announced OnState ACD for Skype would want to ensure that their call distribution algorithms can reach out to all wireless devices.

Jeff ends with “I ask our friends who care about innovation in the wireless space, edge devices and Internet applications to take this petition seriously, shine a spotlight on the issue and help move the FCC in the right direction” He plans to post a link to the petition when it becomes available and has more specific information for those who want to follow this story to its conclusion.

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Ever since eBay’s acquisition of Skype sixteen months ago, speculation has abounded on why the acquisition and, more importantly, what synergies exist for integrating eBay, (PayPal) and Skype. While we have seen stabs at eBay “SkypeMe” buttons for premium auctions and a PayPal button in the Skype Outlook Toolbar, nothing has really taken hold virally with eBay users. In fact, Ken Camp has taken issue with eBay’s entire Skype strategy, stating that Skype has become just another phone company, questioning the entire deal. On the other hand I am seeing the number of Users Online, Skype’s most telling statistic, increase — to the point where this morning (EST) over 8.8 million users were online. (We should have some further guidance on North American usage from eBay’s quarterly report due out this afternoon.)

At Skype’s CES press conference, in response to my question about building North American awareness for Skype, Don Albert, Skype’s North American General Manager, responded to the effect that Skype North America would largely be relying on “viral” activity to build out awareness:

• Will enough users tell their friends about a service that provides toll-free North American long distance for $14.95 ($29.95 effective next Thursday, Feb. 1) per year — not month?
• Does Skype have any strategy for building usage amongst its North American eBay and/or PayPal user base?
• I do see that X10, infamous for its ongoing banner ads and daily newsletters, now offers Skype as an option for customer service; will Skype build partnerships or even awareness with other vendors that encourage the use of Skype for customer service and support?
• How will Skype make users aware that Skype is more than simply voice communications, incorporating other real time communications such as Text Chat, SMS Messaging, File Transfer and, via the Extras, Desktop Sharing (Unyte).

One direction where we thought Skype and eBay were working together was reported by Phil last June just after the eBay/Skype Developers Conference. Check out the post “Skype Gets eBay Tab; Catches up with Microsoft, Google and Yahoo“. At the time I felt that, given how many eBay members track their activity in real time on mobile devices, incorporating an eBay Tab into Skype would also have the potential to drive viral adoption, given that auction activity can have a high requirement for “real time” information, especially as the end of an auction approaches.

As a result of some of my conversations at CES two weeks ago I came home and tried out Skype with an eBay tab. Don’t bother trying it even though it has been upgraded to work with Skype 3.0 (but lacks the Skypecast Tab). From what I can learn it appears this “Tab” was developed somewhere within eBay U.S. by a team that obviously has little knowledge or understanding of Skype, let alone having a “gut feel” for a user interface that drives viral adoption. Succinctly put, its operation is an embarrassment to Skype (and eBay).

My career has involved many experiences involving user testing and beta testing of software. I often measure a company’s ability to manage a software-based business not only on the quality of the software but also by observing their process for quality assurance. We certainly know, as reinforced by the experience with Skype 3.0 Beta, that Skype appears to have not only well above average Quality Assurance processes and, again from experience — I was a beta tester for the Skype Email and Skype Web Toolbars — that Skype seeks out a positive, simple customer experience. Unfortunately it appears that eBay brings a different QA culture to the table, at least when building Skype mashups. Here is what I found:

The initial screen on the Tab has no obvious way to do a user login; in addition, one of the graphics simply will not come up.(Also note that the eBay logo is not appropriately sized and positioned within the Tab itself.) And I am certainly not “new to eBay”; having used eBay several times over the past five years. But there is a Search bar so let’s try it; I am interested in the Canon Rebel series SLR cameras so I enter a Search request. I do get the listing page within the eBay tab but it all goes downhill from here. If I click on View Item, it opens the relevant eBay page in my default web browser (Firefox 2 in my case), not in the eBay Tab; If I ask to “Watch” the item I am asked (in the web browser) to log in and the item is added to my eBay Watch List. Then I can click on “Watching” in the eBay Tab to see the item. Other circumstances may bring up the Login screen in the eBay Tab.

However, it gets interesting when I am logged in and trigger a new Search. In this instance I have now asked for another Canon camera but I simply get “0 items found ….” as shown on the right; check on the eBay via a web browser and it finds the requested item. No matter what I search for I get the same result. Sort of defeats the whole purpose of the Tab in that if I am logged into eBay I cannot do a search. If I log out and do a search I can get a result. Recall that graphic in the initial screen above: it fails to come up beyond a place holder in any of the Bidding, Won or Selling sub-tabs.

Bottom Line: this version of an eBay Tab in Skype is not going to drive any viral adoption of Skype by eBay members. If anything, it will be a discouragement to try out Skype (even though Skype had little, if any, control over its development).

