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Is Skype Becoming a Business?
By Mark Evans | April 23, 2005
For those of you didn't see an article I wrote earlier this week on Skype - following Niklas Zennstrom's keynote speech - I thought you be interested in checking it out. It's focused on how Skype is evolving into a business - as opposed to cool technology - and whether an IPO is in the cards.
Is Niklas Zennstrom of Skype Technologies SA the Steve Jobs or the James Dean of the Internet telephony industry?
Is Mr. Zennstrom, who co-founded Skype in 2003, going to transform the telecommunications industry by offering a service that lets people make free or low-cost telephone calls? Or is he a “rebel without a cause” with a
service that will never become a viable business, even though it has 35 million registered users?
While the jury is still out, Skype is starting to evolve from simply being a startup with cool technology into a business. Since introducing its first paid-service last July, Skype has attracted more than 1.2 million customers.
In addition to people looking to make free or inexpensive phone calls, it has found a fertile niche with road warriors who want to avoid high hotel phone bills.
Internet consultant Jim Carroll has become an avid user as a way to call his family while travelling. He said a recent 12-minute call to Toronto from San Francisco using Skype cost only 24 cents. “That's mind-boggling,” he said. “I'm hooked. I see value in it and I don't depart with my Internet dollars willingly.”
Jeff Pulver, who organized this week's VON Canada conference in Toronto, said Skype “whether you like it or not” has become the iPod of the Internet telephony world, and Mr. Zennstrom is the industry's Steve Jobs, referring to the chief executive of Apple Computer Inc.
“Skype is where it's at today,” Mr. Pulver said. “They took an application, made it easy to use, did it better than the rest and provided it at the right price,” he said.
Yet one of the challenges facing Skype is convincing consumers, investors and telecom carriers it is more than just technology used by the bleeding and leading edge.
Mr. Zennstrom, who gave a keynote speech yesterday in Toronto at the VON Canada conference, said Skype has been a business from day one, but many people have had a difficult time understanding its business model because
traditional metrics do not apply.
“A lot of people in the telecom industry said there was no business model,” he said during an interview. “When you are a 120-person company providing worldwide service with 34 million users and your marginal costs are zero, numbers like average revenue per user is irrelevant. ARPU is irrelevant because our cost base is not in users, but employees.”
Mr. Zennstrom is no stranger to attracting controversy by pushing disruptive technology into the mainstream. He made his mark several years ago by co-founding Kazaa BV, file-sharing software that makes it easy to download free music.
Mr. Zennstrom and his partner, Janus Friis, sold Kazaa to Sharman Networks in 2002, although Mr. Zennstrom is still being sued by the music industry.
With Skype, Mr. Zennstrom is not attracting legal troubles, although there are network operators unhappy that Skype threatens to disrupt the industry's economics while offering a service that piggybacks over high-speed Internet
networks.
Rather than look at Skype as a telecom service provider, Mr. Zennstrom said the proper benchmarks should be Internet behemoths such as Yahoo Inc. “A lot of people use Yahoo for free,” he said. “It has 150 million registered users and 8.5 million paying customers. They make $9 to $10 a year from each paying customer, and that is what we want to benchmark.”
Despite Mr. Zennstrom's contention that Skype is not a telecom operator, it is slowly starting to assume more carrier-like characteristics. Last July, the London-based company began selling a service called SkypeOut, which lets
users make calls to people using traditional telephone service. Earlier this year, Skype began selling SkypeIn, which gives users a phone number so they can receive calls from non-Skype users.
The big question facing carriers is how to handle Skype. It's hard ignore, seeing as Skype is pursuing their customer base, and at a time when carriers such as Bell Canada are starting to launch their own Internet telephony services.
As Skype gains legitimacy, speculation grows that it will soon pursue an initial public offering, although Mr. Zennstrom insists the firm is not looking for cash after a US$18.8-million venture capital deal in early 2004.
“We don't have a road map for [an IPO],” he said. “One thing I learned is that raising capital takes a lot of energy and focus from the executive team. We are happy to build the business rather than focus on capital.”
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April 24th, 2005 at 2:06 am
Hopefully Skype doesn't become netscape?
Would you say Skype = Netscape and SIP (and rest of the world, cable voip, etc…etc.. IMS, etc…)
Skype has done well, so far…
July 19th, 2005 at 7:28 am
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