March 17, 2005 12:33 PM PST

Skype goes for the gold

Net phone phenom Skype is preparing to expand its menu of paid services, hastening its efforts to evolve from a free provider of niche services into a profitable company that could give industry giants a run for their money.

The Luxembourg-based upstart has so far signed up 29 million registered users for its free Net phone calling software--a unique version of voice over Internet Protocol, or VoIP--making it one of the fastest-growing services on the Net. Now it's aiming to milk profits from its swelling ranks of freeloaders with paid services that promise to make its Net-only product significantly more useful to consumers--and potentially more lethal to traditional phone providers.

Last July, Skype launched a paid service called SkypeOut that lets subscribers make calls from the Internet to the traditional phone network. It has signed up 1 million customers so far, the company said last week.

News.context

What's new:
Internet telephony provider Skype still has problems with quality, it has had a recent fiasco with billing, and it gives its core service away for free. How can it survive with that business model?

Bottom line:
Skype maintains that the fraction of its million (and climbing) free users that buys add-on services will keep it and its free service in the black. But the Dutch company has a long road ahead.

More stories on Skype

Also last week, Skype quietly unveiled test versions of two new paid products--voice mail and a service dubbed SkypeIn that lets subscribers obtain ordinary telephone numbers. SkypeIn represents a potential watershed, since it will enable Skype subscribers for the first time to receive incoming calls from the hundreds of millions of people who still use traditional phone services.

Finally, Skype is working with equipment makers to develop hardware that will connect conventional phones to its free software and paid services. German giant Siemens, for one, has already released a Skype adapter for cordless phones in Europe. New devices are expected soon in the United States, from companies including Vtech and iMate, that will let people make Skype calls using an ordinary handset, rather than a PC.

Analysts said Skype's efforts to bridge the Internet and the traditional phone network could pose a major headache for traditional phone companies and other VoIP upstarts alike--if it can continue to undercut rivals on price.

"Skype is going from a glorified (instant messaging) client that led VoIP to something that has broader implications, especially when you can do things like get a phone number assigned," said Jupiter Research analyst Michael Gartenberg. "A lot depends on how lean they can keep it, and how low they can keep prices as they expand."

Skype and host of rivals are turning the telecom industry on its head using Internet technology to offer more calling features for less.

Skype is going from a glorified IM client that led VoIP to something that has broader implications.
--Michael Gartenberg, analyst, Jupiter Research

In this topsy-turvy world, Skype represents the competitive extreme, wielding a weapon that few others are willing or able to match: Using peer-to-peer architecture, it claims it can offer its software service for free to tens of millions of people, and still make boatloads of profits by persuading only a fraction of its users to upgrade to paid premium services.

In order to make a big impact, however, Skype needs to get its service off of the Internet and PCs and onto familiar phone equipment via the traditional phone network that most people still use.

Skype's new services bring the company a long way in this direction. Taken together, SkypeIn and SkypeOut will dramatically expand Skype's usefulness and reach, offering users everything they need to talk to people who don't use the service. While that will cost subscribers money, it is considered a key step to making Skype palatable to mainstream users. Skype's core service, while free, requires that both caller and called use Skype's software over a broadband connection.

Looking forward to payday
Skype's tests for new paid services throw a spotlight on the company's audacious plans to transform itself from a largely free service into a commercial dynamo. The company, which claims to be among the fastest-growing services on the Web with some 155,000 new registered users each day, may nevertheless be hearing some footsteps coming up behind. Web giant AOL recently jumped into the VoIP race, joining cable powerhouses such as Cablevision, long-distance provider AT&T and a slew of start-ups bent on transforming the once stodgy telephone industry, seemingly overnight.

In an interview with CNET News.com, Skype co-founder Niklas Zennström said the company does not plan to charge for its Skype software. Rather, he said, Skype's costs are so low that the company can afford to give its core product away to hundreds of millions of people and still make money selling ancillary services, such as SkypeOut, SkypeIn and voice mail.

"Our business model relies on providing Skype for free, and then upgrading a fraction of our users to some sort of paid service or product," said Zennström, speaking from London using Skype over a wireless LAN connection that cut out from time to time. "Once we get a lot of people using Skype for free, some will buy value-added services, some will buy value-added products--cordless phones, headsets and so on. We don't count on all our users being paying customers, we count on only a few being paying customers."

