Another area where Skype expects to see major growth is in mobile devices. Skype is available for Windows Mobile 5.0+, and will work with 3G high speed connections (EVDO, EDGE, UMTS) as well as over WiFi. As unlimited data plans and wide area WiFi coverage grows, Skype may start to compete with cell phone plan pricing in the same way that it currently competes with traditional long distance charges.
Skype can focus on these new areas because its position in the computer VoIP sector is so strong. The big three instant messengers, AIM, MSN, and Yahoo, all offer voice and video chat, but as secondary features, and none of them offer the connection to the telephone system that Skype does. Google's gTalk beta actually has some advantages in terms of design and usability, but does not yet support video or the ability to make or receive calls outside of the gTalk network.
By bridging the gap between computer-to-computer technology and telephone-to-telephone technology, Skype also has entered into competition with traditional local and long distance carriers in addition to VoIP providers like Vonage. Offering unlimited calling within the US and Canada for $24.99 a month, Vonage is a good deal for chatterboxes who make most of their calls domestically and want to replace their home phone system. Of course Skype Out's free calls to the US and Canada promotion is a better deal, but when that runs out at the end of the year, $25 will only get you approximately 21 hours of talk time. That's still more than enough for most people, but if you spend two hours every night on the phone with your girlfriend from Austin, Vonage will be a better deal. Conversely, with slightly higher international rates (5 cents per minute to much of Europe, for example) Skype wins out if she's in Austria. Vonage is a hardware solution (you plug the provided modem into a broadband connection, and then connect normal RJ14 telephones to the modem) but it does offer the same number portability that Skype In does, as the modem will answer calls to your number no matter where it is actually connected.
So, are the local and long distance carriers we grew up with headed for extinction? How can they compete against the faster, leaner VoIP systems offered by companies like Skype and Vonage? Well, one major advantage they have is the 911 system. Skype offers no 911 services, making it unsuitable for use as a primary phone system, and Vonage, while it does offer E911 (enhanced) services in some areas and basic 911 in others, there are still places where no 911 service is available. If you register your location with Vonage, they can replicate the E911 caller location feature and pass that information on to the emergency services, but with FCC regulations on emergency calling only getting stricter, the road ahead looks tough for VoIP.
In conclusion, I am hard pressed to see Ebay recouping their investment in Skype, especially in the short term. While my experiences using Skype and Skype Out have been positive, I have noticed more voice quality, inability to connect, and dropped call problems than with normal telephone service, and the number of people who make most of their calls long distance is certainly smaller than the number who make most of their calls locally. For those infrequent long distance calls to friends and family overseas, and for those who travel extensively for business, Skype makes a lot of sense and is sure to grow, although perhaps not at the exponential rate it predicts.
That being said, Skype did sell over $80m in services during 2005, well above their $60m estimate and certainly much more than the $7m they took in during 2004. Their current promotion is great for the consumer and will certainly increase Skype Out's market share, but at a cost to their bottom line. The gamble may work out, but this is a long term investment; meeting or exceeding their $200m goal for 2006 seems unlikely. Unless they solve some of the fundamental flaws of VoIP communication and can fight off competition from telephone companies and instant messengers, the company that claims in their mission statement that they are “changing the telecommunications world” should consider adding another word to their pronunciation guide; “Skype rhymes with ripe and type [and maybe hype].”