Skype Identifies Microsoft as Key Threat to Business - 18 Oct 2005

Internet phone company Skype, which offers IP-based telephony services to over 59 million customers, this week fingered Microsoft as the one of its most dangerous adversaries. Microsoft doesn't yet compete directly with Skype, but it is working to consolidate various voice communications technologies into its PC-based software. Skype also identified online giants America Online (AOL, part of Time Warner) and Yahoo as major competitors.

Skype's business is based around Voice over Internet Protocol (VoIP) technology, which allows customers to use telephones connected to broadband Internet accounts to place local and long-distance phone calls. Under Skype's plan, Skype customers are not charged for calls made with other Skype subscribers. Phone calls placed to non-Skype VoIP users, or to traditional phones, are typically very inexpensive.

The market for VoIP phone service has exploded in recent years, and companies are consolidating to better handle the competitive environment. Online giant eBay purchased Skype for over $2.5 billion recently, for example, closing the sale late last week. And Microsoft recently purchased VoIP provider Teleo, while Yahoo recently purchased Dialpad.

Why the sudden surge in interest in this technology? VoIP had taken off in the market far more quickly than other lucrative technologies, and major online players like Microsoft and Yahoo don't want to be left behind this time. "I'm convinced that over time pretty much all voice communication will be over the Internet," Skype CEO and co-founder Niklas Zennstroem said last weekend. "Our objective is to change the way people communicate. In a few years' time, the idea of paying for phone calls will seem very strange."