CounterPath, publishers of the Bria carrier grade softphone, has recently taken measures both to build their enterprise user base and to enhance the user experience when using Bria. Not only is Bria supported on Windows and Mac PC’s but also on the iPhone, iPad and Android. In other words, Bria provides a business desktop phone replacement with PC and  mobile softphones that you can take with you when out of the office. And it’s targeted as a solution for enterprises upgrading to fully IP-based communications platforms. But these enterprises still rely, in many cases, on the carriers to recommend and install products and services.

Building the enterprise user base: Two weeks ago Counterpath announced an agreement with GENBAND, a major carrier supplier of IP infrastructure and application solutions, to provide unified communications solutions for GENBAND’s Communications Application Server on mobile and tablet devices. Andy Abramson, at VoIP Watch, has given an outline of what this means to Counterpath’s participation in the “new” telecom technology market in his post CounterPath Gets Distribution.

Today, the companies changing the game in getting new telecom technology to the market include Broadsoft, MetaSwitch and GENBAND. They each control the lion’s share of what gets to the telcos so eventually in a transparent way the technology gets to consumers, and to the business markets too. Understanding the channel is key to success of any telecom products or services company, for one reason. It’s called Go To Market (GTM) but really could mean Get to (the) Market, and without channel partners there are just too many carriers, mobile operators and service providers out there today to effectively get to and sell to all of them directly.

Having acquired a bundle of Nortel carrier voice and applications assets with an $870 million revenue stream in early 2010, CounterPath has the potential to see its Bria clients on over 120 million ports and 10 million SIP connections. From the Nortel press release:

Nortel’s CVAS business is the recognized leader in the Carrier VoIP space, having shipped more than 121 million Carrier VoIP and Multimedia ports, including over 10 million SIP lines to leading carriers globally. Nortel has  consistently been ranked as the #1 Global Carrier VoIP and Softswitch leader since 2002. Nortel’s CVAS business has customer deployments in all continents with leading carriers and provides VoIP solutions to 80 percent of IDC’s worldwide listing of top 20 carriers (by revenue).

The bottom line is that Counterpath is providing a window into how the tier 1 to tier 3 telcos are absorbing and implementing IP-based communications technology in a mobile platform world.

On the actual product front Counterpath had two recent announcements that contribute to ensuring that Bria remains feature competitive when it comes to the end user experience:

• Incorporation of Skype’s royalty-free SILK codec into Bria mobile products, allowing Bria mobile product users to take full advantage of SILK’s crystal clear voice quality for calls between Bria endpoints within an enterprise communications platform. According to CounterPath’s blog post linked above:

The SILK codec is free and also performs very well compared to other similar codecs that are royalty bearing. I should point out that because Bria supports SILK does not mean Bria can interoperate with the Skype service directly. Of course Bria users can call Skype users via the PSTN.

• Incorporation of social networking into the Bria client allowing Bria users to follow their Facebook and Twitter feeds. Counterpath calls it “social blurring” of the unified communications interface. From an example provided by CounterPath’s Todd Carrothers, Senior Vice-President, Marketing and Products:

Basically Facebook (on the left) and Twitter (on the right) are setup as additional “accounts’ on Bria, connecting via an XMPP feed as a peer to SIP accounts supporting voice, instant messaging and video. Bria becomes one more user interface option for accessing the user’s Facebook news feed and Twitter stream.

Bottom line: CounterPath is making extensive progress as a vendor to the enterprise market through their partnerships with, and support of, market leading carrier vendors in the IP-communications solutions space. And they represent a market leading proxy for following the enterprise market adoption of IP-based communication solutions.

Overnight Microsoft announced they had closed their acquisition of Skype, following the final EU Commission regulatory approval last week. Key points:

• Skype will remain as an independent business unit within Microsoft under the leadership of former Skype CEO Tony Bates who becomes President of Microsoft’s Skype Division. It’s a new tact for a Microsoft acquisition.
• Microsoft anticipates the integration of Skype into many of its current products – the most obvious being Skype for Windows Mobile and Outlook integration (as well as other Office products). But there are opportunities foreseen for Windows Live offerings as well as its Microsoft Lync enterprise offering.
• Whereas Skype had little enterprise presence other than small businesses and employees who would use it at work, it will be an interesting challenge to see how Skype becomes integrated into Microsoft Lync. There are challenges on the Microsoft side not simply from a technology perspective but also from a business perspective, for example, the costs and burdensome licensing associated with their server-based products.

Tony Bates has put out his vision statement, including a video and an supporting infographic, for Skype’s direction within Microsoft:

Microsoft is committed to the ubiquity of the Skype experience – communication across every device and every platform will remain a primary focus. And we’ve only scratched the surface. We’re at the starting line of integrating world-class talent, innovative technologies and products. By bringing together the best of Microsoft and the best of Skype, we’ll deliver amazing new experiences for consumers and business around the world.

Leading up to the closing we have seen some subtle activity on the Skype side:

• Most notably new releases of most Skype client software that incorporates advertising. Skype intends to place ads in a discrete manner during Skype-to-Skype calls made by users who are not generating revenue through Skype credit, a Skype Calling Plan subscription or a Skype Premium subscription. As mentioned by Skype CEO Tony Bates at a recent forum event, one of Skype’s goals is to generate major revenue through this advertising initiative.
• Skype has continued to offer upgrades for all its supported platforms over the past two months, not only supporting the claim that Skype’s brand would be damaged should they stop supporting platforms other than Windows but also supporting Skype’s initiative to provide more incremental upgrades every two to three months.
• A strong emphasis on Skype’s unique ability to drive video communications in a way that encourages easy adoption (more in a future post).
• Last night Skype released hotfix upgrades to Skype 5.6 for Windows that removed a Google Product Bundle offering, comprising the Google Toolbar and the Chrome browser, during installation. (Will we be seeing a Bing product bundle soon?)
• While Skype has made some top level management changes over the past few months, they appear, with a few minor exceptions, to have kept their operating staff, whether on the developer side or marketing side.This brings an experience base that is critical to meeting Tony’s goals in a timely manner.

And some questions:

• Will we see a Skype for BlackBerry? Can Microsoft leverage its relationship with RIM to resolve this issue? (This has been a most requested feature on one LinkedIn forum discussing what users want to see on the Playbook.)
• How will Skype now encourage third party application development? Will there be support for using web-based tools meeting the IETF’s RTCWeb initiative? What is the road map for SkypeKit?
• Will we see Skype Online numbers for Canada?
• And, in the longer term, will Skype pass the “AmberMac Test”?
• Can Microsoft become as ubiquitously associated with leadership in real time communications as they have been in the evolution of desktop operating systems?

About thirty years ago I worked for a company that had developed Magnetic Resonance technology that was evolving from chemical analysis applications into the medical imaging field. This company initially attempted a partnership with GE who were the leading medical imaging company of the day, especially with CT scanners but were just dipping their toes into learning magnetic resonance technology. However, my employer of the day did not have the financial or other resources required to jump from a business selling $100K to $500K systems to a research market into a business selling $3 million systems into a medical market (with all its regulatory implications). In the end GE simply acquired the company’s magnetic resonance division and has now become a leader in the MRI market. I see a similar opportunity here for the combination of Skype’s technology resources with Microsoft’s financial and business resources along with their market reach.

One final comment: over the past five and a half years I personally have come to meet many Skype employees. Their common thread and over riding motivation was their participation in an initiative that was revolutionizing real time communications on a world class scale. It has been a pleasure to work with them across several projects. Let’s hope they can continue to thrive under the Microsoft umbrella; they are a key resource to the success Tony envisions. Congratulations are due to all the members of the Skype team that made this transaction possible.

It will be an interesting ride. Can they execute? What will happen with the user experience? Will it drive a significant return on a $8.5 billion investment?

What’s your take? What are the opportunities and what are additional questions beyond the list above? Look forward to your comments.

Just as I finished writing this post, Dan York put up his views over at Disruptive Telephony:

My interest was not only in the “across all devices”, which has been a large part of Skype’s goal for some time… but also in the use of “real-time communications”. For a while that was a phrase that only the more technical-minded folks used, but now increasingly “real-time communications” seems to be the phrase of choice for many. I, for one, applaud the usage.

Read Dan’s post for another perspective on the acquisition.

Update: Phil Wolff at Skype Journal: Skype: New owners, new customers, new channels.

Full disclosure: The author is an involuntary participant in the Canada Pension Plan – a beneficiary of this acquisition. Now CPPIB is looking at investing in a retail chain called “99 cents” stores.

Earlier this week I reported an update on the status of the EU Commission approval, indicating that it appeared there would be no conditions placed on Microsoft’s acquisition of Skype. Today the final ruling came out with details behind the EU decision.

In their decision it is interesting to note they split out the consumer and enterprise markets:

In the area of consumer communications, the investigation found that the parties’ activities mainly overlap for video communications, where Microsoft is active through its Windows Live Messenger. However, the Commission considers that there are no competition concerns in this growing market where numerous players, including Google, are present.

For enterprise communications, the investigation confirmed that Skype has a limited market presence for these products and does not compete directly with Microsoft’s enterprise communication product Lync, which is used mostly by large enterprises.

As regards conglomerate effects, the Commission assessed the possibility for Microsoft (i) to degrade Skype’s interoperability with competing services and/or (ii) to tie its own products, in particular its leading Windows operating system, with Skype, thereby limiting other players’ ability to compete.

As regards consumer communications services, the Commission found that Microsoft would not have an incentive to degrade Skype’s current interoperability as it is essential for Microsoft that Skype’s services are available on as many platforms as possible in order to maintain and enhance the Skype brand . As regards the risk of tying or bundling, the Commission noted that the vast majority of consumers who acquire a PC with Skype already installed are registered Skype users and that most of them subsequently download a version different from the pre-installed one. Therefore, the proposed transaction will not change the current situation.

