Skype has always been hailed as a disruptive force in the traditional voice market, and has succeeded in wreaking havoc in many areas without really fulfilling its promise as a commercial business. Hence eBay’s admission last week that it had overpaid for the free VoIP provider ‘ but that came as no surprise. What is more interesting is Skype’s rumoured deal with cellco 3 to offer its own-branded VoIP offering, with a Skype handset. This illustrates a range of issues that need to be addressed across the telecoms and internet communities before the mobile internet will ever take off ‘ the role and relationship of traditional and new carriers, the link between services and devices, and how profits can be generated and shared along the value chain.
In the same week that Skype founder Niklas Zennstrom departed amid the disillusionment of parent eBay with its overpriced VoIP gamble, Skype intensified its alliance with 3, which last year took on the unlikely role of champion of the cellco internet provider model. The contrast reinforced the idea that a brave cellco, that is prepared to pull down its walled gardens rapidly and decisively, may still position itself more effectively for mobile internet and VoIP success than the classic internet giants, which have a long battle ahead to gain significant mindshare in the mobile world. If mobile behaviour was the same as fixed broadband behaviour, the likes of Skype and Google would win every time over the jaded brands of the mobile carriers, but there are two major differences ‘ the failure so far to create a usable mobile internet interface, and the branding power of the handset itself. Both these differences from the PC experience relate to the device, and both mean that the company that controls the device controls the business model ‘ something Nokia has always known, and that Google and now Skype, with their plans for their own handsets and user interfaces, are belatedly recognizing.
The deal with a cellco like 3 is important to Skype because, in a world where open access networks are not yet a reality except in Wi-Fi, this gives Skype a quality network, and more importantly, offers users a usable experience. Several carriers and phonemakers now preinstall Skype, and anyone with an internet phone can download it, but this is where the differences from the PC world become glaringly obvious. Unless the interface and performance is tailored for the device, as 3 promises to do, the mobile Skype experience is severely lacking. This goes for many popular internet applications, including search, and until recently cellcos looked to turn that to their advantage by creating pseudo-open internet portals that were more usable and attractive than braving the open web. Now that Wi-Fi handsets and other factors are making that unacceptable to users, cellcos need to give their power users, at least, more freedom and work out how to make money from that. The clue lies in the fact that the internet companies still need the help of the cellcos to make their applications usable. Skype has deals with Motorola and other phonemakers but in practise, without significant effort from the phonemakers, downloaded Skype software often performs poorly on mobile devices.
This has driven the company to consider creating its own device, optimized for its service and promoting its brand ‘ following the trend set by other internet players like Apple and, reportedly, Google. Now sources say the Skype phone is close to reality and has been created with 3 as a low cost handset that will focus on free VoIP for the mass market, and premium VoIP with high quality of service for business and power users.
This shows that internet players, in the short term at least, will gain easier access to the mobile user base by working with enlightened cellular carriers than trying to destroy them, and that cellcos and handset makers will prove more valuable allies than internet experts like eBay for the initial push into mobility ‘ mobile internet, as the likes of Skype are discovering, is very hard to do, and almost impossible without major commitment from companies that actually understand mobile technology and business cases (Nokia’s primary argument for why it will beat Google in this sphere).
And 3 is a good choice of partner for an internet player looking for initiation into the mysteries of mobility. Once a solid opponent of destroying walled gardens, the Hutchison-owned operator underwent a radical conversion last year and became one of the most forward thinking of the cellcos in terms of embracing internet models and allies, rather than seeking to prop up its closed world a little bit longer. Almost a year ago, 3 unveiled its X-Series broadband internet service, demonstrating the combination that will be essential to all operators in mobile broadband – of flat rates; bundling of different content and media; multiple platform support including television; and web 2.0 functions and payment models. Skype was on a list of major internet partners, also including Sling Media, Yahoo, Google, eBay, Microsoft and Orb, as well as handset makers Nokia and Sony Ericsson.