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Microsoft Buys Skype Rival

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News Analysis
Light Reading

As if VOIP sector watchers didn't have enough to tax their brains at the moment, Microsoft Corp. (Nasdaq: MSFT) has added to the IP telephony frenzy by announcing the acquisition of privately held startup Teleo, which has developed VOIP technology very similar to that of Skype Technologies SA (see Microsoft Buys Teleo).

Financial details weren't disclosed.

The news follows hot on the heels of: last week's announcement of an online voice service from Google (Nasdaq: GOOG); talk that voice over broadband specialist Vonage Holdings Corp. is looking to cash in on its initial success; and wild estimations of Skype's value. (See Google Talks the Talk, Sources: Vonage Is Eyeing the Exits, and Readers Scoff at Skype Hype.)

It also follows Yahoo Inc.'s (Nasdaq: YHOO) acquisition of VOIP service provider Dialpad Communications Inc., announced in July (see Yahoo Enters VOIP Fray).

So what is Teleo? A very similar beast to Skype, in that it provides downloadable software that enables free, SIP-compatible Teleo-to-Teleo voice calls, and the ability to make calls to, and receive calls from, the PSTN from a PC. Earlier this year, VOIP industry commentator Irwin Lazar described Teleo as "Skype on steroids" and noted that Teleo's ability to integrate with Microsoft's Outlook and Internet Explorer applications, and the fact that each user is assigned a regular phone number, potentially make it an attractive option for business users. It also seems to have made it attractive to Microsoft.

Teleo offers its users the ability to route incoming calls to any phone, fixed or wireless, and includes a click-to-call function that allows users to make a call by right-clicking on phone numbers listed on Web pages.

However, Teleo is way behind Skype in terms of feature development -- for instance, it doesn't offer an instant messaging client. It also charges $4.95 per month, whereas using Skype is still free.

Teleo completed its beta testing in July and had wound down its service for further application developments and enhancements. Skype, meanwhile, is the P2P voice pioneer, with more than 50 million registered users and more than 2 million subscribers to its paid-for SkypeOut and SkypeIn services.

Microsoft isn't providing any detail about its future plans for Teleo, other than that it plans to integrate Teleo's capabilities into its MSN portal.

Skype founder Niklas Zennström had these comments in an email response to questions: "Internet giants are now looking to add voice services, recognizing the arrival of a global mass market in Internet voice. As the only pure-play global Internet communications company, Skype has been the trailblazer and just as we drove the Internet voice revolution, we are also driving the creation of a truly open Web... We believe consumers benefit from choice and competition, and delighting our rapidly-growing user base will help us maintain our strong position as the world leader."

— Ray Le Maistre, International News Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 3:03:43 AM
re: Microsoft Buys Skype Rival
Does this seem like a knee-jerk reaction to Yahoo and Google, or does it just look that way because of the timing of a long-planned announcement?

I would tend to the latter, though I have already seen 'industry commentary' that suggests this is an ill-thought and little planned response to Yahoo's DialPad acquisition and Google's Talk launch.
User Rank: Light Sabre
12/5/2012 | 3:03:41 AM
re: Microsoft Buys Skype Rival
So Microsoft wants to play in the peer-voice realm. Of course they have been there before: Isn't H.323 basically similar to their old NetMeeting? Alas, it was too ugly to really catch on.

Skype is proprietary and not interoperable. It makes up for that with first-mover advantage. In that sense it is like the IM networks that strive to lock each others' users out. For now, absent any strong competition, Skype's network effect keeps it going: Because it has the most users, it is the most valuable, and thus gains the most new users. (eBay has the same effect; the most buyers gets the most sellers.) To some extent this is like a natural monopoly, though not quite the same.

The only way to defeat Skype's hegemony would be to get a really large user base that doesn't depend on Skype's proprietary software. Microsoft might think it can do that, but the whole world is not made of Microsoft lovers, and when there are two proprietary solutions, the first mover advantage is quite powerful. On the other hand, if there were a standard, and everybody but Skype could play along and create one single interoperable network community, then Skype could have serious competition.

SIP is not quite the answer, even though it has been touted as such -- it ends up needing lots of SBCs and other things, and it isn't always so interoperable. Perhaps it will be the basis of the answer, vs. re-inventing the whole wheel. I see "SIP-based" in the article, but I don't know exactly what that means. Skype's proprietary solution brings a lot to the party, though, including a directory service and encryption.
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