Hang-up for Skype

News Analysis: A hang-up for Skype - Technology - International Herald Tribune: "
News Analysis: A hang-up for Skype
By Randall Stross The New York Times

SUNDAY, JUNE 4, 2006
The telephone and the personal computer are ubiquitous desk mates, often separated by a small distance and about a century.

How soon we can use home phones to exploit the efficiencies of the Internet, where calling costs are too small to be worth metering, is a question of no small import for every telecommunications provider - and for every household with a phone.

The prospect of modernizing the telephone seems close because broadband services have solved the so-called last- mile problem, bringing relatively fast Internet connections from local switching centers and cable offices into customers' homes. But connecting home phones to the Internet - spanning that last short distance - remains a problem, unless one subscribes to one of the new Internet phone services offered by some cable companies.

Ideally, we will not end up so dependent on the cable guy. When eBay decided nine months ago to acquire Skype Technologies, the Luxembourg-based wunderkind that offers free Internet calls around the world, it seemed that free or nearly free Internet telephony would soon reach homes worldwide and no one would have to sign up for a separate phone service with the cable company. The happy day of free calls will not arrive, however, until existing phones are replaced or adapted to plug into the Internet.

Skype is a service that enables long- distance conversations without phones: one Skype user, sitting at a PC with a headset, can talk to any other Skype user sitting at another PC. Soon after announcing the Skype acquisition, Meg Whitman, chief executive of eBay, said she thought that Skype could "turbocharge" eBay and its online payment system, PayPal, and that eBay and PayPal could likewise "turbocharge" Skype. "One plus one plus one should equal four or five," she said.

She and her eBay colleagues were so eager to complete the Skype deal that they offered rich terms for a company with a mere $60 million in revenue last year: eBay paid $2.6 billion in cash and stock, with an additional $1.5 billion to follow if performance targets are met. Figured most conservatively, the $2.6 billion price was 43 times revenue, a valuation so far above industry norms that it might as well have been just a random figure.

The setup places no burden on Skype's servers: messages go directly from calling PC to receiving PC, peer to peer.

Such calls avoid charges because they do not tie up lines of proprietary telephone company networks. Voice sounds are digitized, compressed, popped into data packets and sent on their way into the shared space of the Internet. The quality of these digitized Internet calls can be as good as or better than conventional calls.

Skype's revenue comes principally from its SkypeOut service, for calls that originate on a computer and connect to a conventional telephone number. The sound quality is not as good as it is with its PC-to-PC calls, but Skype's international calls undercut the rates of traditional telephone companies.

Verizon, for example, has a plan with monthly fees that entitle Americans to call China for as little as 15 cents a minute, against $5.23 a minute for the basic rate not on a plan. At Skype, the call-anytime, no-monthly-fee flat rate is about 2 cents a minute.

News of Skype traveled swiftly, without advertising, after the company was founded in 2002. When eBay offered to buy it last September, Skype said it had 54 million members in 225 countries and was adding 150,000 registrants a day.

Skype users must use a PC to initiate a call, and eBay users are no less reliant on their computers, so blending the services by having eBay sellers offer a "Skype Me" button on their listings seemed a natural fit. With a click, someone interested in bidding would be connected directly to the seller without having to wait for an exchange of e-mail messages.

EBay has not been in a hurry, however, to roll out the Skype Me option to advertisers. EBay sellers in Belgium, the Netherlands and China can use the option, but not those in the United States. Chris Donlay, a spokesman for eBay, said the delay in introducing it in the United States was a matter of careful testing and prudence.

Undoubtedly, eBay has noticed that stubborn last-foot-and-a-half problem. Paying little or nothing to place an unhurried call via Skype to a loved one halfway around the world is worth the inconvenience of putting on a headset. But using a headset for every call is a habit yet to be acquired by most people. The handiest way to make a Skype call is by picking up a telephone. But Skype can use only Skype-certified phones designed to be connected to a PC.

When will Skype phones become ubiquitous? Those amazing Skype registration numbers - in the first quarter, the number of users worldwide increased by 220,000 a day - are not having much of an impact on the telephone equipment market in the United States, even in Silicon Valley.

And even after overcoming the equipment problems on the buyer's side, eBay faces another hurdle: most of its merchandise sellers, big or small, have good reason to resist offering a Skype Me option. Fielding telephone calls from prospective buyers one by one is labor intensive, which is to say expensive. Restricting communication to e-mail messages is far more efficient.

While eBay dithers with its proprietary Skype Me plans, Google, Amazon, online newspapers and the rest of the Web are quickly embracing the Old New Thing in advertising: click-to-call, shorthand for "click to be called back," a technology that uses Internet telephony for calling customers back and is available to Web site designers from any number of vendors.

With a click on the button in a Web ad, a box pops up and you type in your phone number. If it works properly, your phone rings right away - with your local plumber or florist at the other end of the line. Anyone with a phone can use a click-to-call feature immediately.

For advertisers, click-to-call offers twin attractions: the efficient placing of ads linked to particular search terms and a means of measuring results without worrying about click fraud perpetrated by competitors.

In an unexpected way, Skype, for all its ingenuity, has yet to catch up with the plain old telephone system. "People want instant gratification," said Peter Zollman, an analyst at Classified Intelligence, a consulting firm in Altamonte Springs, Florida. "Many do not have Skype, but everyone has a phone."

Randall Stross is an author based in Silicon Valley in California.


The telephone and the personal computer are ubiquitous desk mates, often separated by a small distance and about a century.

How soon we can use home phones to exploit the efficiencies of the Internet, where calling costs are too small to be worth metering, is a question of no small import for every telecommunications provider - and for every household with a phone.

The prospect of modernizing the telephone seems close because broadband services have solved the so-called last- mile problem, bringing relatively fast Internet connections from local switching centers and cable offices into customers' homes. But connecting home phones to the Internet - spanning that last short distance - remains a problem, unless one subscribes to one of the new Internet phone services offered by some cable companies.

Ideally, we will not end up so dependent on the cable guy. When eBay decided nine months ago to acquire Skype Technologies, the Luxembourg-based wunderkind that offers free Internet calls around the world, it seemed that free or nearly free Internet telephony would soon reach homes worldwide and no one would have to sign up for a separate phone service with the cable company. The happy day of free calls will not arrive, however, until existing phones are replaced or adapted to plug into the Internet."