As computers have become more powerful and taken ever greater roles in our daily lives, the way we have used them to communicate with others has grown and evolved. For many of us, we started out with email, and then as people began to spend more and more time in front of their computer, we shifted to instant messaging. Communication through text has disadvantages, however, and so numerous solutions have appeared to make the act of web-based communication more personal.
At the forefront of these offerings is Skype, a peer-to-peer voice chat program. Founded in 2002 by Niklas Zennström and Janus Friis, the innovators behind the wildly popular Kazaa (still the world's most downloaded program with over 393,000,000 downloads at the time of this article's publishing) peer-to-peer file sharing software, Skype launched to considerable buzz in August of 2003, and has since racked up an impressive 200,000,000+ downloads of it's own.
Skype isn't just an Internet phenomenon, however, it's also a moneymaking endeavor, one that has been very lucrative for the founders. On September 12, 2005, Ebay purchased Skype for $2.6 Billion in cash & stock, plus up to an additional $1.5 Billion in performance based earn-out to be paid in 2008 or 2009. Obviously, there are some questions as to how Ebay expects to recoup this massive investment. Skype does have 2 million paying customers, but its revenues are in the low millions, not billions. To better understand what Ebay sees in Skype, one needs to examine exactly what Skype has to offer.
Skype provides three main services: Skype, Skype Out, and Skype In. Skype, the basic and most popular service, allows for free PC-to-PC calls. Newer versions of Skype support conference calling, and because the software is available for Windows, Linux, and Mac, it is almost universally compatible. It also includes file transfers and “legacy” text chat, but the focus is primarily on voice, and in post 2.0 versions, video. Skype claims that voice quality is superior to the telephone, but this varies greatly depending on network conditions and the quality of your headset. Because this service is free and unsupported by spyware and ads, it has grown very popular, and functions as a loss leader for Skype's pay services.
Skype Out is where Skype has earned the lion's share of it's revenue. Skype sells credit in 10 Euro (approximately $12) increments, which can be used to call regular telephones from the Skype system. This no-contract, pay as you go system offers some extremely low long distance rates, with calls to most of Europe, Eastern Asia and Oceania costing a mere 2 cents per minute. Under a new promotional plan, calls to the US and Canada are free until the end of the year, a serious incentive to get regular Skype and new users to try the Skype Out service. Calls to other countries aren't quite as cheap, but still come in well under typical long distance rates. The primary system for credit purchase is through Ebay's Paypal system, one possible motivation for the takeover, but other means of payment are still accepted.
Skype is also offering an open (and paid) beta of Skype In, which, paired with Skype Out, gives you almost all the benefits of a real telephone through your computer. For 30 Euros a year (or 10 Euros quarterly) Skype will provide you with a real phone number in an area code of your choice which people on traditional phones can call. They also include free voice mail for when you're away from your computer. This service has some impressive benefits for frequent travelers or people who have friends all over the world – each account can have up to 10 telephone numbers connected to it, so your friends in Chicago and London could both call local numbers to reach you, no matter where you were. You could also plug your laptop in at a Berlin hotel and receive calls on the same number as you would at home in Sydney, at no extra charge to either party.