It crept up out of nowhere... and now it's sucking customers away from traditional phone companies faster than a vampire on a bender!
Skype, the Internet phone service from KaZaA founder Niklas Zennstrom, now has over a million users, just eight weeks after its launch. The software, which enables PC-to-PC voice-over-IP (VOIP) calls, has seen as many as 120,000 people connected at the same time.
How are traditional phone companies reacting? Boardwatch has collected some anecdotes from a range of carriers. Here’s what they think:
"Skype has gone from 5,000 users to 120,000 users in two months. Is it going to replace the PSTN overnight? No, but it's certainly a very interesting thing to watch,” said Joe Glynn, VP of product strategy at Qwest, during a presentation at the Multiservice Switching Forum meeting in Vancouver this week (see Carriers Say VOIP & SIP Are Hot).
At the same conference Tadanobu Okada, director of R&D for NTT Communications Corp., said that VOIP will cost his company "one trillion yen" in 2004. Although he didn’t mention Skype in particular, Okada said, “NTT is not happy about the current IP phone business at all.” He asserted that, according to Japan's Yano Research Institute Ltd., there will be as many as 28 million VOIP users in Japan by 2007.
One major U.S. operator, which agreed to comment on condition of anonymity, was even more scathing of Skype. “We're talking about phone service, which folks have come to rely on like electricity and water. At the first sign of trouble, and with no customer service to call and no company to blame, consumers will find a full-service alternative... Most people want to use their current phone in their home and not be tied to the computer,” he said.
”Skype is for the younger generation, kids on campus -- it’s not for the mainstream,” says a spokeswoman for MCI.
Naturally, established VOIP providers such as Vonage Holdings Corp. and 8x8 Inc. (Nasdaq: EGHT) have a different take on Skype’s early success. “It’s part of a growing movement that will eventually replace the PSTN,” says Huw Rees, VP of sales and marketing at 8x8. However, he notes that services from the likes of 8x8 and Vonage that bridge the gap between the PSTN and Internet telephony are “more universally useful” than Skype. “Grandma in Idaho is not about to start making Skype calls over the Internet, but she may well want to receive a VOIP call from her family who live abroad and want to connect directly to her regular phone line,” Rees says.
Vonage VP of product development Lou Holder says the quality of Skype calls is “terrible,” adding that “there’s always a market for stuff that’s free.”
Skype is of course working hard to improve the quality of its service and to interconnect with the PSTN in future releases, but right now it has more immediate technical hurdles to overcome.
Zennstrom admits the company wasn’t ready for the huge number of people that signed on. “The scaling was an issue initially,” he says, but he insists it is under control now. Another glitch involved people who registered fashionable names, such as J.Lo and Darth Vader, and then tried to sell them.
Skype spam might also be a problem down the line. “We will have to work on some kind of spam filter then. The simple thing to do is to only allow calls from people in your friends lists,” Zennstrom says.
Release 1.0 of the software is expected sometime this winter and will offer improved sound quality with a few new features, as well as some bug fixes. In addition, the company will launch a premium version, which will offer extra features (call holding, call waiting, multiple lines), conference calling, and voice mail. Pricing has not yet been released.
Analysts say that once Skype starts to make money, traditional operators will be forced to take notice of the service. That is, if Zennstrom’s vision of it hasn’t already shaken them to the core.
He predicts that over the next five years POTS (plain old telephone service) will be reduced to something you use in those rare cases when you call someone who refuses to migrate or to some third-world countries. “I see a clear parallel to the shift from fax to email,” he says... Skype is the email, POTS is the fax.”