But at CES I learned that there is a solution available for accessing eBay through the Skype client; in fact, eBay members in Germany, France and, soon, the U.K. have access to it. More to come in a post Friday. But, most importantly, they have a solution that will help drive viral adoption of Skype amongst eBay members.

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In spite of the recent pricing announcements, Skype has always been known for its free Skype-to-Skype calls. This not only covers calls between two parties who are simply using Skype but also to those parties in a conference call who are on Skype. And international borders do not exist for these calls.

Seems like the larger telcos and cablecos are starting to catch on:

Andy at VoIP Watch reports on AT&T’s announcement of Unity, a plan where any AT&T cellular customer can call any AT&T landline customer without incurring additional usage fees or using their wireless minutes. This extends AT&T’s program for its wireless customers who apparently can already call each other free. Andy makes the bigger point:

For all the VC’s and investors who thought the idea of minute stealing and the prospect of millions of customers flocking to cheaper calling by VoIP services like Packet 8 and Vonage making their investments the next Amazon, Google, Yahoo, eBay or even Microsoft what may be their worst possible nightmare is now unfolding before their eyes.

To quote AT&T’s press release:

The AT&T Unity^SM plan, which is available beginning Sunday, Jan. 21, brings together home, business and wireless calling, creating a calling community of more than 100 million AT&T wireless and wireline phone numbers.

At home here in Canada, Rogers, which has dominate cable and wireless services within the Canadian consumer market, is starting down a similar path with its Home Phone service. From their website:

With My Home Connections, Rogers Home Phone customers get FREE Long Distance calling to all Rogers Home Phone or Rogers Wireless customers, anywhere in Canada. Talk for as long as you want, whenever you want without any Long Distance charges.

Call over 5 million people for FREE!

When it comes to long distance to non-Rogers (Bell Canada and Telus) customers within Canada or to the U.S., Skype’s North American plan still wins out at C$17.50 per year vs Rogers C$19.95 per month. More justification for those USB dual phone products, such as the VoIPvoice UConnect and RTX Dual Phone, as well as the PC-Free dual phones that were announced at CES to be entering the market. Now if Rogers could just figure out how to make calls amongst their wireless customers across Canada free!

However, overall, combined with 3 Group’s new X-Series services in the U.K., it appears that Skype’s concept of creating calling communities is becoming infectious. But Skype remains the only fully featured voice service with a truly international calling community of any significant size.

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Naked Conversations co-author (with Robert Scoble) Shel Israel and American-converted-to-Canadian VC and blogger Rick Segal (and our former Microsoft evangelist when I was at Quarterdeck) are currently traveling through Europe. With an objective of learning about Europeans who have been bitten by the technology development bug, as well as about the integration of technology into European societies,. Shel is planning to write another book, Global Neighborhoods, while Rick may be seeking out new ventures that would complement current ones funded by J.L.Albright Venture Partners.

Yesterday they met with Sten Tamkivi, Skype’s 28-year-old COO learning about Skype’s strategy, vision and operations.

The core of that strategy, according to Sten, is Skype ’s intention to increasingly derive revenue from non-telephony services such as text, SMS and video.

“Very few VOIP services do not compare themselves to Skype.” That means they are positioned to follow not lead. “Skype is more focused on staying ahead by focusing on its own opportunities,” he told us..

Consistent with what we heard at the Voice 2.0 Conference in Ottawa last week, Sten states,

“the biggest threat to Skype today is not being able to develop non-telephony streams of revenue. There is excitement in eating our own revenue streams,”

Other highlights:

• There is a focus is on migrating its telephone services to handheld devices.
• Over the past year, since the eBay acquisition, Skype has doubled its Tallinn-based team to 270, mostly technical, employees.
• The technical talent pool in Estonia, a country of 1.4 million, is getting tapped out; there are some unique challenges in recruiting from outside, especially given its geographical location and history.

Read Shel’s full post to learn about the advantages of operating in a small country and the end of paying for calls by-the-minute. And follow Shel’s travels through his Naked Conversations blog to learn more about how technology is impacting education and European cultures.

One of the “joys” of being a US-controlled public company is that SEC requires the breakout of International from domestic sales. So today’s 3rd quarter report from eBay provides some information that allows us to look at Skype registrations coming from the U.S.

With over double the registrations from two quarters ago, it certainly demonstrates that the free SkypeOut within North America is probably helping to build some traction but Skype remains essentially a non-US business with over 84% of registrants outside the US. This is corroborated when you compare the % revenue increase with the % user increase; certainly some of the difference can be attributed to absence of revenue for SkypeOut calls within US/Canada..

