Not All That Is Electronic Or Digital Is Golden

There is an ever present idea in our society that technology leads the way for innovation and business success. It is not always the case. There have been very dynamic technologies that have never made it in the marketplace, lost money like crazy, despite being excellent in terms of the science and engineering. Microsoft is a case study in presenting technology that is not the best available, but still manages to dominate the market.

In this case the VoIP protocols are being touted and advertised as an alternative to the traditional landlines. However, Vonage cannot seem to get itself into the black or grab a significant amount of the market share. The reason is simple. It is not making its case very effectively and it hasn't got the customer-driven focus that it needs to grab up market share. The explanation of how this stuff works isn't being effectively presented to the public. There are other "free" alternatives that are drawing attention away from Vonage, and the major telecom carriers are now offering competing products. For the big business customer, VoIP makes some sense, especially those that are dead set upon spying on how their employees use the telecom resources. However, for the average residential customer--which is where the really big market share exists--there are not enough reasons for most of us to switch. Even the costs are higher than they should be, and then they limit the service to the US and Canada... which is not really sound public relations or marketing since VoIP protocols are international, accessible anywhere in the world, and would allow a truly international telephone service without high costs.

But SBC, Verizon and other big Bells, along with the cable and ISP providers, are now offering the same services offered by Vonage, at 10-20 bucks more per month for the residential customer. Their goal is to grab the suckers that are not sure of the VoIP offered by Vonage, Skype, etc., but are willing to experiment with known telecoms. Of course, these services are priced WAY TOO HIGH... proving once again that big business will do anything to gouge the general consuming public. What they seem to be forgetting is that the backbone of the Internet was funded by our tax dollars and, even though it has been decades in the making, we are OWED something back in return for our initial investment... something like a decent pricing scheme for a service that does not require labor intensive processes like the intial landline operations once required to set up.

If someone comes along and offers genuine service, international access, an easy-to-use/understand platform and a decent price, they will corner a large share of the market and leave their competitors in the dust. In the meantime, Vonage is on the rocks, and the big telecoms are perched like vultures, ready to swoop in a grab up the foundation laid by Vonage for pennies on the dollar.

But it is interesting that e-Bay has grabbed up the Skype market.

THE telephone and the PC are ubiquitous desk mates, separated by a few inches and about a century.

How soon we can use our home phones to exploit the efficiencies of the Internet, where calling costs are too small to be worth metering, is a question of no small import for every telecommunications provider — and for every household with a phone.

The prospect of modernizing the telephone seems close because broadband services have solved the so-called last-mile problem, bringing relatively fast Internet connections from local switching centers and cable offices into customers' homes. But connecting home phones to the Internet — spanning the last foot and a half — remains a problem, unless one subscribes to one of the new Internet phone services offered by cable companies here and there.

Ideally, we will not end up so dependent upon the cable guy. When eBay decided nine months ago to acquire Skype Technologies, the Luxembourg-based wunderkind that offers free Internet calls around the world, it seemed that free or nearly free Internet telephony would soon reach every American den, and no one would have to sign up for a separate phone service with the cable company. The happy day of free calls will not arrive, however, until existing phones are replaced or adapted to plug into the Internet.

Skype is a service that enables long-distance conversations without phones: one Skype user, sitting at a PC with a headset, can talk to any other Skype user sitting at another PC. Soon after announcing the Skype acquisition, eBay's chief executive, Meg Whitman, said she thought that Skype could "turbocharge" eBay and PayPal — and that eBay and PayPal could likewise "turbocharge" Skype. "One plus one plus one should equal four or five," she said.

She and her eBay colleagues were so eager to complete the Skype deal that they offered rich terms for a company with a mere $60 million in revenue last year: eBay paid $2.6 billion in cash and stock with an additional $1.5 billion to follow if performance targets are met. Figured most conservatively, the $2.6 billion price was 43 times revenue, a valuation so far above industry norms that it might as well have been determined by a Magic 8 Ball.

Any PC, equipped with Skype's free software and a headset, or with a microphone and speakers, can place a free phone call to a similarly equipped PC anywhere in the world — and without bankrupting Skype. The arrangement places no burden upon Skype's servers: messages go directly from calling PC to receiving PC, peer to peer.

These PC-to-PC calls avoid charges because they do not tie up the lines of proprietary telephone company networks. Voice sounds are digitized, compressed, popped into data packets and sent on their way into the shared space of the Internet. The quality of these digitized Internet calls can be as good as or better than conventional calls.

Skype's revenue comes principally from its SkypeOut service, for calls that originate on a PC and connect to a conventional phone number. The sound quality is not as good as it is with its PC-to-PC calls, but Skype's international calls are cheap — as cheap as those offered by no-name, prepaid calling cards — undercutting the rates of traditional telephone companies.

Verizon, for example, has a plan with monthly fees that entitle customers to call China for as little as 15 cents a minute — or $5.23 a minute for the basic rate if you aren't on a plan. At Skype, the call-anytime, no-monthly-fee flat rate is about 2 cents a minute.

News of Skype traveled swiftly, without need of advertising, after the company was founded in 2002. When eBay offered to buy it in September 2005, Skype said that it had 54 million members in 225 countries, and that it was adding 150,000 registrants a day. These numbers must have caused heart palpitations in eBay's executive suite. Skype's hypergrowth would help bolster eBay's slowing growth in its core auction business.

Skype users must use a PC to initiate a call, and eBay users are no less reliant on their PC's, so blending the two services by having eBay sellers offer a "Skype Me" button on their listings seemed a natural fit. With a click, someone interested in bidding would be connected directly to the seller, without having to wait for an exchange of e-mail messages. "Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy," the company said when it announced the acquisition.

EBay has not been in a hurry, however, to roll out the Skype Me option to advertisers. EBay sellers in Belgium, the Netherlands and China can use the option, but not those in the United States. Chris Donlay, a spokesman for eBay, said that the delay in introducing it in the United States was a matter of careful testing and prudence. "We try not to throw something out there," he said.

Undoubtedly, eBay has noticed that stubborn last-foot-and-a-half problem. Paying little or nothing to place a long, unhurried call via Skype to a loved one halfway around the world is worth the minor inconvenience of putting on a headset. But using a headset for every call is a habit yet to be acquired by most people.

The handiest way to make a Skype call is by picking up a telephone. Skype, however, can use only Skype-certified phones, designed to be physically connected to a PC.

When will Skype phones become ubiquitous? Those amazing Skype registration numbers — in the first quarter, the number of users worldwide increased by 220,000 a day — are not having much of an impact on the telephone equipment market in the United States, even in Silicon Valley.