As regards enterprise communications services, the Commission found that Skype is currently not an enterprise product, therefore its interoperability is not decisive for competitors and a bundle or a tie between Skype and Microsoft’s products will not be a must have product for enterprises. Furthermore Lync faces competition from other strong players in enterprise communications, such as Cisco.

The Commission also assessed other ways with which Microsoft could leverage Skype’s large consumer base onto the markets for enterprise communications services but it ruled out negative effects on competition in the time frame relevant for the analysis of the transaction.

In other words the commission concluded:

• Skype would degrade its own brand by failing to continue support for the multiple platforms on which it is currently and potentially available as as service
• Skype has  made such significant market penetration that users who would encounter a pre-installed Skype on a PC would probably already have a Skype account and want simply to upgrade to the latest version.
• Skype is not an enterprise product – confirming that, when it comes to the business market, Skype really has been a small business product at best.
• Any attempt to leverage Skype’s consumer base into the enterprise market would not negatively impact competition.

Microsoft General Counsel  and Vice-President Brad Smith has commented:

We’re pleased that the European Commission has approved Microsoft’s acquisition of Skype. This is an important milestone, as we’ve now received clearance from both the United States and the European Union. We look forward to completing soon the final steps needed to close the acquisition, bringing together the employees of Microsoft and Skype, and creating new opportunities for people to communicate and collaborate around the world.

Bottom line: Microsoft is free to do as it wishes in terms of the integration of Skype into their business. At this point it’s really up to Microsoft, working with its Skype business unit, to determine how to successfully leverage Skype into Microsoft’s enterprise (and consumer) offerings to achieve the increased market adoption that justifies an $8.5B purchase price.

Related articles

• European Union approves Microsoft’s Skype deal (winrumors.com)

According to a report this evening out of Brussels at Financial Times’ FT.com, reporter Alex Barker states that Microsoft is to win approval of its acquisition of Skype with no conditions. No timing for an official announcement was given.

Basically the approval ignored “legacy” bundling complaints and Microsoft won its argument that the market has changed sufficiently where those old arguments no longer apply especially in consideration of Skype’s support for multiple platforms. (Maybe they also earned something by the market failure of their browserless Windows ruling a few years ago.)

The report goes on to state what Microsoft had promised, in terms of ongoing availability on other platforms, and deals with interoperability issues. Read the full Financial Times article linked above for details (a pay wall may apply).

Now we can look forward to seeing how Skype gets integrated with Office, especially Outlook and Lync as well as relevant Windows Live offerings.

Paul Korzeniowski at Redmond Channel Partner has offered his view on What the Acquisition Means for Microsoft’s UC Future and its potential impact on Windows Phone as well as the challenges that lay ahead for integration into Microsoft UC products. He outlines how Microsoft has failed to succeed in the real time communications space in spite of three different offerings over time and puts the issue as the complexity of working with these offerings: “The products involve a variety of components that need to be integrated, but often the IT staff only understands small pieces rather than the complete puzzle.”

In comparison he lauds Skype’s ease of deployment but also outlines that it will take some time to integrate what has been essentially a consumer product into Microsoft’s product lines. While he raises the security flag again, I guess he has not heard that security companies such as Check Point are using Skype heavily. Maybe Microsoft needs to recommend installation of CheckPoint products to totally clear the air.

He goes on to discuss the role Skype can bring to Microsoft through its participation across the mobile space and closes by mentioning the biggest asset Microsoft receives is Skype’s user base of over 170 million users monthly averaging out at 65 million users daily.

The bottom line challenge for Steve Ballmer and his team is to ensure Microsoft justifies through execution its $8.5B investment which will rely heavily on leveraging Skype into its product lines. We are seeing some sense of direction with respect to revenue generation with the inclusion of advertising in recent Skype client releases – it’s becoming either pay for some level of service or watch our ads.

The most interesting questions beyond integration into Microsoft offerings will be:

• the level to which Skype can encourage innovation through its developer partner programs and
• how Skype, under Microsoft with its huge enterprise customer base, leverages its way into the business market.

The next year will be interesting to observe Skype’s evolution as Microsoft’s first independent business unit and whether it can deliver on its claims in its application to the EU Competition Commission.

Final question: In a year’s time will Skype pass the “AmberMac” test?

Recently Skype CEO Tony Bates confirmed that the major step required to complete the Microsoft acquisition of Skype is approval by the appropriate European Union competition authorities. Keep in mind:

• Skype, LLC is a Luxembourg-based company (Is Luxembourg the Delaware of the EU?)
• Microsoft will be doing the acquisition using cash from outside the U.S., taking advantage of a tax situation.

Today we learned that, in Reuters’ September 5 report on EU mergers and takeovers:

NEW LISTINGS: — U.S. software company Microsoft (MSFT.O) to acquire video chat service Skype (notified Sept. 2/deadline Oct. 7)

Don’t know what stage this takes the approval process to but it sounds like the European Commission should be saying something about the approval by October 7; one of:

• passing on any further investigation allowing the acquisition to proceed
• approval, possibly with conditions
• announcing that there would be further investigation, or
• denying approval

Whereas the FCC basically ruled that this was a “transaction granted early termination”, effectively saying they had no objection nor desire to investigate further, the European Commission has been much tougher on Microsoft with respect to previous rulings regarding its Windows operating system, including a massive €833 million fine in 2008.

On the other hand it appears that EU anti-trust Commissioner Neelie Kroes, who was heavily involved in imposing that fine, is more sympathetic to Skype, especially when it comes to competing with wireless carriers and their excessive roaming charges. According to David Zielenziger on the Business & Law blog:

Last year, Kroes discussed her affinity for Skype, which she said lets anyone with a connection communicate. “Vote with your feet and leave your mobile provider,” she told a conference. “The message will be all the more powerful when it comes from the bottom up and not the top down.”

David goes on to attempt to position the role of the Google acquisition of Motorola Mobile in all this. Really it’s a bit of a crap shoot where the real villain appears to be the wireless carriers in Europe.

Jean-Jacques Sahel, Skype’s Government Relations Manager for Europe, Middle East and Africa, had more to report on the EU’s attitude towards Net Neutrality and a potential role for Skype last fall:

Last week in Brussels, European Commissioner Neelie Kroes highlighted her use (and enjoyment!) of Skype, and encouraged consumers to boycott those operators that don’t allow Skype. A lot of you might want to follow her call to action. If you can.

But he also points out the many barriers to switching in a real world and suggests what action the European Commission can take towards adopting the much mangled “net neutrality”.

Has the role of WiFi as the “stealth” carrier been considered? On my recent trips to Europe, I was able to find enough WiFi access points to leave my iPhone in Airplane mode and use my BlackBerry for voice calls sparingly.

One final question: what are the advantages of calling Skype “a video chat service”? While there has certainly been a strong emphasis on video calling in Skype’s recent promotions, it’s obviously a lot more than simply video. Is there a “hidden” agenda in this description of Skype?

Ah, the joys of being a government interloper with lots of economic theory to justify! If only consumer demand for what amounts to a “free” service that has brought pricing to zero could participate in the discussion. Will technology triumph over bureaucracy? Will Skype’s role in overcoming barriers to worldwide communications be considered?

Meanwhile we’ll await the next word from the European Commission in early October (or earlier?).

I’m no expert on these issues (although I have participated in a few acquisition due diligence exercises). I have probably not covered all the issues. If you have more to contribute to the conversation, please speak up in the Comments.

Since the launch of Skype for iPhone over WiFi connections more than two years ago, Skype has evolved its mobile offerings to add support for calling over 3G and video calling. They have added to the mobile platforms with Skype for Android and Skype for iPad. However, Skype is also recognizing that, while the basic Skype algorithm for text, voice and video conversations certainly has a significant role in mobile communications, users also want to go beyond that basic algorithm with supporting and managing persistent video messaging and group communications.

Skype’s acquisition of Qik and the subsequent offerings on iPhone and Android was the first step in this direction offering not simply live communications but also video messaging and archiving for later recall. Yesterday Skype recognized the potential role of persistent group communications with its acquisition of GroupMe, providing managed and hosted group messaging services on iPhone, Android, BlackBerry and Windows 7 platforms. According to Skype CEO Tony Bates:

The GroupMe team has created an incredibly sticky group messaging experience that works across mobile devices and platforms, making it a perfect addition to our voice, video and text products. We’re excited about introducing their disruptive product to our global user base.

There has been a plethora of text messaging services emerging over the past year or so. Kik Messenger, Beluga and TextMe are three platforms where I installed the application, signed up but have never used it. Why? While initially they are widely praised for their algorithms, the bottom line is the number of users who are actually using it. RIM continues to build a lot of its appeal around BlackBerry Messenger; they have over 40 million accounts.

With Skype’s acquisition, GroupMe will soon have access to over 170 million users (they need to transition from their Twilio backend). Only then will we see if this has become a significant acquisition for Skype.

Other questions:

• Can and, if yes, how will Skype monetize the service?
• How will GroupMe be positioned with respect to any Microsoft offerings such as Live Messenger?

As with Qik, Skype intends to continue GroupMe as a separate branded service with integration into other products and services as appropriate.

The challenges for GroupMe now becomes one of integrating the Skype technology into its backend and then building user experiences that encourage viral adoption and sustained usage across Skype’s 170 million users. The challenge for Skype is one of positioning and promoting GroupMe such that it contributes to Microsoft’s justification for its pending $8.5B acquisition of Skype.

Other posts:

• Skype Journal: Skype to buy GroupMe texting service.
• GigaOm: Why Skype bought GroupMe and why it isn’t enough
• TechCrunch: Skype To Acquire Year-old Group Messaging Service GroupMe
• VoIP Watch: Skype Buys GroupMe

Check out the statistics that arose out of last week’s panel discussion: Skype call information; Skype for TV – coming soon to a family room near you and the change in Skype’s employee per lawyer ratio over the past year.