SkypeOut's 1 million paying customers represent a bit less than 4 percent of current registered users for its free Skype service. Customers buy SkypeOut accounts up front, and are assessed per-minute usage charges--generally pennies for most calls. The company does not disclose its take on these deals.

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18 comments

Join the conversation!
Add your comment
Problems With Skype VoIP Service
I bought the minimum pre-paid amount for SkypeOut (USD $20) to try it out. My experiences have been less than stellar. The three people I called on different occasions all complained about the voice quality. They asked me to call them back on my cell phone! On another occasion, Skypes "network" was down and I could not even get logged in to Skype. There was yet another outage for 30 minutes as recently as 3/11. The only way to find out about an outage is to go online to the skype.com support forum and look for announcements.

I also tried using SkypeOut on my Windows PDA. I had the same voice quality issues. The PDA client software doesnt support a proxy connection, so now it is useless to me.

Skpe problems from my perspective:
1) No live customer support except for billing matters
2) Unreliable network including major outages
3) QoS issues related to peer-to-peer. Latency is a problem for real-time voice and video transmissions.
4) Payment in Euros means it costs more to use SkypeOut every time the dollar weakens

Sure Skype may be cheap, but in this case I think you get what you pay for. I hope they make it, because we need more telco competition in the U.S., but I am doubtful of their ability to succeed. Their problems will only increase as they sign on more and more subscribers. I'd like to see some stats on their paying customer defections.

I'll use up my remaining SkypeOut credit, and then it's on to test competitors to see if they meet expectations. But before I SkypeOut someone else, I must convert my Euro balance to U.S dollars. What a pain.

SkypeOut
¬9.81 remaining SkypeOut Credit.
You have 185 days, until September 20 2005, to use this credit.


Keith
www.techcando.com
Posted by Stating (869 comments )
Reply Link Flag
Quality Issues
I've been using SkypeOut for a few months now and for the most part have no complaints. There have been issues calling Chile from Spain, but none when calling the States. PC to PC calls, free, sounds just great in the majority of the calls I've made, even to Paraguay!
Posted by (7 comments )
Link Flag
Problems With Skype VoIP Service
I bought the minimum pre-paid amount for SkypeOut (USD $20) to try it out. My experiences have been less than stellar. The three people I called on different occasions all complained about the voice quality. They asked me to call them back on my cell phone! On another occasion, Skypes "network" was down and I could not even get logged in to Skype. There was yet another outage for 30 minutes as recently as 3/11. The only way to find out about an outage is to go online to the skype.com support forum and look for announcements.

I also tried using SkypeOut on my Windows PDA. I had the same voice quality issues. The PDA client software doesnt support a proxy connection, so now it is useless to me.

Skpe problems from my perspective:
1) No live customer support except for billing matters
2) Unreliable network including major outages
3) QoS issues related to peer-to-peer. Latency is a problem for real-time voice and video transmissions.
4) Payment in Euros means it costs more to use SkypeOut every time the dollar weakens

Sure Skype may be cheap, but in this case I think you get what you pay for. I hope they make it, because we need more telco competition in the U.S., but I am doubtful of their ability to succeed. Their problems will only increase as they sign on more and more subscribers. I'd like to see some stats on their paying customer defections.

I'll use up my remaining SkypeOut credit, and then it's on to test competitors to see if they meet expectations. But before I SkypeOut someone else, I must convert my Euro balance to U.S dollars. What a pain.

SkypeOut
¬9.81 remaining SkypeOut Credit.
You have 185 days, until September 20 2005, to use this credit.


Keith
www.techcando.com
Posted by Stating (869 comments )
Reply Link Flag
Quality Issues
I've been using SkypeOut for a few months now and for the most part have no complaints. There have been issues calling Chile from Spain, but none when calling the States. PC to PC calls, free, sounds just great in the majority of the calls I've made, even to Paraguay!
Posted by (7 comments )
Link Flag
Theycannot move too much of their network to mobile phones
They cannot move too much of their network to mobile phones: the connectivity relies on peer to peer technology. The cellular phones are free riders on this network, relying on Skype clients on PCs to provide the service, so it can only work if the cell phones remain a minority on the network (or if somehow the cellphones can contribute to the network by providing service to other clients).

