Skype's Still Talking to Itself

As the popular the IM services begin to interconnect, eBay may soon make Skype a more open service

February 7, 2006

4 Min Read
Skype's Still Talking to Itself

Now that it's owned by eBay Inc. (Nasdaq: EBAY), Skype Ltd. may be close to reversing its long-held policy of not allowing its VOIP calling and instant messenger services to work with other IM and VOIP software clients.

A Skype spokeswoman told Light Reading last week that Skype was holding discussions on the matter both internally and externally. Another spokeswoman later said this VOIP client interoperability, known as "federation," is "on the radar screen" for Skype but not around the corner. (See Google, Skype Back WiFi Startup.)

But each time the company is asked, the answer gets more vague. "The number one consumer request for interoperability is with the traditional phone network," says Skype marketing VP Saul Klein in an email to Light Reading.

"Skype created SkypeOut to address this growing consumer need; we also consider interoperability in other areas but are primarily driven by consumer demand,” Klein writes. (See Skype Extends Its Tentacles.)

If Skype does decide to allow Skype users to talk to other PC-based VOIP clients, it could boost the number of PC-to-PC calls exponentially. In turn, all those calls would be traversing the Internet, skipping all the old phone networks.

Today, Skype users can place PC-to-PC VOIP calls only to other Skype users. Here's why: The accumulation of high numbers of loyal users has always been critical to Skype's business case. (See Does VOIP Business Add Up?) Skype says 74 million people have now registered to use the service.

But the PC VOIP landscape has evolved since Skype was bought by eBay last September. Pressure may be mounting at eBay to make Skype play nice with other services so as to enable more transactions over its auction sites. (See Google, SIPphone Hook Up.)

Skype's appeal didn't go unnoticed by the likes of Time Warner Inc. (NYSE: TWX)'s AOL, Yahoo Inc. (Nasdaq: YHOO), Google (Nasdaq: GOOG), and Microsoft Corp. (Nasdaq: MSFT)'s MSN, which are all offering their own flavors of IM/VOIP. All are working with third parties to connect with the PSTN, as Skype does though its SkypeOut service. (See Google Clicks to the PSTN?)

But Skype's rivals have done one thing Skype won't do -- they've joined forces with potential competitors. MSN and Yahoo Inc. (Nasdaq: YHOO) announced in October that the two companies' IM/VOIP clients would interoperate. (See MSN, Yahoo Link IM Services.) In late December, AOL and Google announced their IM/VOIP clients would do likewise. (See AOL/Google: VOIP Buddies .)

The RBOCs are beginning to choose sides, too, with millions of potential IM/VOIP users at stake. Verizon Communications Inc. (NYSE: VZ) will soon market a service with Microsoft called "MCI Web Calling for Windows Live Call." The product consists of Microsoft's new IM/VOIP client -- called Windows Live Messenger -- and PSTN connection through MCI's global network. The service is now in beta, but Verizon spokeswoman Bobbi Henson tells Light Reading it will be marketed to Verizon customers later this year.

AT&T Inc. (NYSE: T) claims to support all the major IM/VOIP services, but has marketed Yahoo broadband services in the past. The carrier didn't respond to requests for comment on this story.

EBay agreed to acquire Skype for $2.6 billion last September, and now seems to be solidifying initial plans to leverage the property. (See Is Skype Worth $3B?) Most recently, eBay announced it would distribute ringtones from Warner Music Group with the Skype softphone. (See Skype, Warner Music Team Up.)

EBay has also said it will build Skype into its auction service such that buyers and sellers can quickly exchange information in the waning minutes of online sales. (See EBay/Skype: A Non-Friction Play.)

That plan, analysts say, could be made that much sweeter if any VOIP or IM client could be used to complete a transaction. And, as Skype's rivals begin to interoperate, the pressure is put on Skype's users to decide which service is easier to use when making cheap calls or connecting with merchants.

"All Skype has is voice and IM -- there's no content, there's nothing driving you to stay there," says VOIP analyst Jon Arnold.

"The more those guys have what Skype already has, the harder it's going to be for Skype to continue along this path," Arnold says.

— Mark Sullivan, Reporter, Light Reading

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