My previous post, Skype: Evolution from “Wildly Popular and Deeply Troubled”, covered a recent panel discussion, held last week at the Fortune Brainstorm event, on the subject of the transition of Skype as it passed through three owners: eBay –> Silver Lake consortium –-> Microsoft. I highlighted several topics where three key players, including Skype CEO Tony Bates, gave their perspective on why various business decisions were made that resulted in these ownership changes.

But there were also some interesting statistics and other information re Skype’s ongoing operations that came out during the discussion:

• Skype released five products over a six week period in June/July this year, more than had been released in the previous two years.
• It appears that, while Tony Bates was announced as CEO in early October 2010, he actually started becoming involved with Skype operations in August (an advantage of being a private company – you don’t have to announce key executive changes when they actually occur). This information came out during the discussion about the release date for the Skype for iPhone video calling upgrade .
• Skype had over 7 million downloads of Skype for iPhone 3.0 with video calling on its December 30, 2010 release date.
• When Tony joined Skype he found as his favorite statistic: “Five people who actually touched product and wrote code for every lawyer in the company.” Today that ratio is now 25:1 and rising, according to Tony’s comment. This explains why several issues have persisted over the years including:
• the lack of Skype Online numbers for Canada (which could easily be resolved to address a Canadian regulatory issue),
• the delay in releasing Skype for iPhone to Canadians due to an intellectual property issue
• the tight credit policies such as the fact that a credit card can only be used with one Skype account. If I want to use a credit card with my wife’s Skype account, I need to use a different credit card.
• the constant concern over U.S. regulatory issues as Skype rolls out a Skype for Business program in the U.S.
• Skype expects to see “Monthly Active Users” (“MAU’s”) rise to over 200 million by year end from its current 170 million MAU’s in the last quarter.
• Skype active users average over 100 minutes of engagement (in a Skype voice or video conversation) per month.
• The average video call lasts 27 minutes and is rising; an interesting statistic that helps to confirm what Skype Chief Technology Strategist Jonathan Rosenberg pointed out in his “The Rise of Real Time Social Sharing” presentation at eComm America 2010.
• Will Skype be in your family room soon? Skype for TV has already been embedded into over 50 million TV Skype-enabled TV sets (and BluRay players) worldwide, including high end models from Samsung, Panasonic, Sony, Sharp and Vizio.
• In spite of the occasional service interruption, over 35% of Skype’s user base is small business that uses Skype as their primary communications service “with the fall-back that the cost piece is so compelling”.

Bottom Line: It’s a bit of a hodge-podge of information but it all contributes to a better understanding of not only how Skype is ending up as an autonomous business division of Microsoft but also what developments are happening on the business side that have contributed to the variety of new products and releases that have appeared over the past six weeks.

Related articles

• Skype CEO Tony Bates talks about making Skype video calling ubiquitous (blogs.skype.com)
• Microsoft’s Skype acquisition expected to close by October (winrumors.com)

Over the past six years of covering Skype, there have been three “Masters” – the original founders – Niklas Zennström and Janus Friis (2003 to 2005), eBay (2005 to 2009) and the Silver Lake consortium (2009 to MS acquisition). And, once regulatory approvals and due diligence are completed, Microsoft will become the fourth later this fall.

But we’ve never heard the full background to some of these transitions. We knew there had been a major intellectual property issue – “you can’t drive the car without the engine”; we heard presentations on the Skype business model as Skype was presented to the investment community by eBay. But what happened behind the scenes that resulted in the many business decisions made to justify these ownership changes has never come out as one complete story.

At this past week’s Fortune Brainstorm Tech event in Aspen, a most interesting panel discussion revealed some of the history and reasoning behind this evolution, starting with, on John Donahue’s assumption of the eBay CEO position in 2009, eBay’s decision to “carve out” Skype as a non-core asset. On the Fortune event panel were three key players in this evolution: Skype CEO Tony Bates, Silver Lake Managing Director Egon Durban and Andreesson Horowitz cofounder Ben Horowitz.

It’s most interesting to watch the entire video but some highlights:

• Dealing with the dichotomy of a “wildly popular and deeply troubled” company that was in full blown litigation with its founders.
• How Skype continues to operate as an independent company and its sole responsibility to Microsoft during the due diligence period leading up to the closing of the Microsoft acquisition, expected in October, 2011
• Why Silver Lake, working with Andreesson-Horowitz, was able to execute on the two steps necessary to acquire Skype, in the process rescuing a “terrific asset that continued to perform, [had] fantastic network effects and continued to produce great product” from a “horrible cataclysmic outcome”. But seeing Skype as “resilient notwithstanding”, these investors recognized a unique opportunity that required a unique solution.
  • Yet they came up with a solution that would eventually give eBay investors a net gain on their initial 2005 investment in Skype.
• The internal Skype business issues that the Silver Lake consortium recognized and why they hired Tony Bates out of a senior executive position at Cisco to take over the reins.
  • In the course of this there is a lesson on how a private equity takeover can be highly successful and grow a business built around existing key resources. It’s a stark contrast to the more often publicized “slash-and-burn” approach of many private equity acquisitions where employee and product cuts become the recipe for repackaging a business investment for a subsequent sale.
  • There are some interesting comments mentioning one additional key asset, beyond the technology and user base, that made the Skype acquisition a “magical opportunity” when Microsoft was considering the acquisition last spring.
• What Tony Bates has done behind the scenes that has resulted in the release of five new products over the past six weeks¹– more than had been released in the previous two years.
  • What Tony Bates sees as a bigger revenue opportunity than SkypeOut calling.
• How the pending Microsoft acquisition of Skype will result in an entirely new business model for how Microsoft embeds an acquisition into it overall operations.

Bottom line: starting with the Silver Lake consortium acquisition, the Skype business case study is unique in how a wildly popular yet deeply troubled, engineering resource rich company can be converted into a an asset that will continue to be the “gold standard” for worldwide ad hoc communications in both the consumer and small business markets.

Watch the video; it’s a compelling – and revealing – story ….

Fortune: Lessons from Skype

¹Five new products:

• Comcast as a new platform for Skype calling
• Launch of video on Android phones
• SkypeKit public beta launch
• Mac 5.2 client announcement (post forthcoming)
• Facebook Video Calling

Related articles

• Skype CEO Teases In-Call Ads (mashable.com)
• Microsoft expects Skype buyout to close by October (electronista.com)
• Skype CEO promises brand will stay intact despite Microsoft acquisition (thenextweb.com)

Today Facebook announced three new changes that empower its users with significant real time communications features: Group Chat, a site redesign and Facebook Video Calling powered by Skype.

For Skype it’s a major awareness builder of the power of video calling. As suspected by the inclusion of new Facebook features in Skype 5.5 beta for Windows released last week, Skype is working on a long term partnership with Facebook to integrate Skype technology into the Facebook platform. Facebook chat support in Skype 5.5 beta for Windows followed by today’s Facebook Video Calling announcement is just the beginning to build a real time communications user base beyond the current Skype user base.

From the Facebook viewpoint Facebook Video Calling offers a new real time social networking application built around Facebook’s social networking architecture. Facebook CEO Mark Zuckerberg mentioned that this is the first of many “applications” where Facebook wants to partner with a provider who has a focus on the relevant area of expertise required to offer a quality service while not having to invest in the development of the particular expertise.

Here’s what I’m observing:

• Facebook Chat sessions are being mirrored on the Facebook Contacts tab in Skype 5.5 beta for Windows. Entries in either chat window will show up in the other one.
• There is no “setup” required to launch a video call beyond a one-time initial installation of a plugin (Windows, Mac). On Windows the plugin installs as a Program that can be uninstalled in the usual way. While there are options during the call to change the mic/speakers and webcam, there are no settings for volume or testing the audio/video hardware. And there is no way to see Call Technical Info. It’s a total focus on a simple user experience.
• A Facebook Video Chat is launched by going to a Friend’s page on Facebook and clicking on the Call button.
• If a Friend does not answer a video call you are offered the opportunity to leave a video message. (The first time you will have to approve the use of Adobe’s Flash Video.)
• If a Facebook user does not have a webcam a voice call is fully supported with your Facebook avatar/profile picture replacing the video image.
• There are significant issues with navigation and notification within Facebook:
  • While you hear a “ringing” sound when someone calls, it is not obvious where the “answer” window is. On the first call to me I had to minimize three or four other windows to find the “answer” window.
  • When a video message is sent (option if there is no answer to the video call), it is not obvious to the recipient that a new message has been received. To find the message one must go to the Message icon on the left side of the Facebook ribbon bar and select the “Friend” who has sent the message.
  • When someone started a Facebook chat session with me, the only way I knew that this session had started was to see a new message notification in my Skype 5.5 beta for Windows client. There was no notification on my Facebook site.
• The audio appears to use Skype’s SILK codec according to initial user reports. Also it has been confirmed that the audio and video channel use Skype’s p2p security features. (Chat security level is to be confirmed.)
• Video is 640 x 480; however, there is no frames-per-second information available.
• Picture quality, while certainly acceptable, is not up to the quality seen with Skype High Quality or HD Video. There tend to be reddish hues on faces and, in one case, white background walls had a definite bluish hue. (In the example below, Skype video calls using the same webcam and PC were of much higher color quality.)

Two other points that came out during the press conference:

• This Facebook-Skype partnership had been seeded prior to Tony Bates’ appointment as CEO last October; however, he has certainly endorsed it. Prior to the public announcement of Microsoft’s forthcoming acquisition of Skype, he went with Microsoft CEO Steve Ballmer to inform Facebook CEO Mark Zuckerberg of what would be announced later in the day.
• Both Facebook and Skype see this as an opportunity to build video calling experiences across the Facebook user base prior to launching paid services such as outbound calling to the PSTN and Group Video calling from Facebook.

