Charles Arthur On Technology

The Skype's the limit

If you want to have a big success in books, or movies, then the secret - as was noted in this paper last week - isn't to throw big marketing bucks at it. No, that's no guarantee of sales. What you need is word of mouth. The spread of the original peer-to-peer (P2P) file-sharing network, Napster, began in a university but exploded as news spread about it via e-mail, instant messaging and web pages.

If you want to have a big success in books, or movies, then the secret - as was noted in this paper last week - isn't to throw big marketing bucks at it. No, that's no guarantee of sales. What you need is word of mouth. The spread of the original peer-to-peer (P2P) file-sharing network, Napster, began in a university but exploded as news spread about it via e-mail, instant messaging and web pages.

So too now with Skype, which is also a P2P system - but not for sharing files. It's a telephony application. It can be used to make calls for free over the internet, not just to other Skype users, but also (for a small per-second charge) to "fixed" phones and mobiles, anywhere in the world.

Skype's growth has been dramatic. From a standing start around August 2003, the company now has millions of users (it's had 81 million downloads, but many of those are duplicates or updates); at any time, more than a million users are online. It's growing exponentially, with thousands of people joining up each week. And the gadgets website Firebox recently started selling a "cyberphone" that uses Skype linked to a real handset that plugs into your computer.

There are many other "voice over internet protocol" (VoIP) companies around - Gossiptel, Vonage and Lingo to name a few, and BT also has an offering. But Skype has got a grip in Europe, and is spreading rapidly in the US through that "word of mouth" channel, for a couple of reasons: it's free to use, the message is encrypted, and it works. Whereas you may struggle to configure some of the other VoIP applications if you're behind a firewall (and you should always be, these days), Skype really is plug-and-play, in my experience. I've used it in offices over wireless connections, on routers connected to routers, and it handles them fine.

Plus, the company isn't sitting still; last week, as I was contemplating writing this piece, it announced a deal with Broadreach Networks, which provides Wi-Fi coverage at many locations around the UK (mostly in London), so Skype users will be able to use it to make calls at those hotspots. Skype also wants its product to run on handheld computers, and more than that, to run on mobile phones. In fact, there's already a version for Windows-based mobiles. A telephony application on a mobile phone? It sounds either obvious or mad. Except this is a telephony application that would dig into the mobile phone companies' business model, by letting people make calls using the data element of their connection, not the voice part. Long-distance calls would certainly be cheaper.

But the problem for the mobile phone companies, like the fixed-line ones, is that if they don't embrace Skype and its siblings, they might see their profits wiped out as more people use it. Some companies have adopted Skype completely for their outgoing phone calls, making thousands of pounds of savings in quite small offices. BT uses VoIP (though not Skype) internally, and is transforming its whole network to use it, in a scheme it calls "21CN" - for "21st Century Network". VoIP is where talking is going. It is an obvious outgrowth of the expanding bandwidth available on the internet. It works by digitising your voice and sending the digitised result over the internet as "packets" of separate data which are recombined at the receiving end - just like any sort of internet data, such as e-mails or web pages. The tricky thing with voice communications is that timing is very important; if a packet gets lost on the way, you notice the loss as a drop in sound quality.

Thus VoIP pretty much demands the bandwidth of at least a broadband connection, meaning packets have less chance to go astray at the sending or receiving end. Skype's P2P nature helps too; as well as the wider internet, it uses other Skype users' computers to help pass data along. So, the more people use Skype, the better (in theory) the connection quality should be.

And the weird economics of the internet, where data is only charged for when it's stored - it travels for nothing - means calls across the net are free. To that, Skype has, cleverly, added the SkypeOut service, by which a Skype user can call a real phone number. The call is routed mostly over the internet, and then out onto the telephone network at the nearest point to that caller. Thus SkypeOut calls are much cheaper than regular landline calls.

You might be wondering why Skype is free, and P2P, when so many other VoIP companies have done alright with a standard payment model (say, a monthly fee) and without the association with file-sharing. The answer seems to be that it's in the business DNA of Niklas Zennström and Janus Friis, the two men who created the company. They set up KaZaA - once the world's most popular P2P file-sharing software. P2P just seems to be how they do things - because, just as with films and books, when it works, it really, really works.

People tired of KaZaA because, in order to pay its way, the company bundled adware with it. Users got sick of pop-up ads and dumped it. Zennström has sworn not to do that with Skype. "One of the things that we learned from past experience is that we should not rely on adverts," he said last year. "There is absolutely no adware in Skype. We rely on our users to spread messages."

I think the message is that Skype has that aura of an internet phenomenon just about to take off. OK, don't believe me. Listen instead to Peter Cochrane, formerly the head of research and development for BT. In a recent piece he noted how he's been using Skype, with a laptop and a headset, for all his calls recently. "My mobile phone bill has plummeted from $500 a month to less than $10 a month. I've purchased headsets for all of my children and colleagues."

The only disadvantage about Skype, and other VoIP systems, is that people on "real" phones can't call you back - yet. But in the UK, the telecoms regulator Ofcom last September allocated the number prefix "056" for VoIP numbers.

Remember when you first heard about mobile phones, or the internet? Did you think they were overhyped, or the gateway to something remarkable? My recommendation is that this is the same kind of phenomenon.

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