Don't -- Don't Believe The Skype
UPDATE -- Sept. 12, 8:20 a.m. The rumors are true -- eBay is taking the plunge and making a friendly $2.6 billion offer for Skype (with a bonus structure that could run the final tab even higher). Unbelievable. I suppose it's a form of job security for the regulatory telecom types, however -- and the investment bankers will be pleased with themselves.
Seriously though, how long a leash will the Skype crew still have as one incongruous unit of a NASDAQ-traded company? And how long before Skype is being spun off to a consortium led by the Carlyle Group to "unlock the value that was hidden within the larger eBay conglomerate"?
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So, the big financial and tech rumor of the day is that eBay (everyone's favorite auction site and owner of primo phishing target PayPal) is considering a purchase of Skype. Color me stupid if you like, but this deal just makes no sense.
You've probably heard the press by now -- "disruptive technology," "more users than Verizon," "the future of telephony," or "the next big thing from the Kazaa guys." Skype (which does indeed rhyme with hype) is a software program that allows real-time voice transmissions between two computers. It's instant-messaging without the emoticons and abbreviations -- or what used to be known as a plain old telephone call.
eBay may be looking for new revenue sources. The auction business is pretty well saturated and far past its buzz moment. Meg Whitman has cleared her millions (with enough left over for a new dorm complex at her alma mater), so it's time for the next generation of wunderkind investment bankers to earn their stripes.
But, as I'd started writing ages ago (and now have the reason to complete), any purchaser of Skype may not get quite what they've bargained for.
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(Disclosure: I work for one of those phone companies that should supposedly be shaking in its boots right now -- but my comments here are purely my own, without any consultation or consideration up the ladder.)
The "disruptive" part of Skype is that as long as both users have broadband Internet connections, there's no additional cost to use the software. Skype doesn't currently charge for downloads, so a chat between two Skype users is free (aside from the broadband overhead) -- regardless of location. So far, so good -- the traditional telephone companies (whether government-sponsored or quasi-regulated monopolies) get cut out and international real-time communications becomes a worthwhile enterprise.
The "more users" claim is really "number of user IDs registered," not "number of regular users" -- so the comparison set isn't "number of current Verizon subscribers" but "number of Verizon subscribers since 2003." Furthermore, it's not apples-to-apples because the user sets are not necessarily exclusive. In many parts of the US, they're likely identical, with Verizon DSL subscribers making Skype calls to sidestep long-distance or international rates.
The "roll your own access" piece of the puzzle is what truly troubles me. Throughout the western world, it's an accepted part of public policy that telephone service should be available to all. The FCC collects billions of dollars every year to subsidize the costs of bringing telephone service to the poorest and the most isolated. A massive shift to Skype or its related technologies further isolates the haves and have-nots.
Who are these mythical citizens "cutting the cord" and going wireless-plus-cable-modem, and what slot do they occupy in the socio-economic universe? If the upper classes abandon standard telephones and calling plans in favor of Skype, doesn't that depress telephone company income and raise prices on those without the means to migrate to broadband? Municipal WiFi broadband access doesn't really solve the problem, since you still need computers to make use of broadband -- another economic barrier to entry. If the "small government" conservatives in Congress succeed in reining in the "E-Rate" program, expect fewer (and slower) Internet connections in libraries, further undermining the original point of "universal access."
There will be regulatory issues galore as they expand "SkypeOut" and "SkypeIn" to facilitate connections to non-Skype users -- a necessary step to make money (since those are value-adds to the basic service) and to allow those without broadband to connect adequately. Take Vonage's current 911 and state/federal reg headaches and multiply by at least 10 (and that's just in the US). The students of the Wharton School tackled many of the same points in a recent article -- I suppose it's good to know I'm not alone.
I'm excited about Skype in the long run, but it's going to be a major fight. Verizon and SBC are far smarter than the RIAA and telecom is far more regulated than the music biz ... an asset transfer to Vanuatu won't save the day this time.
All I can tell you is that we tried Vonage for awhile (is that like Skype?) and hated it. Constant interference, no 911 access, and when we tried to cancel we found that they'd hijacked our phone # and wouldn't give it back until we yelled and screamed. I'll stick to actual phones for my voice communications, thanks.
Actually, Vonage and Skype are a little different. Vonage looks and feels like a telephone, but routes the traffic over a broadband connection. Because it looks like a phone, people do expect that it integrates automatically to 911 -- instead, you need to play around and specifically register the Vonage phone with the local authorities, or else the default is likely to the police station main office instead of emergency services.
Skype in its pure mode is essentially instant messaging with voice -- it's computer-to-computer where each person needs to be on-line at the same time. Skype doesn't charge for pure on-line calls; instead, it's making money by offering voicemail, SkypeIn (establishing a phone number so the Skype user can receive POTS calls), and SkypeOut (allowing a Skype user to connect calls to POTS users).
Oh yeah... POTS = plain old telephone system.