Bottom line: Skype was readily adopted when it launched due to the relative simplicity of the setup and user experience. While Facebook Video Chat takes full advantage of Skype’s underlying p2p architecture (which places most of the capital equipment cost on the user in the form of requiring a PC), this is the first real experience where a “third party” user interface is built around Skype’s core audio and video communications engine. While one can launch video chat sessions on an ad hoc basis, there are some user interface issues, such as navigation and notification that require refining. (Maybe I’m not sufficiently into Facebook to understand where to find messages as a routine exercise … after all, Facebook is largely about social networking where real time communications plays a supporting role.)

I’ll continue to use Skype for its higher quality video and its auxiliary services such as group conversations and file transfer. However, if someone wants to communicate via Facebook, it’s a reasonable alternative – provided I get appropriate and timely notification of a conversation request.

The real target user for today’s announcement are all those multi-millions of Facebook users who have never experienced using Skype for their real time communications activity; an easy-to-install, ad hoc offering is more appropriate to them. In the end both Skype, as a service, and Facebook will find there relative niches.

Full disclosure: I received one of those Google+ invitations that Google could not fulfil on, so there is no Google+ experience reflected here.

Links:

• Skype Big Blog: Facebook video calling powered by Skype
• Skype Big Blog: Skype CEO Tony Bates talks about making Skype video calling ubiquitous
• Skype-Facebook Launch promo
• Facebook website: Facebook Video Calling
• Facebook Video Calling FAQ
• Facebook Help Center: Video Calling Basics

While attending CES 2011 back in January, I spent an afternoon visiting the main television vendor floor where 3D TV was definitely the number one topic of interest; however, I found, and reported on, several vendors with display kiosks demonstrating Skype for TV.

Michael Wolf, at GigaOm’s NewTeeVee, recently brought renewed visibility to the Skype for TV initiative in his post: Could Skype Be Microsoft’s Smart TV Trojan Horse?.   Frankly, from my learnings that afternoon,  his view about a role for a Windows OS on TV’s is baseless; it pays to look at the hierarchy for enabling Internet services on the TV’s.

One common trend I observed in visiting these booths is that all the vendors have embedded as firmware a complete Internet-enabling smart platform that provides access to various “cloud” applications. Social networking services such as Facebook and Twitter are the most obvious. Amongst other applications are several involving movies, such as Netflix, and sports offerings, such as NHL and ESPN Sports Center.

Skype, of course, was on at least six vendor offerings, using its SkypeKit platform, initially available for the Linux OS. In fact, Panasonic includes a dedicated Skype button on the remote controller for their Skype-enabled TV’s and BluRay players.

Behind all this I learned how the TV vendors are embedding these platforms. It’s a case of having the platform software embedded into the TV’s firmware and hardware, then layering the applications on top of the platform. Given that SkypeKit is behind Skype for TV it appears that they are using a Linux-based operating system. Certainly there is no room, given the current state of these offerings and time frames involved, for an embedded Windows.

On the other hand Skype for TV will bring to Microsoft exposure to experience with integrating applications onto these platforms. Windows Live services would be an obvious candidate for integration into these TV platforms. After all we do have Windows Live Messenger access on various smartphone platforms such as BlackBerry and iOS4.

And one should never lose sight of the network effect. Skype for TV video calls can be made to over 170 million active users who may be on any of several platforms – PC’s, iPhones, Android phones. One of my first benchmarks for how Microsoft will deal with its Skype acquisition would be the introduction of a unique Skype for iPad. This would be an application that would allow video calling on the iPad 2 taking full advantage of the iPad 2’s display size. It has nothing to do with Windows or Office but rather providing new user experiences using resources at hand.

Bottom line: It’s not a case of will Microsoft attempt to displace other OS’s on TV platforms with a derivative of Windows – that opportunity has passed them by. But rather the strategic opportunity lies in merging Skype’s experience with introducing a real time communications application onto TV platforms with Microsoft’s existing Windows Live experience on other platforms.

Michael also questions whether Google TV will be a competitor. In the end consumers want as few boxes as possible combined with ease of operation. If all the services, broadcast TV and Internet applications can come via one “box” the market for add-on boxes on home entertainment systems will eventually evaporate. How many HDMI connections will be tolerated by the average consumer?

Related articles

• Microsoft Acquires Skype – The “Amber Mac Test” (voiceontheweb.biz)
• Microsoft Acquires Skype – A Most Interesting Marriage (voiceontheweb.biz)
• The End of the “Skype as Bandit” Era (disruptivetelephony.com)

Yesterday Phil Wolff at Skype Journal brought our attention to an “infographic” from the financial due diligence-minded Credit Score Blog for Focus.com. It attempts to provide a history of Skype both from the technology and financial performance perspectives. But, in addition to Phil’s Quibbles, I have found some others.

Click on the graphic to see a larger image.

Research and Design by Credit Score Blog for Focus.com

Accounts and Users – there’s a difference!

Skype now has registered somewhere beyond 700 million accounts, increasing by over 500,000 every day. But, as has been pointed out often over the past few years, this number in meaningless since over 75% of the accounts have not been used for quite some time for at least three months. Users die, they try out Skype and give it up, a business will register new business accounts for employees who resign or are otherwise terminated. The list of reasons for not using an account can go on forever. (Unlike direct mail lists that can lose 20% of their accuracy every six months, users who move geographically can continue to use their Skype accounts provided they have an Internet connection.)

Starting with the IPO filing last year, Skype finally started to give out a more realistic number – the number of users who actually made at least one call or participated in at least one chat session in the previous calendar quarter. Whereas there were about 125 million in the April – June quarter of 2010, this number has risen to over 170 million for the January to March quarter 2011. In other words this is the number of active users.

So while Skype had registered over 100 million accounts in 2006, they did not reach the level of 100 million users until late 2009 or early 2010. It’s those active users whom become interesting to Microsoft as they work with their Skype team to develop plans for Skype’s (and Microsoft’s) growth.

Skype’s history with Video Calling – Sorting Out High Quality Video and HD Video

Yes, Skype introduced video calling in early 2006; it first came of out beta with Skype for Windows 3.1 in early 2007 delivering 320 x 240 images @15frames-per-second . However, in November 2007, Skype showed it got serious about taking the lead in video calling with the introduction of High Quality Video which required a new line of Logitech webcams, new video codecs from On2 (since acquired by Google) and a new version of Skype for Windows (3.6) that could deliver VGA resolution (640 x 480) at 30 frames-per-second and over a 384 kbps upload speed Internet connection.

With its superior quality that delivered in-your-face real time video, Skype video took off to the point where today video calling represents about 40 per cent of all Skype calls.

In 2010, with the launch of Skype for Windows 4.2, Skype announced support for 720p HD video calling; at the time it only supported webcams from two vendors: the FREETALK Everyman HD and Facevsion N1 webcams. HD video was off to a rocky start; it required at least 1.2 Mbps upload speed on the Internet connection (above the upload speed of most broadband connections) and there were call reliability and stability issues. With a firmware upgrade in December (FREETALK, Facevsion) and the release of Skype 5.0 for Windows, HD video calling has become a much more reliable service. Recently Logitech released a line of webcams that support HD Video calling. Over the past few weeks I have received HD video calls from Logitech webcams where callers had only a 1 Mbps upload speed.

With respect to the Infographic:

• Skype released High Quality Video in late 2007; they did not release HD Video until 2010.
• A major milestone for Skype video calls was the introduction of video calling on iPhones at the end of 2010.
• Finally, in early 2011, Skype took Group Video Calling out of beta, increased its capacity to ten participants and offered it as one component of its revenue generating Skype Premium service.

Microsoft Anywhere Graphic – What Happened to Outlook and Office?

The infographic attempts to illustrate all the potential Microsoft products that could benefit from embedding Skype technology and services. But what happened to Office and, especially, Outlook? At the press conference there was, to say the least, a strong emphasis placed on how Skype could be integrated with Outlook for both consumer and business use.

For Windows users, Outlook has become the core resource for managing users’ contacts; many products’ address books and scheduling features rely on the user’s Outlook Contacts and Calendars as the primary source of contact and calendar information. Outlook is critical for synchronizing a mobile phone address book, keeping the user’s schedule current and integrating Outlook information into third party collaboration services as well as many other Microsoft and third party offerings.

Full disclosure: the author’s first association with Skype involved beta testing of the Skype Email Toolbar, an Outlook plugin that allows you to make Skype calls directly from Outlook. However, the Skype for Windows client now incorporates an optional feature for importing Outlook contacts into a user’s Skype contacts, so this plugin has become a secondary offering.

I’ll place my bets on Outlook being the first or second Microsoft product to find Skype embedded into it.

Skype and Its Competition

That competition bar misses a couple of key aspects of Skype:

• Internationalization: Google Voice really only works  if you live in the U.S.; after all these years it still has no offerings for the rest of us around the world. Personally I have set up a Google Voice account during a recent visit to the U.S. but it’s of no use to me when at home in Canada.
• Technology: Over time Skype has developed some very unique technology that delivers a unique conversation experience; for example,
  • the SILK codec provides crystal clear voice on Skype-to-Skype calls, even when calling from/to iPhones and Android phones.
  • Video: Skype is unique in providing 640 x 480 video calling @ 30 fps via a simple user interface. Since its introduction in late 2007, there has been no competitive service with such a large network of users that can deliver this quality of real time video calls. And now HD video capability is starting to penetrate the user base.
  • Network connection: Skype has introduced features that monitor and adjust to the conditions of a call’s network connection such as to minimize the chance of call failure.

Bottom Line: While the infographic is a good attempt at outlining both Skype’s financial background and user experiences, it is missing some key elements that have the potential to contribute significantly to Microsoft’s ability to benefit from a $8.5 billion acquisition.

