Skype needs a new strategy

Conventional teaching of WWII history would say that Hitler's greatest mistake was to start a "two-front" war, fighting simultaneously the Allies in the West and the Soviets in the East.

 

Skype is fighting its own two-front war: on one side are the Internet players, and on the other, the telcos.

 

Nothing new so far, but having observed their actions so far this year, I’m starting to get worried.

 

That’s because it seems to me that Skype has decided to focus on fighting the telcos. The premium services they've introduced are essentially telecom services (calling phones, getting a phone number, voicemail, now call forwarding).

 

And what kind of people are they hiring? PhD engineers to out-Google Google? Media types to out-Yahoo Yahoo? Nope. From what I hear, they've bulked up on people with telco-type backgrounds. That, to me, sounds like a strategy to out-telco the telcos.

 

Which is all fine and good, except for the following: as has been amply written about in many places, voice minutes and telco value-added services are dying businesses- they suffer from commoditization, declining revenues, and low margins.

 

Take a step back for a minute and compare that to the revenues of the Internet players- primarily advertising, commerce enabling, and media services. Revenues from these services, particularly advertising, are booming. The margins are enormous. The operating model is highly scalable.

 

So you have a platform. Which market would you rather enter: the low-margin business that is dying at accelerating rates? Or the booming, high-margin business that is understood to still be at just the beginning of its potential development?

 

Doesn’t sound like Skype is attacking the right markets, does it?

 

But actually, it gets worse.

 

This is because the telcos are increasingly adopting a scorched-earth strategy to survive (could they be the Soviets in my WWII analogy?). What this means is that they see the trends in voice minutes usage and pricing, and are increasingly turning into access-driven businesses where voice is just a freebie thrown into a broadband subscription.

 

Almost everywhere I look this is starting to become the standard model- you pay a monthly fee for your broadband, and get the free local/national phone calls for free (in Europe, this is growing like wildfire- all kicked off by these French upstarts).

 

The telcos are making the most of a bad situation by hanging onto access subscriptions, and giving away the voice to help drive broadband take-up and sustain a price floor.

Which is great for them, but deadly to Skype.

 

Why? Because well over 90% of voice traffic is local and national. And if those calls now come totally free of charge with your broadband subscription, what’s the point of using SkypeOut?

Reality check: picture your *common citizen*, not some tech-gadget junkie. That's the mass market, and that's the group that is most likely *not* to adopt Skype when much of Skype's offer is bundled for free, and in the way that they're already used to using. Right?

The unpleasant effect of this is to shove Skype into the rather ugly business of being a glorified online calling card for making international calls (which ominously is what Jeffrey Citron of Vonage said it would become).

 

Let’s add to these disturbing ideas the fact that telcoland is a mess of regulatory and political barriers to new entrants. Loss of momentum can be fatal to a startup, and that is unfortunately one skill that telcos have finely developed: witness the suspect issue of imposing emergency 911 obiligations for VoIP providers; observe the glacial pace of expansion of available SkypeIn numbers; consider the countries in which Skype has been outright blocked and banned.

 

And if the scorched earth tactics of telcos aren’t scary enough, Skype faces the danger of having its main revenue-generating services being eroded from the other side, by Internet players.

 

Since the asset of internet players is audience, and their revenues mostly built on advertising, they will give away for free the very services that Skype is hoping to earn its revenues from, in order to attract and retain that audience.

 

Can you imagine Google or MSN or Yahoo charging end users for voicemail or video? Some are even speculating that Google could profitably give away VoIP to regular phones to capture user data.

 

Again, very bad news considering the product mix that Skype has chosen to develop.

 

So what should they do? I used to think that Skype should be the ARM of voice- just get it's proprietary “stuff” embedded everywhere. Now I think that role is clearly going to Global IP Sound. In any case, this is too much of a Microsoft-in-disguise strategy, where you sort of sneak into a monopoly position offering essential proprietary software. My intuition tells me this just won't work anymore in the Google era.

 

Rather, I think Skype should out-Google Google on application development and out-Amazon Amazon in user interface excellence. Skype has shown it is world-class in these two areas.

 

And from that sweet spot it should find ample opportunity to make plenty of money in growing markets for interactive commerce, media distribution, and advertising. Or, as Martin Geddes would say, "develop up".

 

Great opportunities abound: James Enck has written about possibilities for Skype in video content distribution; Martin Geddes has posted fabulous ideas about new opportunities in directory services, presence management, and transaction security and more (a real gem, this post); Stuart Henshall has given lots of great ideas for innovation that more 'net-centred than telco-centred; I just blogged about the hot opportunities in pay-per-call advertising.

 

*Those* are the jet-fueled, future-embracing businesses that will justify multi-billion dollar valuations. Of course, POTS is still so big that even notwithstanding its terminal decline as an industry, Skype could still build a short-term success. But it would be a much smaller success than what it might have been.

And that would be a shame.

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Ideas for post-Katrina

John TIerney has a very interesting Op-Ed in the NYTimes about what might be effective policy changes post-Katrina to avoid it happening again.

