Two weeks ago, I attended the latest edition of Capital-IT in Paris. I had a great chat with Olivier Attia, CEO of Scanbuy (and incidentally a former university friend from Paris 6 University), and the always fun and thought-provoking Jean-Michel Billaut.
We talked about blogging (and JM just opened his blog last week, check it out it has great content!), mobility, WiFi and Meshed Networks. We exchanged also our views and impressions on the kids on the block: Skype. I had actually written up a small note on them for myself the same morning, on where I thought they were heading (shared with you below), and Jean-Michel had basically the same approach, check his note here.
We also discussed the background that led Jean-Michel to create and promote the Pau Broadband Country success story. He mentionned that the Italian Renaissance had needed a capital to express itself, and it turned out to be Firenze. Our century has now its broadband capital, Pau. Hence I remarked that Jean-Michel was somehow this millenium's Leonardo da Vinci and he was amused.
A few comments on Skype:
I liked two quotes I found on the net:
“I knew it was over when I downloaded Skype,”
Michael Powell, chairman, Federal Communications Commission, explained.
“When the inventors of KaZaA are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it’s free – it’s over. The world will change now inevitably.”
Fortune Magazine, 16th February 2004
“How about an 802.11 Wi-Fi phone running Skype?"
Skype CEO: That's a natural step to take later on.”
So what is the skype phenomenon?
Skype is the first mass market tool that can be installed and used very easily by mass consumers to place phone calls with a PC and it is free (requires a microphone and speakers/headset). It was launched on 29 August 2003 on PCs (Windows only so far) and includes an IM client as well. On 23 February 2004, Skype launched a free conference call service (up to 6 people); it also includes a hold feature to manage up to 16 people at a time. Finally on 6 April 2004: Skype launched PocketSkype on PDAs (a PocketPC version with Windows Mobile 2003)
So you will say, why is it successful?
- It's Free
- It works!
- No need to reconfigure network elements (firewalls…), something that most previous software solutions required
- Excellent marketing & PR: the company is appearing on major media (press, TV, etc.) as the killer application and is building on heavy word-of-mouth (like here): the founders have recreated the viral marketing effect of Kazaa
- It provides an easy answer to an underlying need (and growing trend) for people to make more long-distance calls, to use the multimedia features of their equipment
- It includes interesting new features easily ported on a PC, more rarely on home phones: call history, call alerts...
So far they have reached impressive metrics : almost 11m downloads in 8 months, 900K users place a call with Skype every day, and users basically span the globe (165+ countries!)
They have also raised $40m in A and B rounds with virtually no revenue so far.
How to they make money ?
Well it's free today, but I see them pursuing the following business models very easily:
- Charge for PSTN interconnection (announced), for multi-person conference calls (free today), for videoconference, or even for automatic conference call minutes drafting (could be easily done with natural language recognition software from companies such as Voxsmart !
- E-commerce aggregator (Skype Store)
- Distribution deals with ISPs (Announced)
- Embed the client OEM on phones and PC (something JM Billaut is mentionning as well here)
- Tap the business world (announced) to guarantee quality.
Interestingly, the website is available in English, Chinese, Korean and Japanese, showing clearly what markets they are targeting !
So what are the market consequences ?
Clearly, a new entrant threat: Skype software allows any IP-based device to communicate for free on the Internet. This seriously undermines the business model of mobile carriers (users avoid long-distance fees, connection charges, etc.). But SKype software also includes an IM client; and as they expand with the VoIP functionality, they also rapidly expand their IM community: this could very rapidly undermine business models at MSN, ICQ, AIM, Y!IM…
I see however two main threats for them:
- A recent article from a partner at Benchmark Capital mentioned that it is very easy for telcos (his example is for a cable operator) to introduce latency (half a second) in the network for free VoIP making it cumbersome to use such software. A commercial version would not incur the latency.
- VoIP regulation (FCC has ruled in February 2004 that they will delay their decision), as wire-tapping by police authorities is not possible today
In my view, potential next steps for Skype:
- Ubiquity: Software ports to all other PC operating systems (MacOS, Linux/Unix)
- International expansion: translate the software to other languages (announced)
- E-commerce aggregator: promote deals with headset manufacturers (currently promoting Plantronics on the website), with PDA manufacturers, PC manufacturers, etc.
- embed the software into mobile phones and other devices, and take advantage of all WiFi enabled devices, replacing the traditional mobile phone device (The website says in fineprint: “Skype is working hard and expanding to new platforms, including mobile devices and handsets.)")
- Interconnect Skype with PSTN: planned in the next 3-4 months (very easy to do; MSN is already doing this)
- Strike a deal with ISPs and phone sets manufacturers to replace traditional phones at home
- Expand into commercial services, such as conference calls, video conferences, etc.
- Become one of the first global telcos, by leveraging their installed user base (Skype can build an impressive consumer usage database)
Definitely, the VoIP market is changing the Internet scene as major ISPs and Telcos are launching similar services (Free in France, FastWeb in Italy, AT&T in the US...).