The key risk lies in how effectively Microsoft’s various product teams can work with the Skype teams to develop world changing communications-enhanced offerings. It’s a challenge to Microsoft’s ability to support real innovation. This represents the best opportunity for demonstrating Alec Saunders Voice 2.0 Manifesto where talk is the baseline, the meter is “off” and communications-enhanced applications are the value creators.

Related articles

• Microsoft Acquires Skype – The “Amber Mac Test” (voiceontheweb.biz)
• Microsoft Acquires Skype – A Most Interesting Marriage (voiceontheweb.biz)
• Microsoft Acquires Skype – Steve Ballmer Does Skype Europe (voiceontheweb.biz)
• Microsoft Acquires Skype – An Investor’s Perspective (voiceontheweb.biz)
• Skype’s Rollercoaster History [INFOGRAPHIC] (mashable.com)

When an acquisition occurs, it’s always a good sign to see that the acquiring CEO is getting around to meet all the employees of the acquired company. When major announcements were being made at my last employer, our first priority was to make sure the employees understood what was being announced, the reasoning behind the announcement and what the implications were for company staff. It’s important to have the team onside right from the beginning.

At Microsoft – Skype Press Conference last Tuesday it was announced that Microsoft CEO Steve Ballmer and Skype CEO Tony Bates, who had already briefed Skype’s employees based in the Palo Alto area, would be touring Skype’s European offices in London, Tallinn (Estonia) and possibly Stockholm and Prague over the past weekend.

Seems like Steve got to check out the Skype phone booth at Tallinn airport on Friday or Saturday:

And that Steve participated in a Sunday morning brunch with some employees according to this Stockholm-based employee’s mood message:

More about the phone booth here. Phil Wolff at Skype Journal has opened a Caption Contest.

Bottom line: the introductions are over; now for the execution. Get ready for the ride.

Thanks to Brian O’Saughnessy, Skype’s Chief Marketing Officer, for the photos.

Related articles

• Steve Ballmer’s email to Microsoft employees about Skype deal (seattletimes.nwsource.com)
• Steve Ballmer & Tony Bates Talk About Skype-Microsoft Deal (gigaom.com)
• Ballmer’s latest acquisition (mondaynote.com)
• Microsoft Acquires Skype – An Investor’s Perspective (voiceontheweb.biz)
• Microsoft Acquires Skype – The “Amber Mac Test” (voiceontheweb.biz)
• Microsoft Acquires Skype – A Most Interesting Marriage (voiceontheweb.biz)

Following up on Tuesday’s announcement, where many questioned the valuation placed on Skype by Microsoft, Ben Horowitz of Andreeson Horowitz, one of Skype’s investors in the “Silver Lake round” a year ago November, provides some interesting insight into what Andreeson Horotwitz had seen when they made that initial investment 18 months ago. And these insights provides additional background as to why Microsoft saw an $8.5B acquisition as appropriate.

And, having been involved with or witnessed from behind the scenes a few acquisitions in the past, it provides insight into assessments of acquisitions that journalists simply don’t seem to appreciate. It’s too easy to write that story about how an investment will fail.

Key points:

• Prior to the Silver Lake Round, there were intellectual property issues that, on the surface, made it appear that the company was impossible to buy.
• There was scepticism that Skype could not migrate from solely having Skype clients to the mobile and web client world while maintaining its ease-of-use.
• But the investors recognized that both Skype’s founders and employees were a unique resource:
  

  With a company as complex as Skype, investors draw different conclusions about the same facts. In this case we had the same data as everybody else, but we had a radically higher opinion of Skype’s founders and employees than the doubters and naysayers. We believed that we could work with, rather than against, the founders. And we believed that Skype’s amazing engineering team, led by the original Eastern European software wizards who created the service, could compete and win against anybody.

  We specifically thought that Niklas and Janus, two of the preeminent technology entrepreneurs of our time, wanted Skype to be a huge success and would do everything in their power to make that happen. As a result, we did not think the doomsday scenario that greatly concerned other investors—that the founders would attempt to shut down the company through the courts—was an actual possibility. Based on the founders’ motivations, we felt that we’d quickly settle the IP litigation. Both sides wanted to get on with the business of making Skype more competitive and could not afford to waste time bickering about IP ownership.

  We couldn’t have been more right about that. After quickly settling the litigation, both founders immediately made major contributions to the business through their energy, insight, and intellectual prowess.  And boy did we need them to do that, because we soon faced full frontal assaults from the both Google and Apple.

• They recognized that Skype’s founders were approachable and basically wanted to see Skype succeed.
• Working out a settlement to the intellectual property litigation, they brought the founders into the investors as a resource that could make “major contributions to the business through their energy, insight, and intellectual prowess.”
• The result of the Silver Lake round was increasing growth of the Skype user base (going from about 300,000 new accounts per day to over 500,000), Skye usage (supporting almost 25% of international calling minutes) and, at peak times, over 30 million concurrent users.
• In his summary paragraph Ben sums up how the combination of passionate employees, innovation and Skype’s powerful network effect overcame any competitive attacks, even from a respected player such as Google.
  

  In retrospect, it was easy for people to underestimate the quality of the Skype engineering team and the power of Skype’s network effect. When we bought the company from eBay, many thought that Skype, like so many acquired technology companies, had lost its technical talent. Through our research, we found that Skype had a core group of engineers who were completely dedicated to the mission. They stayed through the eBay acquisition and were hugely determined to make Skype the communications company of the future. Over the past decade, this team consistently introduced ground-breaking technologies ranging from highly resilient and scalable peer-to-peer networking to radically higher sound quality through dramatically superior codecs. In doing so, Skype out-innovated the competition in the most important areas. When combined with its powerful network effect—how valuable is a video calling service if there is nobody to call?—Skype became a formidable competitor. [Editor’s bold]

Bottom line: My long time acquaintance Rick Segal used to talk about looking first at the people before even looking into the technology when considering investments. Over my many years of meeting Skype employees I have consistently found, in spite of an oft-times critical public,  an underlying enthusiasm and passion that says they are on a mission and want to complete that mission.

Now they get to play out that mission under the guidance of a technology business that established many of the business processes for combining marketing, product management, engineering and financial resources into successes. Microsoft has the opportunity to add proven real-time communications services into their existing product line. Skype, as an autonomous business unit within Microsoft, can finally overcome many of  its inhibitors to success and expand significantly on the founders’ initial vision.

Related articles

• The End of the “Skype as Bandit” Era (disruptivetelephony.com)
• Skype’s Real P2P Network (gigaom.com)
• More Skype Rumors: Big News Soon, Microsoft In The Mix (gigaom.com)

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)

For Mac devotees worldwide there has developed a significant appreciation of Skype for Mac 2.8 with it’s drawers, separate chat conversations windows, contact management algorithms and other features that present a “Mac-like” user interface. It provided both ease-of-use and flexibility across the spectrum of new to advanced users. However, there have also been cries for incorporating many features that are now available in Skype for Windows 5.x, especially Group Video calling. A tall task, to say the least. Recall Dan York’s rant on Skype’s fragmented product strategy, for instance.

Over the past couple of months Skype has released two versions of Skype for Mac 5.x (5.0 and 5.1) to some acclaim (yes, I have heard some complements) but also to much dismay. On the positive side it supports Group Video Calling (but now requiring a subscription). It took a couple of weeks after the Skype for Mac 5.1 release but last week the Internet erupted with an outbreak of Skype for Mac 5.x fever as several bloggers passionately displayed the rash by posting their concerns, apprehensions and aspirations. From my recent interviews with Skype personnel, their blogs and my own experience using both Skype for Windows 5.x and Skype for Mac 5.x I find the following:

• It appears that the goal for Skype for Mac 5.x is to have an interface similar to the revamped user interface first launched as Skype for Windows 4.x and now at its most recent version, Skype for Windows 5.2. At the same time the goal was to catch up to the feature set of Skype for Windows 5.x.
• From my CES interview with Neil Stevens, Skype’s VP Consumer Products, I learned that Neil wants to see new versions with incremental feature enhancements released every two to three months. Certainly the activity since the beginning of 2011 has lived up to that goal with two new releases of both Skype for Windows and Skype for Mac in that time frame.
• In the announcing the contest for “Styling” a theme the Skype for Mac 5.x conversation pane there is a concluding paragraph stating:
  • Finally, a note to those of you who have commented on the user interface as a whole. We’re in the process of developing some changes which will offer a lot more flexibility in the interface, and they’re on the roadmap for a (near) future version. Stay tuned.
• In response to last week’s deluge of blog posts Skype’s Rick Osterloh has posted “An Update on Skype for Mac” where he attempts to explain some of the challenges of building Skype for Mac 5. He states:
  • However, there’s still plenty of work for us to do and we know that not all of you prefer 5.X. To that end, we’ve taken a comprehensive look at the feedback from the last couple of months and identified two broad patterns. I’ve captured a distillation of some of the issues we have heard.
• In the meantime Skype has restored the ready availability of Skype for Mac 2.8 on their website as an option.

Skype for Mac 5 Fever – The Outbreak

• Lukas Mathis, Ignore the Code, in his post Skype 5 for Mac, finds an upgraded Skype Contact asking: “What the hell happened to Skype? Is this some kind of a joke?” He goes on to point out the simplicity in Skype for Mac 2.8 of the basic contact window, how chats were displayed and how he uses the Mac multi-desktop feature to manage multiple concurrent chat sessions. He continues by outlining his issues with Skype for Mac 5: complexity, rigidness and non-essential features. All valid points including a demonstration of how a more advanced user took advantage of the UI’s flexibility in 2.8.
• Jaanus Kase, a former Skype employee who has since acquired a degree in Human-Computer Interaction at Carnegie Mellon University, in his post, Skype 5 for Mac: spatial arrangement and inconsistent single-window design, discusses the the “Floating and Disappearing Dial Pad” as an example. [My comment: here is one feature that needs to be addressed by looking at how the dial pad is handled in Skype for Windows 5 (I’ll have more to say later on this one.)]
• Hudson Barton, a Skype for Mac enthusiast who tracks Skype users online every 15 minutes, uncovers a previous Skype for Mac UI design proposal from an agency that Skype worked with (don’t know if they still do). He points out in his post, How To Fix Skype-for-Mac 5.x :
  • ….. the features of Skype-for-Windows work consistently and as one might anticipate, with lists of contacts,  conversations calls on the left and the content of those items on the right.  The Mac interface, by contrast, is all mixed up. {Editor’s bold} Things pop up in unexpected locations and in formats that are both strange and unusable.  Some of the features are too buggy to use.  Others are annoying, or meaningless, or simply dead, and several things that were admired in 2.8 have gone missing.

  and offers some suggestions for fixing Skype for Mac 5.