About Skype voice mail: they can make it much cheaper by forwarding the recorded messages to the client's email address instead of storing it on their servers. As long as they keep the use of their own servers to a minimum they can survive and be profitable even as a very small company serving every internet user.
Posted by hadaso (468 comments )
Reply Link Flag
Theycannot move too much of their network to mobile phones
They cannot move too much of their network to mobile phones: the connectivity relies on peer to peer technology. The cellular phones are free riders on this network, relying on Skype clients on PCs to provide the service, so it can only work if the cell phones remain a minority on the network (or if somehow the cellphones can contribute to the network by providing service to other clients).

About Skype voice mail: they can make it much cheaper by forwarding the recorded messages to the client's email address instead of storing it on their servers. As long as they keep the use of their own servers to a minimum they can survive and be profitable even as a very small company serving every internet user.
Posted by hadaso (468 comments )
Reply Link Flag
Can and will SKYPE survive?
Can and will SKYPE survive?

I sure hope so. It has been a so, so experience using their service, but considering that it has been free why would I complain.
If I don't like it I'll remove it, it's that simple.

However, one thing is missing!
All I get with SKYPE is the ability to speak with someone on the phone, BIG deal right. Well so is it with all the other companies that are offering
VoIP and all for a monthly charge and for the most part with a 12 month contract... OUCH... I don't think that anyone understand that we the
consumers are looking for something special and it better be free.

Hold on to you hat folks.
Visit <a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a> and get what you asked for absolutely FREE.
Free calling to every telephone in the US and Canada including Hawaii, Alaska, Puerto Rico, Guam, that's right FREE NO CHARGE.
Get free coupons and special offers, use the search engine that are conveniently located on the cell phone look alike virtual dialer.
Get free streaming movies and so much more.
All you have to do is go to <a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a> download and install
the free dialer and you are on your way to enjoy free calls, free special offers and soon free streaming movies. An Icon will be placed on your desktop so you conveniently can get to the service without searching around when you need PIZZA or wanting to make a phone call or even watch the latest released movie.

Go get your you own free dialer today and please tell a friend.
<a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a>
Posted by ntrsource (43 comments )
Reply Link Flag
Beware
Install a dialer? Are you crazy? Don't anybody ever install a dialer on your PC!
Posted by (7 comments )
Link Flag
Can and will SKYPE survive?
Can and will SKYPE survive?

I sure hope so. It has been a so, so experience using their service, but considering that it has been free why would I complain.
If I don't like it I'll remove it, it's that simple.

However, one thing is missing!
All I get with SKYPE is the ability to speak with someone on the phone, BIG deal right. Well so is it with all the other companies that are offering
VoIP and all for a monthly charge and for the most part with a 12 month contract... OUCH... I don't think that anyone understand that we the
consumers are looking for something special and it better be free.

Hold on to you hat folks.
Visit <a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a> and get what you asked for absolutely FREE.
Free calling to every telephone in the US and Canada including Hawaii, Alaska, Puerto Rico, Guam, that's right FREE NO CHARGE.
Get free coupons and special offers, use the search engine that are conveniently located on the cell phone look alike virtual dialer.
Get free streaming movies and so much more.
All you have to do is go to <a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a> download and install
the free dialer and you are on your way to enjoy free calls, free special offers and soon free streaming movies. An Icon will be placed on your desktop so you conveniently can get to the service without searching around when you need PIZZA or wanting to make a phone call or even watch the latest released movie.