Link:  Ben Franklin Had the Right Idea for New Orleans - New York Times.

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Left behind…again

Talk about the digital divide. This is a disaster.

From a highly valued reader, emailing about the price of Broadband in two poor countries:

Saturday is the day I often go and read the newspapers around the world..

Of the three major papers in Bolivia, only one had a small mention of the New Orleans events. The whole focus in on internal affairs and, judging from an advertisement that Cotas, the telecom co. in Santa Cruz, ran, the people will keep their heads in the sand: a 1Mb connection to internet costs 195 USD/month.

A slightly different image in Jamaica... and as for internet, the cable TV company has just launched a test to deliver access to 200 houses – a project initiated when I was there! – at prices that start at 40 USD for 128Kb and up, but they are ashamed of publishing them. The more things change, the less they do...

How true, and sad... I suppose the bright side of this story is to contrast against the stunning, rapid broadband development of India and China- thank God they "get it" and are investing in affordable, widespread digital infrastructure that will help people to escape poverty.

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A fresh perspective on Municipal Wi-Fi

So far the story about municipal Wi-Fi has been all about local governments trying to enable universally available, cheap broadband access to its citizens. And the major telcos have fought these initiatives on the grounds that government interference in the marketplace is generally unfair and inefficient.

However, in the Wall Street Journal, Andy Kessler frames this in a very interesting new way, saying that it's really all about local governments trying to reduce the excessive telecoms bills they pay to incumbent telcos.

To James Enck: what is the % of revenues of incumbent telcos that come from  public sector contracts, particularly at the municipal/city level? Would losing these contracts in the next 5 years have any material impact on telco cash flow?

Link: Andy Kessler: WSJ: Philadel-Fi

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Copyright Fascism

An interesting email is being circulated in Spain, which I reproduce blow.

If you don't read Spanish, it basically describes how under Spanish law, you get more prison time from breaking copyright law than from committing crimes like assault, theft, and rape.

If this is true, surely it must rank up there with the RIAA suing 10-year-old children as indicators that copyright obsession is out of control.

PREGUNTA 1

a.- Juan fotocopia una página de "El Señor de los Anillos".
b.- Jose le da dos puñetazos a Juan por recomendarle ir a ver la
película "El Señor de los Anillos".
  ¿Qué acción merece mayor castigo?
  Respuesta:
  La acción más grave para el Códiga Penal es la "a".
La reproducción, incluso parcial, es un delito con pena de 6 meses
a 2 años de prisión y multa de 12 a 24 meses. (art. 617)
Los puñetazos, si no precisaron una asistencia médica o quirúrgica,
sólo son una falta. (art. 617)
    PREGUNTA 2
  a.- Ocho personas se intercambian copias de su música favorita.
  b.- Ocho personas participan en una riña tumultuosa utilizando
medios o instrumentos que pueden poner en peligro sus vidas o su
integridad física.
  ¿Qué acción merece mayor castigo?
  Respuesta:
  Para el Códiga Penal es menos grave participar en una pelea que
intercambiar CD's.
Participar en una riña tumultuosa tiene una pena de 3 meses a 1 año
(art. 154) y el intercambio tendría una pena de 6 meses a 2 años
(art. 270).
Si algún día te ves obligado a elegir entre participar en un
intercambio de copias de CDs o participar en una pelea masiva,
escoge la segunda, obviamente menos reprobable.
    PREGUNTA 3
  a.- Juan copia la última película de Santiago Segura de un DVD que
le presta su secretaria Susana.
  b.- Juan, aprovechando su superioridad jerárquica en el trabajo,
acosa sexualmente a Susana.
  ¿Qué acción merece mayor castigo?
  Respuesta:
  El acoso sexual tiene menos pena según el artículo 184.2 CP.
Si te ves obligado a elegir entre copiar un DVD, o acosar
sexualmente a un compañero de trabajo inferior en la línea
jerárquica, no dudes: acosa.
    PREGUNTA 4
  a.- Pedro y Susana van a un colegio y distribuyen entre los alumnos
de preescolar copias de películas educativas de dibujos animados
protegidas por copyright y sin autorización de los autores.
  b.- Pedro y Susana van a un colegio y distribuyen entre los alumnos
de preescolar películas pornográficas protagonizadas y creadas por
ellos mismos.
  ¿Qué acción merece mayor castigo?
  Respuesta:
  Para el Código Penal es menos grave distribuir material
pornográfico a menores. (art. 186)
La distribución de copias de material con copyright es un delito al
existir un lucro consistente en el ahorro conseguido por eludir el
pago de los originales cuyas copias han sido objeto de
distribución.
    PREGUNTA 5
  a.- Alfonso se descarga de Internet la canción "The Final
Countdown" de la banda "Europe".
  b.- Alfonso decide que prefiere el disco original y va a El Corte
Inglés a hurtarlo. Una vez allí, y para no dar dos viajes, opta por
llevarse toda la discografía de Europe. La suma de lo hurtado no
supera los 400 euros.
  ¿Qué acción merece mayor castigo?
  Respuesta:
  La descarga de la canción es un delito con pena de 6 meses a 2
años.
El hurto de la discografía en El Corte Inglés es una simple falta
(art. 623.1)
    PREGUNTA 6
  a.- Alfonso se descarga de Internet la canción "The Final
Countdown" de la banda "Europe".
  b.- Alfonso va a hurtar el CD de "The Final Countdown" al Corte
Inglés, pero ya de paso arrambla con toda la sección de Salsa y
Rumba, es decir: 50 CDs por valor global de 1.000 euros.
  ¿Qué acción merece mayor castigo?
  Respuesta:
  Sigue siendo más grave la descarga de Internet.
El hurto sigue siendo un delito porque supera los 400 euros, pero
aun de menor pena que la descarga (artículo 234)