• Phil Wolff at Skype Journal, in Months pass, and fury over Skype 5 for Mac still boils, provides one perspective on “How did this happen” and points out that “Design Is Hard”:
  • How do you hold fast to your core Skypiness, to what made people love you, and support new features for new markets, new use cases, new business models? Your backlogs overflow. The pressure is intense. Heck, I add to my Skype wishlist daily so I can only imagine what your iceboxes look like.
• Andy Abramson at VoIP Watch speculates on how this all may have evolved in Skype Has Another Set of Outages Yesterday.

Skype for Mac 5 – The Anti-Biotic

From these posts and conversations in the general course of my work I get the feeling that I am one of the few users who has experienced both Skype for Windows 5 and Skype for Mac 5 on an almost daily basis. I am also involved with a network of business contacts who simply use Skype — they don’t care about the underlying technology –  and just want it to work but again I hear that “What the hell happened to Skype?” line from those who use a Mac.

Just over a year ago I acquired a MacBook Pro and quickly learned first hand about the features that made Skype for Mac 2.8 attractive to its user base. And then I realized that some of the basic precepts behind Skype for Windows 4 and 5 had some consistency with how Skype for Mac 2.8 worked, especially when it came to handling contacts and conversations. At that point I realized how some of these features were inherent to Skype for Windows 4.x and have become very comfortable with the Skype for Windows 4 and 5 overall format while benefiting from its new features:

• The two panes clearly separate Contact Management and Conversations
• There is a “Compact View” option to have a separate window for Contact management and multiple windows for individual conversations (with chat text, call detail notes and file transfer records) in addition to the “Default View” with one overall user interface window and two panes. (Note: don’t go running to Compact View in Skype for Mac 5 – that has totally different consequences)
• Skype for Windows 5.x has evolved with new UI features that make using Skype even easier (for example I have commented on two nifty new Skype for Window 5.2 here and here – the latter addresses one aspect of how the dial pad works).

Over the course of this week I will be putting up a series of additional posts outlining in more detail what I see as needed for Skype for Mac to come close to the convenience, feature set and ease-of-use found in Skype for Windows 5.2.

Bottom line: the Skype for Mac team has lots of work outstanding to address the challenge of not only having the feature set but also ease-of-use of Skype for Windows 5 while also taking advantage of some potential features that are unique to the Mac. Hopefully my comments can help point out key issues. With over 30 million online concurrently last week and 145+ million active users late last year, there is a significant portion of Skype’s users who count on a positive user experience (18% of this blog’s visitors in 2011 are on a Mac.)

Dan York has some additional comments:

• My 3 Main Issues With Skype 5.x For The Mac – And Jim Courtney Summarizes The Skype for Mac 5 Saga

Other posts in this series:

• Skype for Mac 5: Returning to Ecstasy – Step 1 – Consistency
• Skype for Mac 5: Returning to Ecstasy – Step 2 – The Conversation Pane

Other views on this issue:

• Ignore the Code: Skype 5 Ideas
• Balance Network: Skype 5 for Mac Redesign, “A little more than just a Chat Style”
• Attack of Design: Skype Beta for Mac’s Usability Failings
• Hudson Barton, Aaytch: How To Fix Skype-for-Mac 5.x
• Andy Abramson, VoIP Watch: Skype Has Another Set of Outages Yesterday
• Keith Lang: screen shot on how to organize Contacts
• Jaanus Kase: Skype 5 for Mac: spatial arrangement and inconsistent single-window design

And, for those design masters: enter the Mac chat style competition; competition announcement

Related articles

• Skype for Mac 5.0 Goes Gold: Incorporating Beta Feedback and More (voiceontheweb.biz)
• Skype for Mac 5 Beta 1: Catching Up to Skype for Windows 5 But With a Mac Touch (staging.dicx.com)
• This Is What Skype 5 For Mac Should Look Like (techcrunch.com)
• Download: Skype for Mac 5.1 (skypejournal.com)
• Skype 5 for Mac continues to frustrate — how’s it treating you? (engadget.com)

Cross-published guest post by Phil Wolff, Editor and Publisher, Skype Journal.

Phil’s interview with Tony provides significant background about what Tony brings to Skype as both his technology expertise and business management experience, the four key values that are the foundation for his leadership focus during his first year as Skype CEO and where he sees Skype moving ahead at a high level.

http://www.youtube.com/watch?v=eXddBMj1N8s

Skype Journal: How did you come by your geek cred?

I was part of the team, the very small team that ran the ARPANET gateways in the UK, I call it the right place at the right time. And my story about how I’m self-taught is that I’m from London and I lived at the end of the Tube line and it took roughly an hour and twenty minutes to come in every day and an hour and twenty minutes to go home. That’s a long time where you’re kinda sitting there and so I immersed myself in manuals and texts. Strange story about that, back in those days, manuals were a lot better then they are today. I self-taught UNIX through basically DEC manuals.

And I really got involved in the infrastructure side of the Internet and so when people say a bit about being a geek, you’re seeing a bunch of RFCs around things like route reflection. Route reflection is an esoteric thing but it’s one of the things along the way that kept the Internet going.

There were some other jobs after that. I helped start RIPE which is the main name registry similar to the Internic and so on. I wasn’t the first guy there but I was like number four and I worked on a thing called a route server. But I always knew I wanted to build product. And so after that I did Internet MCI which is how we transitioned the NSFnet which was a lot of fun and it was all different then. It was when in those days the nexus of the Internet was actually in Virginia, So PSI was there, UUNET was there, Sprint was there, MCI was there. And we actually used to meet, a bunch of kids, geeks and we would actually trade SLA agreements. We would go to the Tortilla Factory once a month and I would buy a circuit, you’d buy a circuit and that was how it worked. And in those days there was no settlement and all the discussions we have today.

But I always kinda felt that the missing thing was how were these things going to evolve and scale.

When I joined Cisco I worked in the CTOs group and we had these guys called “consulting engineers,” very smart people mainly more pragmatists who had been building. And I kinda ended up being the de facto product manager for the high end router space and we were redefining it and there were a lot of people involved. But my first big project was working with a thing called 12000. The twelve-thousand was the real first carrier class box.

And then to cut a long story short so this doesn’t go on forever, the real big thing I got involved in was this thing called the CRS1 and what was brilliant about that was all aspects about building a system: which was hardware; we created this new operating system called IOS XR, which I drove and led and this you know; put it this way, pretty much any time that someone connects to your website you get sent one of these packets, it comes across one of these devices so it’s part of the infrastructure.

And the only other bit that may be relevant for this is that along that way I got really enamored with video. I was asked to integrate Scientific Atlanta because we’d acquired Scientific Atlanta, and now we got bigger and I was general manager and I had most of the carrier business, a big portfolio, and what I loved about the technology was the complexities of it and the complexities of the multiple forms of capture to display. And I also loved the fact that it took me to a place that I hadn’t been before. I had been basically a plumber, I had been selling plumbing, building plumbing. But when we acquired Scientific Atlantic at Cisco, the dialog changed – we now were actually in the home. We were in the ARPU part of their discussion.

And the other thing that happened because of that passion around video and the fact that I had been so focused onto the early generation of the Internet I had the opportunity to be on the board at YouTube. And that was my first real shot into that kind of “consumerland,” consumer Internet. Loved it, it was over before it started, it was great fun. Founders are fantastic people, Chad and Steve. If you ever get a chance to meet them, they’re wonderful guys.

And from there, I was just building my portfolio, growing my leadership, and John Chambers asked me to take on enterprise 18 months ago, and this opportunity came up.

SJ: And out of the all the companies – Why Skype?

Well, it’s a great story. I’m very goal-driven. My wife will tell you that we…

SJ: In terms of personal career goals?

Goals in general. I’m just being very candid. Some career, some material, some more social. I mean, I believe that goals work. I think that it’s a myth that there’s some Harvard study that wasn’t empirical that said that they did a measure of people one year of one graduation class and those who had goals, who had wrote down goals were more successful than those who didn’t write down goals. Now again, goals are different for different people. But three years ago, I wrote down a goal that I would like to be a CEO before I am forty-five and I wrote down three companies and this was one of them.

SJ: Really?

And I’m not telling you who the other two are. But I will tell you is that each one of those was not in the infrastructure system space, was in the consumer internet space, because I think that the consumer internet side is the most disruptive space and continues to be. I was in the transition at Cisco where it was frankly academic-led to enterprise-led and it transitioned to consumer-led and I got to see that.

And the other thing, just for what it’s worth, I hope it doesn’t come across as cheesy, but I’ve been a big user of Skype for a long time and…

SJ: A little cheesy.

Yeah, but let me tell you the story of why it’s less cheesy. When I went to Tallinn. Have you ever spent any time in Estonia?

SJ: No.

You’d love it. Actually, a big part of the history is the disruption of what they’ve done. One of the questions they’ll ask anyone is – how long have you been using Skype? One way you can tell how long someone has been using Skype is asking if you have a unique handle, that maps to their unique handle. My Skype ID is TBates. I started using Skype in March 2004. There’s a great story here. So the guy who runs the database who has all the secrets, Asko, they asked him to run it, cause I was asked this question myself, and the answer came back – he goes wow that’s before I started using it. So yes, you can say that it’s cheesy but the reality of it is that I used it a long time ago.

