June 10, 2005

Internet Telephony Grows With Do-It-Yourself Help

LONDON -- After nipping at the heels of the major telephone providers for years, Internet telephony is finally taking a big bite out of telephone call traffic.

Leading the way is a Luxembourg-based startup, Skype, which has signed up 40 million users for its Internet telephone service and is growing at a remarkable 150,000 users a day.

It's managed this feat with a tried and true method for Internet startups -- giving away its service for free.

But like its predecessors, Skype could fall victim of its own hype as bigger, better-funded competitors are drawn to the market it created. It wouldn't be the first time a high-tech pioneer stumbled after an early success.

For now, Skype's blazing the trail with software that enables free phone calls to any other Skype user around the globe. All it takes is a headset or telephone connected to a computer and a broadband Internet connection,

The free service poses a challenge to Vonage, long the leader in low-priced Internet telephony using normal telephones plugged directly into broadband connections. Internet giants Yahoo and Microsoft's MSN are also rolling out free Internet telephony services that are bundled with their popular instant messenger programs .

Skype is turning its fast-growing user base into a clear competitive advantage. A core of do-it-yourself Skype enthusiasts have rushed to create new capabilities for the service, most of which are also free. They've built voice mail, text messaging and call recording capability for the network.

That, in turn, has spurred creation of a range of add-ons, from video conferencing to foreign language tutorials.

The thriving Skype developer community gives the company an edge as it girds itself for competition from Microsoft and Yahoo, which Skype Chief Executive Niklas Zennstrom has called "the biggest threats" to Skype. It's similar to the third-party software applications gave Palm's handheld devices an early lead in the PDA market in the 1990s.

Other Skype add-ons include programs that let users record their telephone conversations (http://www.hotrecorder.com/), send and receive voicemail messages, collaborate with coworkers (http://www.jybe.com/site/index.aspx) and send text messages to mobile phones (http://www.connectotel.com/sms/skype.html).

One of the newest Skype add-ons combines the service with the emerging format of the podcast, a home-spun radio show distributed over the Internet, in what has come to be called a Skypecast.

Looking For Business

For enthusiastic users like Rob Walker, who lives in England and remotely manages a small Latin American market research business using Skype, any additional capabilities will be more than welcome.

"We're communicating between Mexico, Argentina, Chile and Brazil, and we're looking into using video conferencing, which would be quite useful," he said.

Walker said his business already makes significant savings from using Skype's free calls: Even discount phone carriers commonly charge rates of 30 pence per minute between Britain and Latin America, and Walker spends hours each day talking to his employees.

"As a small business, why wouldn't we use it?" he said.

Open Up

Skype's business plan has been to offer its basic service for free and then charge for additional services. But Zennstrom said the company has intentionally given developers free reign, even if their offerings compete with Skype's own offerings.

The privately-held company made a crucial decision early on to open its API -- a set of protocols and routines that coders use to build new software applications -- which allowed developers to write their own applications that fit neatly together with Skype.

The move involved surrendering a certain amount of control over how Skype is used. Indeed, some of the add-ons, such as "answering machine" software and a video conferencing application called Video4Skype (http://www.video4skype.com/), bump up against some of the products that Skype itself plans to offer.

"We want to be as open as we can. It's about creating an ecosystem around Skype," he told Reuters in an interview. "We have no problem with those things -- the more the merrier. Even if there's no direct monetary benefit to us, we believe this is helping us."

The Skype add-ons extend to hardware as well, including a device from Siemens that links the service with cordless phones, and a hobbyist project to hook up Skype to a salvaged pay phone.

Phillip Torrone, a technology writer for Make magazine and Popular Science, has posted a video link showing off his Skype payphone creation on the Make Web site (http://downloads.oreilly.com/make/skype.mov).

"Skype payphone is moving along, right now you can use it to make receive any Skype call," he said in an email to Reuters. "It's become my full time phone here at home since it looks so cool."