Go get your you own free dialer today and please tell a friend.
<a class="jive-link-external" href="http://www.NTRSource.com" target="_newWindow">http://www.NTRSource.com</a>
Posted by ntrsource (43 comments )
Reply Link Flag
Beware
Install a dialer? Are you crazy? Don't anybody ever install a dialer on your PC!
Posted by (7 comments )
Link Flag
Billing Issues
While I have been fairly happy with Skype's voice quality, both PC to PC and PC to phone (SkypeOut), I have had several problems with their billing. Looks like they are taking after traditional telecoms in this aspect. Case in point, I just tried signing up for the SkypeIn beta, advertized for ¬10, and realized, once I was redirected to Paypal, that I was about to be charged ¬35 for Voicemail. I am pretty upset about that, feels like they were trying to rob me. At least I notice before clicking on the purchase button.
Posted by (7 comments )
Reply Link Flag
Billing Issues
While I have been fairly happy with Skype's voice quality, both PC to PC and PC to phone (SkypeOut), I have had several problems with their billing. Looks like they are taking after traditional telecoms in this aspect. Case in point, I just tried signing up for the SkypeIn beta, advertized for ¬10, and realized, once I was redirected to Paypal, that I was about to be charged ¬35 for Voicemail. I am pretty upset about that, feels like they were trying to rob me. At least I notice before clicking on the purchase button.
Posted by (7 comments )
Reply Link Flag
ineen vs. Skype
I have found ineen to be more useful than Skype and I enjoy the ability to connect with other SIP networks. Anyone else use ineen? <a class="jive-link-external" href="http://www.ineen.com" target="_newWindow">http://www.ineen.com</a>
Posted by (2 comments )
Reply Link Flag
ineen vs. Skype
I have found ineen to be more useful than Skype and I enjoy the ability to connect with other SIP networks. Anyone else use ineen? <a class="jive-link-external" href="http://www.ineen.com" target="_newWindow">http://www.ineen.com</a>
Posted by (2 comments )
Reply Link Flag
Skype Customer Service Policy Beware
Be very careful. Skype has a credit cancellation policy in place where they can cancel your credit. They just cancelled mine ($71.00) despite many attempts to correct audio problems and attempt to get an adjustment and return for unused service because of an inability to communicate. After ten emails and in inability to raise any single person in a verbal communication, all I can do is advise the public that Skypes popularity is not entirely warranted and that their credit cancelation policies are akin to stealing. BEWARE! BEWARE!
Posted by loufoltzer (5 comments )
Reply Link Flag
Skype Customer Service Policy Beware
Be very careful. Skype has a credit cancellation policy in place where they can cancel your credit. They just cancelled mine ($71.00) despite many attempts to correct audio problems and attempt to get an adjustment and return for unused service because of an inability to communicate. After ten emails and in inability to raise any single person in a verbal communication, all I can do is advise the public that Skypes popularity is not entirely warranted and that their credit cancelation policies are akin to stealing. BEWARE! BEWARE!
Posted by loufoltzer (5 comments )
Reply Link Flag
No Skype SMS to Suriname
Although Skype claims to be able to Skype Out and SMS to phones all over the world, I have not been able to send SMS's to Suriname (South America). I discovered this only after purchasing, for the first time, US$10 with my credit card. The unsuccessful charges were fortunately re-deposited, but after having read many other complaints about failed skype-outs and wrong billing I am actually afraid to even use that credit. The customer service to my repeated complaints was very unprofessional; the first time I was told that 'some changes to that location have been made' (probably this was the first time ever someone tried to VoIP to Suriname through SkypeOut :-)) but it still did not work, and when I asked where I can make a formal complaint and speak to a manager, it went fully silent; that's how I ended up to complain in a public forum. Any useful advice would be appreciated!
Posted by Surimax (2 comments )
Reply Link Flag
No Skype SMS to Suriname
Although Skype claims to be able to Skype Out and SMS to phones all over the world, I have not been able to send SMS's to Suriname (South America). I discovered this only after purchasing, for the first time, US$10 with my credit card. The unsuccessful charges were fortunately re-deposited, but after having read many other complaints about failed skype-outs and wrong billing I am actually afraid to even use that credit. The customer service to my repeated complaints was very unprofessional; the first time I was told that 'some changes to that location have been made' (probably this was the first time ever someone tried to VoIP to Suriname through SkypeOut :-)) but it still did not work, and when I asked where I can make a formal complaint and speak to a manager, it went fully silent; that's how I ended up to complain in a public forum. Any useful advice would be appreciated!
Posted by Surimax (2 comments )
Reply Link Flag
 

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