I met Nicholas a long time ago. I developed an idea of putting p2p inside routing protocols at Cisco. We have a patent on that. And I pitched it to them and they said it wasn’t a great idea. ‘Cause of their core values. So I’ve been involved in that technology.

SJ: Skype vs. Cisco?

Just to give you a perspective, I was at Cisco for 15 years. So I was there when they were kind of in the low billion dollars which is slightly bigger than this and actually it’s kind of interesting, when I came to Skype, there’s a lot of similarities in culture. Right? We can discuss what Cisco is today but back then it was highly product-centric. There was a belief system in this case, that you can kind of equalize the world by making IP the center point of it.

In Skype’s case, it’s saying we’re providing a communications services platform that breaks down barriers on a global basis. And they used a very powerful disruptive technique to do that. One – it’s low cost, but two – it’s highly scalable. And so there are similarities there.

Culturally, there are also similarities, in the early days of Cisco there was a belief system that you could do anything if you had the right talent and the right engineers in place. Now that scales to a certain level and then you have to put processes in and so on. And Skype I think is at a very similar point in its life cycle. So for me, I was sort of lucky enough to go through that, so when you ask what’s the value I can bring, I have been through that.

I think there’s two other pieces which is leadership as you go through these transitions is critical and I learned that from John. And John created a bunch of cultural values that stick with the company. Those values are different, but the importance of those cultural values are very critical as we went through different parts of that long term journey.

And so I am in the process, and it’s an internal thing but I have to share it. It’s sort of establishing a bunch of cultural values that I think are very important to Skype. Different to the ones we had at Cisco. At Cisco we had “Customer Success”: customer is always right, no technology religion, results driven. So there’s a bunch and there’s a badge you get at Cisco.

I’m trying to focus on four key things:

Number one – product engineering led company. The way Skype will be successful is its products must speak for themselves. Its products and its services. And you know, I think we have some wonderful products. I think what we just did with the iPhone launch, just to bring you up to speed, we did the New Year’s Eve event with 11 million – 10 million upgrades, 1 million new users — in less than a week. And just the pure use cases are just unbelievable. And I think why? Because they’re multi-platform and they’re going to lead to more platforms. Just takes it to the next level. So that’s one key thing. But product engineering – that must lead. I don’t want to talk about the past. I want to talk about what I want to do. But that’s number one.

Secondarily, understanding that we’re truly a global company. One of the things that attracts me to Skype is that we were founded in the East. We were founded in Eastern Europe. Maybe we should do this at some point – maybe we should do this at some point, you should come with me; the energy and the way they think about life is just amazing. It’s not just that they disrupt – they see this as a platform that could change the world. Now to change the world you need a big platform. So you have to keep investing and so on.

But we also need to grow. And at some point you have to look at that talent pool and say if you go to Estonia and you get in a cab and you say Skype, you don’t have to say any more. And I’m saying Estonia, I’m not just saying Tallinn. So this is a population thing. So we’re sort of bringing East to West. Now why I like that concept is that we actually have the infrastructure and the capability to do it. The way people use Skype internally is they’ve already embraced “globalization” but not necessarily really realized the full power of it, so that’s number two: Truly global like no one else. Really be a global company. Most global companies today are headquartered in The Valley and they outsource. That’s not what I’m talking about. Completely distribute the company. That’s the second cultural value.

The third one is we’ve got to, one thing that I think is really important is incredible ideas. [And you’ve got some great ideas by the way. And I do want to mention, we are going to take up your Heartbeat idea. I think that’s a good one. Not committing right now! But I absolutely think that heartbeat not a good one right now, we have to put more data and status around it.] There’s probably ten things that you would like to do in the Skype product, probably five or six [of mine] are the same. If you go to Tallinn and you say to them, we should do this, I don’t know: ring tones, as an example, it’s been done. But what happened was for some reason the processes and things to get it to market and really get it to take off, so they just moved on. So cultural concept number 3 is ideas to real users much quicker. And I think I know how to do that. Because I’ve been through that process. Last year I helped develop 400 new products at Cisco. Different types of products Software products as well. Android tablet, business social software, obviously switches and routers and so on, so that I think picking up that pace…

Last one I think is a bit high level, but understanding that the role Skype plays is that we’re in a highly dynamic world, much more dynamic than it used to be. There’s a bit of a sense that it’s static – you win VoIP and then you win the next one. I think all those things are blurring – and so that’s the 4th concept. This notion of dynamics – what’s happening in the marketplace with the competitors and so on, I think we can translate internally and really move much quicker.

SJ: What does Skype need to become?

Look, I think there are a couple things. One is Skype in my opinion is the only truly global communications services company already.

One of the things that’s going to come out tomorrow is a Telegeography report. Wait, let me ask you a question, what do you think the numbers are going to be for 2010?

SJ: For international minutes?

For us, as a percentage of total.

SJ: 16?

25!

SJ: Congratulations.

What’s that really about? That’s still mainly people with good broadband, mainly people in the developed world with PC architectures. You’ve got to move to mobile, you’ve got to get to the third screen, I would say the living room, really. I think the world is made up of three, increasingly, three modalities of input and receive communications. These guys (holding up iPhone) for sure – that wave’s there and we’re in the heart of that right now with what we’re doing with our products. This, and I think the desktop is still a metaphor for what we’re doing – mainly for the web and the browser. And increasingly the living room. And that’s the other thing we’re going to be talking about tomorrow – is continuing partnerships around what we’re doing with TVs, and SkypeKit as a generalized kit can now be put into a lot of different devices.

So when you say what I think we can become, I think we can service a billion people quite candidly. I think offer a rich set of communications services in a way that leads to more wonderful experiences obviously. There are so many stories of the way people use it in terms of whether it’s outreach, in terms of education to kids, and so on or whether you’ve got someone who’s at war trying to get back home.

But I actually think that the broader play for us is that it can also start to become much more useful. The way people collaborate is becoming more video based. It’s much more immersive, people actually want to talk to each other. Customer service, there’s so many different examples of where video will become the next frontier. I think we’re leading in that. But I think we need to be multiplatform. That’s really what we’re doing in the next few years.

Word cloud from transcript via Wordle.

Thanks to Jenifer Caukin, Skype PR, whose voice you’ll hear about two-thirds of the way through the video.

See also:

• An Atlas of Cyberspaces: Historical Maps of Computer Networks. A range of the historical maps of ARPANET, the Internet, Usenet, and other computer networks, tracing how these pioneering networks grew and developed.
• Internet History, Computer History Museum.
• IETF RFC 2260: Scalable Support for Multi-homed Multi-provider Connectivity. January 1998
• IETF RFC 2270: Using a Dedicated AS for Sites  Homed to a Single Provider. January 1998.
• IETF RFC 2283: Multiprotocol Extensions for BGP-4. February 1998.
• IETF RFC 2796: BGP Route Reflection – An Alternative to Full Mesh IBGP. April 2000.
• IETF RFC 2858: Multiprotocol Extensions for BGP-4. June 2000.
• IETF RFC 3180: GLOP Addressing in 233/8. September 2001.
• IETF 4456: BGP Route Reflection: An Alternative to Full Mesh Internal BGP (IBGP). April 2006
• IETF RFC 4760: Multiprotocol Extensions for BGP-4. January 2007.
• 10 Questions for Skype’s new CEO. October 4th, 2010. I only got to a few of these.
• The Skype Hall of Presidents and CEOs. October 30th, 2010.
• First video message from Skype CEO Tony Bates. December 23rd, 2010, responding to the pre-Christmas network outage.
• Skype CEO: We apologize and will top you up. Caption contest. Announcing the outage was over. December 23rd, 2010.

What do you think of Tony Bates’ past experience, fit for the job, or his plans for Skype? Email tips@skypejournal.com. Chat with me on Skype. Call me at +1-510-316-9773 (my mobile), follow on twitter @evanwolf(everything) and @SkypeJournal (just the posts). Visit our Skype Journal private technologist roundtable, one of the longest running public Skype chats, where we’re talking about this right now.

The opening day of CES 2011 was a banner day for Skype announcements and activity. It started with a morning press conference where new Skype CEO Tony Bates built his message around the themes of “Universal, Useful. Wonderful”:

He covered recent Skype activity and accomplishments:

• From the recent Skype outage, they learned much about Skype’s pervasiveness and users’ reliance on Skype as a critical real time communications service in addition to addressing the technical issues that led to the outage.
• In its annual report on international long distance minutes by service provider, Telegeography had reported earlier in the day that, in 2010, Skype had increased its market share of international calling minutes from 12% in 2009 to 24.7% in 2010. This represents an average of 520 million minutes per day and over 190 billion minutes for the year.
• Video calling has increased to 40% of all calls in 2010.
• When Skype for iPhone 3.0 launched last week, it triggered over 4 million downloads on the Apple app store and over 1 million Skype mobile video calls on the first day.

Tony then went on to make some announcements:

• Completion of an agreement earlier in the day to acquire Qik, a popular live video streaming service, to complement its video technology resources; from Tony’s blog post linked above:
  

  Skype and Qik share a common purpose of enriching communications with video, and the acquisition of Qik will help to accelerate our leadership in video by adding recording, sharing and storing capabilities to our product portfolio.

  Through this acquisition, we’ll also be able to take advantage of the engineering expertise that is behind Qik’s Smart Streaming technology, which optimizes video transmission over wireless networks.

