Skype has always allowed other online users to talk gratis, as long as both parties had installed the provider's free program. The company subsequently rolled out SkypeOut, allowing computer users to call conventional telephones for just pennies a minute, since the service routed the calls through localized call centers.
Distant rivals like Yahoo! (NASDAQ:YHOO) and Lycos began offering even cheaper Skype-like offerings in March, so the market leader's move to beat them on the race to nil -- at least temporarily, since this promotion is slated to end come 2007 -- is refreshingly aggressive.
I just may fire up Skype and call eBay headquarters to thank them. Why not? It won't be on my dime.
Skype has been wildly popular in Europe, but slow to catch on in the United States. Making outgoing calls into the United States and Canada free until the end of the year will encourage new users to check it out, but also tempt existing freeloaders who only use the computer-to-computer option to give SkypeOut a shot.
Me on a limb
Can I make a bold prediction? The whole promotional nature of this freebie seems like a smokescreen to me. I expect that once we approach the end of the year, eBay will extend the offer or make it a permanent perk of Skype.
Why? Well, you're already seeing eBay integrate Skype into its other services. You are encouraged to use PayPal to purchase SkypeIn service, which grants users their own Skype phone number for incoming calls. The company has also brokered deals to cash in on its growing user base. Earlier this year, Skype inked a deal to distribute ringtones by Warner Music Group (NYSE:WMG) artists for $1.50 a pop.
It is in eBay's best interest to promote Skype, especially in its flagship auction business, where a little personal communication between the seller and the winning bidder can help demystify the transactional process. That part of last year's original deal, valued as high as $4.2 billion, seemed to make the most sense.
Add it all up, and there may be little reason for eBay to end this intriguing promotion. The company already has an edge in users and an arguable technology advantage. As long as it charges nothing for outgoing calls in the country, Skype's pricing will be a difficult moat to crack.
Not so bon voyage for Vonage
It's only natural to expect that the wider usage of Skype for outgoing calls will encourage more users to pay for a SkypeIn number for incoming calls. That's good news for eBay -- and bad news for telcos in general, and Vonage in particular. SkypeIn is reasonably priced. For less than two months of Vonage service, you can buy a full year of SkypeIn. Both services rely on broadband connections. Yes, Skype requires a computer to be running, but isn't that increasingly common in many households these days?
Talk about bad timing. Vonage is ready to go public this month, and the same new offering that would have flown through the roof a year ago is now tenuous at best. When Vonage filed to go public earlier this year, it looked like a fast-growing stock with a lack of profitability. Through the first nine months of 2005, its revenue had soared 245% higher, but the company's loss had widened from $43 million to $190 million.
The company's voice-over-Internet-protocol (VoIP) model had fueled interest in Vonage, providing cheaper phone service than conventional players by offering unlimited calling for $24.99 a month. Vonage was the disruptive technology. Now it's the technology being disrupted.
Skype, Yahoo! Phone, and Lycos Phone aren't the only threats to Vonage. Providers of instant-messaging platforms are piling on, including Google (NASDAQ:GOOG), Time Warner's (NYSE:TWX) AOL, and Microsoft (NASDAQ:MSFT).
That's why eBay was so brilliant in lowering the limbo bar to the ground with this move. The competitors may find a way to subsidize SkypeIn clones, or drum up a cutthroat model where users get paid to chat, but eBay appears to have nailed it.
The race for second place now forms behind eBay.
eBay's stock has nearly doubled since being tapped for Tom and David Gardner'sMotley Fool Stock Advisornewsletter in June of 2002. Time Warner also made David and Tom's list, and Microsoft recently made the cut with the bargain hunters ofMotley Fool Inside Value. Whatever your investing style, the Fool has a newsletter for you.
Longtime Fool contributor Rick Munarriz has plenty to say about voice chat, though he doesn't own shares in any of the companies in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