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Swimming pool technology

Cool piece of technology from a French startup- basically a software-driven network of cameras placed inside a pool can alert lifeguards to swimmers in trouble.

Just saved a life in the UK (see link below).

That's very New Europe.

Link: Britain, UK news from The Times and The Sunday Times - Times Online.

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New Skype Beta

Skype has a new beta. The main new feature is call forwarding, and it's *great*!

When someone Skype's you and you're not at your computer, it rings at whatever phone you setup as your forwarding number. You get billed the normal SkypeOut rate.

Very nice feature, and worked great for me forwarding to a mobile phone.

Link: Download Skype for Windows.

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The really interesting part of Google selling offline ads

So it appears that Google is experimenting with selling offline ads. They have pre-bought full page ads, which are then cut up into smaller units and resold to AdWords customers.

This is already being widely reported on  TechRepublic and, of course, PaidContent, which even has a link to the actual experimental ad in question.

It's an interesting move in itself, but not weird. The real margins in the Ad business is in being a media buyer rather than an ad broker. So Google's potential move into media buying, i.e. pre-buying all the inventory of various media and reselling it for a profit to clients (along with selling advisory services on which media to effectively use in a buy) is not too surprising.

What is very interesting, though, is this quote from an advertiser testing the offline ads with Google:

AHS Systems, a maker of Web-based content management software, paid $4,000 to $5,000 for its ad to appear in PC Magazine for two months, compared with the $3,000 that a typical ad that size would likely cost in the magazine for one month, said AHS Systems President Jeff Witkowski.

 

"It's a lot of exposure for cheap," he said, adding that Google is "doing a ton of tracking on this. They're using their own 1-800 numbers on this, and it forwards to our line." The Internet addresses of the online versions of the ads also redirect traffic through Google servers.

This, my friends, is the groundwork for Pay-Per-Call advertising along the lines of what Ingenio and InsiderPages have launched.

Interesting sidenote: InsiderPages is funded by Idealab, the incubator that started GoTo.com, the inventors of Pay-Per-Click advertising (it was later called Overture, then bought by Yahoo).

So could all the talk about Google's VoIP plans really be all about extending its advertising franchise into pay-per-call, rather than offering plain old consumer minutes, a la everyone else?

UPDATE: Interesting take on Microsoft's acquisition of Teleo. Gary Stein of Jupiter sees it as a possible entry for Microsoft into Pay-Per-Call. Wonder where Yahoo is on this?

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Jacques Chirac has no clue

So very Old Europe, via the Telegraph:

French president Jacques Chirac yesterday pledged to help fund a new European internet search engine to rival Google and Yahoo as he railed against what he sees as the threat of Anglo-Saxon cultural imperialism.

This is such a waste of French taxpayer money that it beggars belief that such an initiative would even be considered in the year 2005.

Perhaps after they've wasted the first billion Euros, they'll decide to make it a "European Project"; you know, out of solidarity and all that.

What a truly fine example of Old Europe at work: state subsidies going to giant industrial companies to fund projects based on a delusional worldview.

Idiots. The whole of Google was created for $30 million, and self-funded afterwards by advertisers. Why is Old Europe so against bottom-up, entrepreneurial, for-profit ventures like this? It's clearly a more efficient and rapid way to innovate, create good, sustainable jobs, and increase a taxable base.

If tomorrow a venture capital firm announced it was investing up to $2 billion in a startup to compete with Google, and doing so on the basis that the world wants more cultural diversity than what Google is offering, that firm would be mocked universally for its stupidity.

Well, what does Jacques Chirac care? It's not his money, anyway.

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Encore: Rise of Flying Spaghetti Monsterism

Coverage of the Pastafarianism, or the worship-cult of the Flying Spaghetti Monster, is reaching fever pitch.

FSM has been written about all over the blogosphere, and has now penetrated the Mainstream Media with an article in the NYTimes.

When I first blogged about His Noodliness, the FSM's original website was getting 200k page views per day. According to this article below, it's now getting 2 million per day.

Check out BoingBoing.net for lots of coverage, photos, and jokes (ahem, I mean sermons and theological postulating) about Pastafarianism.

My favourite: at the end of a prayer, Pastafarians say, "Ramen", instead of "Amen". Brilliant.

Link: The Register-Guard, Eugene, Oregon, USA.

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