There is nothing quite like a valuation of $8.5 billion to make one look at Skype in a new, more respectful way. I am unaware of any other firm operating at a loss and generating about $1 billion in revenue that is worth more.
Did Microsoft overpay? Irrelevant; the best definition of market value is what the market will pay. The bigger questions are: Who's on deck? Is there room for another? And if so, is the best strategy to duplicate or improve?
Yes, there will be another--there always is. There is a ton to learn from Skype. Communications are shifting away from just voice to richer and more versatile solutions. Signs above payphones used to convey the concept of communications by showing an icon of a handset. Today’s communications are more visual, living on four screens: desktop, smartphone, tablet, and TV. Skype got it.
Skype 101
Skype was was born in 2003 as a rebel. Converse over Skype or pay the Man. Skype didn't do things the way proper service providers did. Starting with free, rich, and instant communications, arguably better than traditional services, as it includes wide band audio, video, and presence. Skype boasts over 30 million simultaneous users, and over 170 million connected users. Last year, Skype users made 102.5 billion minutes of calls, equal to about 20% of total international calling.
Skype blurred the boundary between software and carrier. Skype not only legitimized peer to peer networking (P2P), they built a business on it. Metcalfe's Law tells us that a telecommunications network becomes more valuable with each additional user. The Metcalfe P2P corollary tells us these same users also strengthen the network by contributing processing and memory resources to it.
The "normal" way to establish a communication session is to use some sort of centralized server for call setup. This is what carriers do for us, or more simply what a PBX does within an enterprise. Skype took that centralized role and decentralized it with a hybrid peer-to-peer client-server model. True P2P communications can effectively eliminate or reduce the role of the service provider. While it is possible to set up peer sessions between endpoints without a carrier, enhanced services such as IM and directory require a service.
To this day Skype is unique. Google offers some overlapping services with Google Chat and Google Voice, but Google Voice is limited to North America. AOL and Yahoo operate similar networks, but neither are as broad geographically or technically. Apple's FaceTime is intriguing, but limited to Apple users. Clearly Microsoft didn't consider Messenger a viable alternative. No other network has anywhere near the same amount of features, users, or geographical diversity as Skype; for now.
Skype's Greatest Hits (and Misses)
Skype grew to its enormous size due to a variety of factors, but mainly price--it was free--and simplicity. Skype was point-and-click to communicate. It was self-service without an administrator, credit card, or approval process. It was efficient and instant--check someone's presence and click. Across the globe, around the corner, or through multiple firewalls--it didn't matter. It just worked. Although Skype offers voice mail, few use it; instead calls are placed when both parties are available. Skype also brought us widespread versatility--a large array of devices including smartphones and tablets, Mac and PCs. Skype makes its primary competitors--cell phones and voice mail, desk phones, email, and more--all look primitive, limited, and expensive.
Despite consumer success, Skype has its challenges with enterprise adoption; at least officially, as unauthorized use of Skype at-work is thought to be high. IT departments find Skype both proprietary and inflexible. It's pretty much the Skype-way or no-way, which means the Skype client, Skype security, and Skype endpoints. Additionally, Skype doesn't offer what most consider to be minimum business calling features such as call park, transfer, and paging.
Rather than address these business requirements directly, Skype opted for the lowest common denominator approach with Skype Connect. None of Skype's rich communication features are available with Skype Connect; it is a basic narrow-band voice SIP trunk service. From a business perspective, it is especially limited since only a handful of devices are supported, it requires manual administration, and usage must be prepaid.
Another Skype?
Now that Skype has gone to Microsoft, a window for the next rebel has opened. The trend of the past decade has been closed networks--Skype, Facebook, Twitter, etc. The Internet is becoming a collection of members-only clubs. Hopefully the next generation will open up communications (I can dream can't I?) I'm a fan of Skype, but it's unlikely it can continue to grow and innovate as it did when it was smaller.
So what could fill the gap? The next-generation real-time cloud solution will probably include SIP--but not necessarily. SIP has open standards in its favor, but it's plagued with complexity and incompatibilities. Skype (and the iPhone) win hearts with simplicity. Of course, that's easier to do in a controlled/walled environment. Skype took P2P to a new level with its new proprietary technology, yet its network innards remain a well guarded secret.
The next-generation solution should be the garden without the walls. Ideally that means open, but it could mean robust APIs. Another proprietary client just doesn't fill any gaping communication holes.
The real time checklist is actually looking pretty basic these days:
* Voice
* Video
* Wideband
* Presence/IM
* Text/SMS
The next generation of real-time communications needs to raise the bar. Get beyond the confines of an application and bring extended communications capabilities to other applications. Rather than attempting to "unify communications" (how many inboxes do you have?), perhaps the better approach is a technology that integrates the various tools, mediums, and devices we use for communications.
New technology isn't easy. The Book of Android informs us that a new solution will likely have some patent hurdles. Patents--fairly or not--are stifling the industry. H.264 utilizes more than 1,200 patents and requires a consortium to manage licenses. Standards are seen as safe, but alone they’re unlikely to create the solution for the next generation of real-time communications. There is also the subject of regulation requirements here and abroad, ranging from 911 to wiretapping.
The next big real-time web solution will make Skype look primitive. That's hard to believe, but guaranteed. Google+ just showed the world how the lack of an equivalent to "circles" limits the usefulness of Facebook--who knew?
It isn't clear where this new technology/service will come from--it could be Skype itself or a new entrant. Things happen fast in web time. Skype's upcoming birthday cake will only have 8 (billion) candles on it. The first release of Android was in late 2008; today there are over 550,000 activations a day. New entrants are disrupting communications regularly, broadband ubiquity, smartphones, IPv6, P2P, and more are creating a fertile environment for innovation.
Skype's successors are coming, and may already be here. Microsoft probably feels it is the rightful heir, and it may be--but it is unlikely there will be just one next-generation disruptor in this space. The fact is, there is an increasing expectation of rich wide-band visual communications (for work and play); the always-connected generation, P2P economics, and 8.5 billion other reasons tell me other entrepreneurs must be lurking.
Dave Michels is a frequent contributor and blogs about telecom at www.PinDropSoup.com