• Launch of Group Calling on Skype. Group calling on Skype for Windows 5.1 has gone “Gold”. It’s being offered as part of a Skype Premium offering that includes Live Chat Support for a monthly $8.99 subscription fee (with discounts for 3 and 12 month subscriptions). While group video calling supports up to ten participants on a call, only the call host requires a subscription.
• More Skype access from the living room involving Skype for TV becoming available later this year on newly introduced Skype-enabled Sony BRAVIA and VIZIO VIA TV’s; Skype has also announced a partnership with Panasonic and Sony to introduce Skype-enabled Blu-ray Players in the near future.
• Opening up SkypeKit beta to any legitimate developer for building third party applications embedding Skype.

Early Thursday afternoon Skype CEO Tony Bates appeared at the Verizon 4GLTE press conference to announce Skype mobile Video that will be appearing within the main feature set of four Android smartphones that will be amongst the initial featured devices supporting Verizon’s new 4G/LTE network. Whereas the current Skype mobile on Verizon uses Skype’s thin-client architecture, the Skype mobile Video will use a true Skype IP client.

For the first time in several years, Skype has a small booth at the rear of the Upper South Hall featuring video calling on iPhones as well as group video calling. But it’s been drawing crowds for the presentations.

Bottom line: speculation can abound as to what new services the Qik acquisition will bring and how they can complement existing Skype services. While the Skype’s user base continues to grow, usage has accelerated significantly when it comes to Skype’s key feature: free international calling. The introduction of a Skype Premium service  with a fee encompassing group video calling and live chat support adds the first potentially significant new revenue stream since the launch of Skype Out and Skype Online numbers many years ago. (Coincidental that it comes at the time of filings for a new IPO?)

Note that coincidental with the Group Video calling announcement Skype released Skype for Windows 5.1 that also address a couple of related issues.

Here’s the full morning press conference video:

Related articles

• TNW Interview with Skype at CES: The next generation of video and why the Kinect is so cool (thenextweb.com)
• Skype Buys Qik Mobile Video Streaming Service (pcworld.com)
• Skype Soon To Be On Sony BRAVIA and VIZIO VIA TVs (socialtimes.com)
• Skype buys Qik mobile video streaming service (macworld.com)
• WATCH: Skype To Acquire Qik (huffingtonpost.com)
• At CES, Skype gets serious about video with Qik buyout (e27.sg)

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

Related articles by Zemanta

• Skype Going Public With $100 Million IPO (thenextweb.com)
• Skype files for IPO (theglobeandmail.com)
• Skype Files For $100 Million IPO (techcrunch.com) (This one includes a block diagram of the various companies involved)
• Internet calling service Skype files for IPO (sfgate.com)
• GIPS, Google and All That Co-opetition Jazz! (voiceontheweb.biz)
• SkypeKit: “Naked” Skype Support Arrives for Hardware-Embedded Skype and PC Applications (voiceontheweb.biz)

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.

Related articles by Zemanta

• The SkypeKit SDK releases. Say hello to the next generation of Skype. (thenextweb.com)
• Skype Opens Up SkypeKit SDK To All Devices And Desktop Apps (techcrunch.com)
• SkypeKit beta SDK adds Skype to any application or device (engadget.com)
• Skype Opens Platform with SkypeKit SDK for Developers and Manufacturers (readwriteweb.com)
• Skype Releases SkypeKit SDK, Will Bring Skype Everywhere [Skype] (gizmodo.com)
• SkypeKit SDK promises devs invisible Skype access for apps & hardware (slashgear.com)
• FREETALK Everyman Headset – Works with Skype on the iPad (voiceontheweb.biz)
• FreeTalk Wireless Stereo Headset: A June Special from In Store Solutions (voiceontheweb.biz)

Ok so I’m the last to write about Google’s announcement this morning on its acquisition of Global IP Solutions, a major provider of IP-based communications infrastructure with not only its voice and video codecs but also voice and video engines that mean simply “supply me with an Internet connection, a microphone and a set of speakers” and we’ll handle the conversation on your PC or smartphone.

Combine this acquisition with Google’s experience with Google Talk and Google Video Chat, its acquisition of Grand Central to become Google Voice, of On2 for its video codec (used by Skype amongst others) and of Gizmo, Google now has a full set of the underlying tools required to bring out some interesting communications offerings. Can Google integrate these tools, and overcome the inherent management and organization integration issues, to deliver a coherent and effective communications offering? What will we see as end user offerings? And how will Google work with the competition?

After all four weeks ago I had a demonstration at GIPS of a video call received on an iPad (notice I only said “to”). And, as I reported at the time, they basically affirmed that we should be seeing video calling supported on mobile smartphones before year end. Perhaps with a GIPS mobile video engine. Will this now simply be an Android offering or will their offerings also involve smartphone video calling support for Apple’s iPhone/iPad and, say, RIM’s BlackBerry?

It’s interesting to note that I’m already observing the Skype – Google competition in my GMail window. Hover your cursor over the appropriate location at a sender’s name and I get one of two “click-to-call” options: to converse with a contact using Google Talk/Video or to converse directly with the same contact in Skype voice, chat or video:

Google has long been a customer of GIPS for its voice technology and more recently for its video technology on Android. As have Nortel, Cisco (Webex), Communigate (one of the world’s largest suppliers of enterprise email services), Yahoo, IBM/Lotus and many others for both its voice and video technology. It will make for an interesting world of co-opetition.

Other bloggers have made some interesting points:

Thomas Howe, Voyces.com in Tick, Tock, Core, Edge implies that, with the pendulum swinging from the core to the edge, IP-communications infrastructure is going to be supported primarily by two players, Skype and Google:

More important, though, is what these battle lines say about the other players. Which is to say, these guys aren’t even on the battlefield. If fellow Cape Codder David Isenberg is right, and we are in the era of the dumb network, then anyone not-Skype and not-Google is not in the running. Although I agree, appreciate and applaud Orange’s work with their core (in particular, the API program), where are they in this battle? Where is AT&T? Now, doesn’t Verizon’s deal with Skype seem much smarter? To me, it does.

Voxeo’s Dan York, in Google buys GIPS for $68 million – to take on Skype? Apple? Microsoft? gives a short course in IP Communications 101 to explain Google’s motives for this acquisition by pointing out where the real battleground lies:

The issue is that while the control channel is increasingly around the open standard of SIP, which anyone can implement, the “codecs” used in sending media from one endpoint to another have long been a proprietary battleground, particularly with regard to wideband (or “HD audio” as some call it). Yes, there have been and are standards, but usually there have been intellectual property or licensing issues. Now, there is work within the IETF to create a standard wideband codec (and as I wrote earlier, Skype is involved with this effort) but that may take some time and the outcome is not known right now.

But there’s one aspect to this acquisition that can tend to get overlooked – cross licensing. When I worked in the NMR spectroscopy industry during its early evolution in the 1970’s, the two major players (Varian and Bruker) would be filing and acquiring patents and then suing each other. But the final outcome was that both players set up cross licensing arrangements such that the entire NMR spectrometer market benefited by always being able to benefit from the best of both companies’ innovation. And it all subsequently contributed to the rise of Magnetic Resonance imaging that plays such an important role in today’s medical imaging space across six or seven vendors. Will we see Google and Skype cross-licensing their technologies so that overall IP-based communications offerings can ultimately provide best-of-breed services to both their customer bases?

Bottom line: What I see emerging is a communications market where each of Google and Skype will continue to bring forth unique communications offerings that may appear somewhat competitive to their respective customers. Recall the final value add is in the customer benefits exposed by the user interface, not the underlying technology. As a result we can expect a world of co-opetition and cross licensing such that customer offerings by either party are not held back by some intellectual property dispute that really relates to technology and infrastructure in which the customer has no interest. In the end its about growing a bigger market for the benefit of all.

Other posts:

• Alec Saunders on Voyces.com: Google Targets Skype
• Alec Saunders on Saunderslog: GIPS acquired by Google. How does Abramson pick them?
• Rich Tehrani on TMCNet: Google Buys GIPS – Here’s Why where he provides a short history of GIPS and then analyzes some interesting reasons behind what may have motivated Google.
• Garrett Smith on Smith on VoIP: Google the service provider

Update: Andy has written Congrats to The Great Team At GIPS – it’s his 18th client who has been acquired and the second acquisition by Google. He has also given me credit for the small role I played in introducing him to GIPS:

And with this acquisition, for me and my agency, Comunicano, the number of companies to “exit” or in this case “get bought” in the last 8 years now has hit 18. Alec Saunders referenced that feat in his very well written post yesterday. GIPS came to my agency and I in the same way the other 17 had. We were asked to work with them. In this case the door opener was trusted friend and colleague, Jim Courtney, who has known Emerick Woods for longer than most dating back to their days at Quarterdeck. Jim always said that Emerick is the consummate professional, and someone who knows how to win. Looks like Jim’s matchmaking ability came through.

Full disclosure: GIPS CEO Emerick Woods was the Vice-President, Internet of Quarterdeck Corporation in the mid-1990’s who became a mentor to the author on several business development projects at Quarterdeck involving partnerships with ISP’s of the time. Over the past 14 years, Emerick, in his capacity as CEO of several startups, which have gone on to be sold, has hired the author at various times for his business development services. The author, however, has no business relationship with Global IP Sound.

Related articles by Zemanta

• Is Google Building a Skype Competitor? (mashable.com)
• Google Buys Real-Time Video Communications Company (readwriteweb.com)
• Google buys VOIP engine behind Yahoo, AOL, WebEx, Lotus conferencing (Larry Dignan/ZDNet) (techmeme.com)
• It’s Been a Week for New Skype Video Experiences (voiceontheweb.biz)
• Skype mobile on Verizon Launch: It’s About the User Experience (voiceontheweb.biz)
• Voice and Chat over iPad: Skype and Truphone Fill the Gap (voiceontheweb.biz)
• Skype’s SILK Codec: Working Towards Adoption as a Standard (voiceontheweb.biz)
• Google buys a VoIP company, might build a Skype competitor (downloadsquad.com)