The results are even more impressive when you consider there has been very limited marketing of Skype within North America – Phil has noticed some media ads in the Bay Area; there are some Skype ads on the eBay website.

These result also reveal some other interesting information:

• Skype has grown to a $200MM annual business; however, it would be a stretch to expect them to his $200MM in calendar 2006. That would require a $70MM quarter. What could drive that increase?
  • Royalties from the launch of new Skype devices such as the cordless phones shown at Fall VON and the Sony Mylo but it’s still early in those products’ life.
  • Increased SMS revenue, especially when driven by programs such as Skylook which will drive Skype Chat messages to your mobile phone via SMS if you are Away or Not Available.
• Skype’s overall revenue growth is slowing; however, it is still the quarter-to-quarter % revenue growth star for eBay where both auction (Marketplaces) and PayPal (Payments) revenue essentially stagnated (+2%, +3% respectively). On the registrant side, Marketplace accounts grew 5% while PayPal accounts grew by 8%.

Looking at the overall results, eBay has to be a nightmare for financial analysts to figure out and forecast. You have three (or more) totally different business models that have different financing and margin requirements. For instance, PayPal is essentially a financial transaction business that should be compared with, say, credit/debit card companies while Skype is a mix of high margin royalty and low margin communications transaction businesses. However, we don’t get to see the margin breakdown by business unit; that would certainly provide a much better handle on how each of their business units is doing.

During Canada’s Centennial Year (1967) I was host for a student exchange with Finnish students; we have kept up contact over the past 39 years. Last week I asked one of them if s/he could translate the actual Helsingin Sanomat article reporting on their interview with Niklas Zennström (registration required) or at least give me the gist of it. Below (with minimal editorial correction of spelling and grammar) is what my friend calls her/his “amateur translation”.

The interview certainly goes well beyond the content of the Reuters summary report. (On the other hand there is nothing there that is going to impact eBay’s stock price!) Note that, while my friend has been using English in both personal and business activities all these years, Skype Journal is not responsible for any mistranslation.

Of note in Niklas’ comments:

• Niklas sees the future for wireless as being in WiFi (and WiMax) networks once they become more ubiquitous and more easily accessible. (reinforcing Ted Wallingford’s recent comments on WiFi as the primary VoIP wireless medium)
• The issues with developing Skype for GSM or other wireless mobile phones relate to both processing power and memory issues (which translate into latency issues discussed in a post last weekend).
• He sees current rates for calls to wired lines as being the lowest we will see as someone has to pay for at least the connection.
• He only sees an explosion of mobile VoIP only once there are unlimited use fixed rate data plans available.
• The path to Skype as a ubiquitous mobile platform may be through “rebel” or “challenger” mobile operators who want to challenge the larger legacy service providers. But this is along the lines of what Andy was concluding in his recent “Being on the Inside” post.

A summary translation paragraph by paragraph goes as follows:

Title: Skype for Cell Phones Delayed

• 1st paragraph: Skype should have been available for mobile phones already last year, but the availability will take longer than anticipated.
• 2nd: Zennström says they are working hard, but he cannot give exact schedules
• 3rd: Zennström became a billionaire last year when eBay bought Skype. Skype has kept its name and identity but Zennström now is forced to follow the stock exchange rules. He cannot reveal things that could affect the rate [Ed: stock price].
• 4th: There is a Windows mobile application available for Skype, but its sales figures especially in Europe are very small.
• 5th: To the disappointment of many Skype has not published a Symbian version.
• 6th: Zennström says Skype is working hard for the Symbian application
• 7th: In an interview for Helsingin Sanomat in 2004 Zennström said the Symbian application would be available “sometime next year”. Now it seems the delay is minimum a year or even two, which in Internet world is a very long time.
• 8th: Skype now has 113 million users compared with 50 million a year ago.
• 9th: Zennström says they didn’t foresee all the problems involved when they started the development
• 10th: The difficulty is that the mobiles have less processing power and memory and that every manufacturer needs its own application. Whereas 95% of computers use Windows.
• 11th: Zennström adds that the timing is important, too. One gets most out of Skype if WLan [Ed: WiFi? and/or WiMax?] connections and possibility to use free Internet networks are available .
• 12th: In most areas this has not been possible until this year. It has not been rewarding to bring the system to the market before. (Zennström says)
• 13th: Skype and other companies offering Internet calls wait for the day when the operators sell to their clients unlimited data connections with fixed monthly rate. This opens the market for Skype.
• 14th: However, a call to the the wired network or to another mobile number may not become much cheaper as the operators still would charge the connection fee.
• 15th: Skype may take a big junk of the traditional operators’ income and that may be a reason why the launching of Skype has been so troublesome. The manufacturers are slow to develop properties that would make operators angry.
• 16th: Zennström didn’t say the above, maybe, because even Skype is forced to co-operate with operators.
• 17th: He says: A challenger operator may see the co-operation with Skype as a way to challenge those operators currently in dominant position.

