2005-07-12 - The Hype About Skype
Skype is the topic of much discussion and speculation in the industry. As I’ve written here before, it just works. With over 85 million downloads, Skype is a legitimate worldwide phenomenon. In addition, Skype recently announced one million paid SkypeOut users—making it one of the largest prepaid calling plans in the world.
Some of the statistics surrounding Skype are simply fascinating. Skype callers are running an average of 42 million minutes per day in usage—or approximately 15 percent of the daily call volume of the entire country of France. According to Telegeography, Skype is directly responsible for about 4 percent of global LD traffic and about 25 percent of all VoIP minutes.
A recent survey reported by Evaluserve also indicated that 30 percent of Skype usage occurs on the job.
What does this mean for the enterprise? Is Skype a legitimate application platform for internal as well as external corporate communications? Will the popularity of Skype affect purchasing decisions about VoIP platforms and applications? Does Skype affect the future of SIP in the enterprise?
Beyond Silos
It’s easy to dismiss Skype as simply the latest communications application silo—interesting, but not a truly global service. There have been many of them in recent years, starting with Instant Messaging from AOL, then from Yahoo!, and then from Microsoft.
You were a member of one camp (silo) or another—or worse, you had subscriptions to all of them, which made for one messy desktop. Plus, it was impossible to send a message from one service to another.
Instant Messaging has been a tremendous boon to both internal as well as corporate communications. Business partners can get instant answers to simple questions by simply seeing each other online and typing back and forth. (Quite practical, especially because so few of us remain at our desks these days.)
As we shuttle between meetings, cities and countries, the only constant for many of us seems to be that we are all in front of our laptops most of the time. The laptop has become a communications device as essential as the ubiquitous cell phone or Blackberry. It is not hard to speculate that we are looking at a future where the desktop phone is completely replaced by a hybrid combination of campus Wi-Fi and cellular phone.
So where does Skype fit in the enterprise? I was recently reading the blog of the noted telecom market analyst James Enck of Diawa Securities in London. In one entry, Enck observed: “Another source chimes in to say that an Accenture project team spread across London, Madrid, Amsterdam and Rome also uses Skype regularly to coordinate, and Accenture board members are also confirmed users.” (see http://eurotelcoblog.blogspot.com).
Skype has unquestionably entered the enterprise the way IM did in the early 2000s: through the back door, without the knowledge or consent of internal corporate applications specialists or network security staff members.
It just works! Call your business colleague halfway around the world. Chat for an hour or two. No bill at the end of the month.
For most consumers, “free” is a very compelling business model. In classic computer marketing terms, the Skype out-of-box experience is excellent. Something special is going on here.
Skype And “Viral Communications”
So what is it exactly that makes Skype so unique? Overwhelmingly, people tend to notice the very high voice quality Skype delivers, even over difficult IP connections and at very great distances.
In addition, it is extremely easy to create ad hoc conference calls through the simple drag-and-drop function from the “Contacts/Presence” menu. Creating conference calls through a traditional PSTN bridge is often a complicated and frustrating process-and if the conference is across national borders, the call can be very expensive. Conference calling has been one of the bright spots in the telco market the past few years, but Skype is clearly emerging as a cost-effective alternative for that.
Respected engineer and Internet theorist Dr. David P. Reed co-wrote a 2003 paper with David Lippman in which they described the concept of “Viral Communications” (http://dl.media. mit.edu/viral/viral.pdf). This concept underlies both the IM explosion and the rapid adoption of Skype—and points out many shortcomings of current VoIP deployments.
Central to Dr. Reed’s thesis is that “Communications is something you do, rather than something you buy.” Communications is something that uses whatever is at hand—in this case, the general-purpose Internet—to permit decentralized ad hoc networks to proliferate.
His concept builds on the classic Metcalfe Law, in which the value of a network is the number of users squared to the Viral Communications System proposition where each instance can be adopted incrementally and gains momentum as it scales. “Viral” refers to the perceived speed of adoption by users once the catalyst is placed within the network.
Dr. Reed additionally notes this principle has two essential requirements: scalability and independence. This means that the communications network can easily scale, and that each element can operate autonomously. Does this sound like a peer-to-peer network? It should. It’s the model upon which Skype is built.
All current IM systems, and Skype, have decoupled themselves from centralized network naming schemes such as Internet domain names and PSTN phone numbers, so they are free to manage their address namespace as they choose. (Never underestimate the value of naming and addressing in network design. Whoever controls the naming and addressing of a service essentially controls the service, which is why IM and Skype have taken off so quickly.)
802.11 networking also meets the essential test of Viral Communications, but at a different network layer. Each node is deliberately open to outside use by anyone, and the use of the underlying spectrum is in the public domain. 802.11 networks, therefore, are essentially free from any form of centralized control.
This trend is, unfortunately, balanced by one of the most disturbing trends in VoIP network design. Network operators both within the enterprise and within service provider networks are hard at work reasserting central control by attempting to create “Castles of Connectivity” around their VoIP networks using Session Border Controllers (SBCs) at the edges, which control both the ingress and egress to the VoIP networks.
Without question, SBCs can be a valuable element in VoIP network designs. My example here is only to point out the two “magnetically” opposite strains now present in the VoIP arena: end users within the enterprise are using highly decentralized applications such as IM and Skype to communicate, while enterprise network managers and service providers scramble for ways to recentralize the control and the profits they have lost.
Skype’s Business Model: Old Is New
Skype cleverly relies on a time-tested business model common to the prepaid calling card market: “the float.” The prepaid calling card market has been a highly profitable segment of the telecom industry for many years. When you buy a card, you give a carrier a wad of money the carrier can deposit and collect interest on until you decrement the card through usage. (The float is the backbone of the insurance and travelers cheque businesses as well.)
Skype makes money in a similar fashion. After you set up an account for the SkypeOut service on the company’s website and pay a pre-set sum of money, you can use Skype to initiate a call on the PSTN at extremely low advertised rates. (This is ideal if you travel a great deal, especially overseas.)
Since Skype’s overall advertising and marketing budget is trivial compared to that of traditional long distance calling card vendors, Skype has the potential in place for a very profitable service as it incrementally adds on unique services such as voice mail and inbound dialing.
The Best Of Both Worlds?
Needless to say, Skype has caused the SIP community to take a long, hard look at itself and its shortcomings. Work is now underway to adapt the principles of SIP signaling to peer-to-peer networks (http://p2psig.org). SIP has a lot to learn from Skype, and Skype could take a couple of notes from SIP as well—but I’m not giving up either one yet! I’m all in favor of the best of both worlds.
I’ll close this column with my “wish list” for Skype:
Support for H.264 Video. Skype could be a very compelling Video Conferencing application especially at high speeds and full screen 640x480 resolution.
Support for SIP. I don’t see any reason why Skype couldn’t support both its own proprietary P2P environment and integrate itself with the larger SIP community. [VM]
Richard Shockey is the Senior Manager Strategic Technology Initiatives for NeuStar, Inc., and is co-chair of the IETF ENUM Working group.
Taken from the VoIP Magazine.
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