That all. Hope my amateur translation helps you!

Jaanus has pointed out that today, for the first time, over 7,000,000 users were on Skype earlier today. I usually find Skype peaks at some time between 9:00 a.m. and 11:00 a.m. EDT. And this benchmark is reached on Skype’s third birthday.

Now if Skype would fix the bug whereby presence information is not always current in version 2.5, we could get back to saying Skype is a real time communications service. I have noticed the same problem that Rachel, Rick Segal’s very articulate daughter, has blogged about. For Rachel and her MusicIP team associates, Skype and its IM presence/chat engine has become “our office”:

I’m criticizing because up until a couple weeks ago, the MusicIP team wasis as dependent on Skype for connecting with one another as an all-in-one-office company would be dependent on the water cooler, or for that matter, chairs [modified because after I thought for a minute...we still are dependent on it - we just complain about it now where we didn't before]. Taking to each other from a number of cities (which is usually at about six, but at other times people could be spread out among up to 10 different places), brainstorming via group chats, or simply sharing an interesting link for a laugh – more than our actual office, Skype is our office.

I have it on good authority the Skype development team is looking into this issue as I write. At the same time, Rachel’s experience demonstrates, as Skype becomes mission critical to virtual communities worldwide, the importance of thoroughly testing new Skype releases to ensure they are backwards-feature-compatible. It also demonstrates that Skype’s presence engine is just as important as, if not more important than, the actual voice communications features.

Let’s hope we don’t have to wait for version 2.6 going gold to fix this problem.

Update: Rachel has received a response from Roman in Skype Customer Support. Let’s just say it’s one more indication that Skype employees have just as much passion for their work as Skype users have for using Skype. Quoting Rachel again:

I’ve done customer service on an absolutely miniscule scale compared to what he’s dealing with on a daily basis; his job isn’t easy. We’re cranky, we’re put out, and we want answers. Roman clearly takes his job seriously and is representing the company he is a part of extremely well. It’s not easy sometimes to articulate the right reply to a customer inquiry. But it takes a ton more courage and time to respond to said whiny customer in this much more public format.

In a press release issued this morning, Google and eBay announced an agreement which comprises “two primary components involving text-based advertising and “click-to-call” advertising functionality”;.In the course of the press release there are several implications for Skype; however, let me draw attention to where Skype already has incorporated Google searches, namely, as an option in the search icon of the Skype Toolbar for Internet Explorer and Skype Toolbar for Firefox:

Other options in this Skype Toolbar’s search element include Yahoo, Ask Jeeves, eBay and Shopping.com.

Lisa Leff at AP provides a good overview; combined with the press release we can see the following implications for Skype:

• Google will become the exclusive provider of text-based advertising for eBay outside the U.S. This complements the Yahoo-eBay deal last June that applies only to the U.S.
• “Click-to-call” integration involves both eBay and Google platforms worldwide “using Skype or Google Talk”. It remains to be seen how this will play out but certainly with over 100 million registered users, we can see where Skype’s strength lies here.
• Skype will soon offer its users an option to download the Google Toolbar to which Skype will add a custom button. Probably won’t look a lot different from the Skype Toolbar for IE or FF shown above.
• The most interesting comment from a Skype observer’s viewpoint is the statement: “The companies will also explore interoperability between Skype and Google Talk via open standards to enable text chat and online presence.” Does this mean that Skype will execute on its opportunity for IM Federation Leadership and take up Alec Saunders’ challenge issued when the Skype code cracking story broke:

Skype should take a leadership position in publishing those protocols, and encourage others to build upon them. The Skype client becomes the first, and possibly the best, way to use the Skype protocol, but not the only way.

This agreement also recognizes the “international” aspect of Skype with over 72% of all users having registered a language other than English as their primary language:

• Skype has developed a universal Phone Number Recognition API component that Skypifies any phone number recognized on a web page or in an e-mail. In fact the PNR has been incorporated not only into all the Skype Toolbars but also into the latest release of Skype (ever wonder why you now see a flag associated with phone numbers in Skype 2.5?).
• Skype has just announced a localization support utility for its third party developers comprising a list of more than 2600 phrases translated into Skype’s 27 supported languages.

Today Alec hypothesized on where the money is in “Click-to-Call”. Jaanus Kase, Skype’s Chief Blogging Office, has commented on the interoperability item above. Andy has thrown in his perspective, including what he hears about Google’s “weak” pursuit of PSTN termination. I’m sure we’ll see lots of other coverage, especially given I first heard the story on various morning television shows that are viewed at my fitness club. However, the final proof of this agreement’s value and impact is going to take a few years to play out.