Internet Phones: Please Wait for
the Next Available Opportunity
By RANDALL STROSS
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.
EBay made a great fuss last year when it struck a distribution deal with RadioShack to place Skype-certified phones in 3,500 RadioShack retail outlets. The only one that my local store had in stock, however, cost $120, a price that is not set to move a lot of product. I thought that a local electronics superstore chain might have far greater selection, but discovered that I was only half right: the store, Fry's Electronics, had a lot of phones — 237 models — but only one Skype phone in stock, on sale for $80.
Even after overcoming the equipment problems on the buyer's side, eBay faces another hurdle: most of its merchandise sellers, whether big or small, have good reason to resist offering a Skype Me option. Fielding telephone calls from prospective buyers one by one is labor intensive, which is to say expensive. Restricting communication to e-mail messages is far more efficient. EBay makes it easy for a seller to publicly post replies to queries so that the same questions need not be answered over and over.
While eBay dithers with its proprietary Skype Me plans, Google, Amazon, online newspapers and the rest of the Web are quickly embracing the Old New Thing in advertising: click-to-call, shorthand for "click to be called back," a technology that uses Internet telephony for calling customers back and is available to Web site designers from any number of vendors.
With a click on the button in a Web advertisement, like a Google text ad, a box pops up where you type in your phone number. If it works properly, your phone rings in a blink — with the local plumber or florist or bookseller at the other end of the line. Local merchants who have traditionally advertised in the Yellow Pages are showing particular interest in click-to-call. They, unlike most of eBay's merchandise sellers, are set up to field customers' questions anyhow. On the customer's side, there is no need for a headset or any special equipment. Everyone with a phone can use a click-to-call feature immediately.
For advertisers, click-to-call offers twin attractions: the efficient placing of ads linked to particular search terms, and a means of measuring results without worry about automated click fraud perpetrated by competitors. Peter M. Zollman, an analyst at Classified Intelligence, a consulting firm based in Altamonte Springs, Fla., said that in the future, "advertising — and I mean all advertising — will be performance-based."
"Click-to-call," he added, "is one more manifestation."
Mr. Zollman said he was pleasantly surprised recently when he was searching on the Web for last-minute deals on cruises and was offered a click-to-call button. He clicked, was called back instantly and got a price that he deemed a bargain.
STRICTLY speaking, click-to-call did not save appreciable time when dialing — punching an unfamiliar number into a telephone keypad cannot take much longer than tapping one's own phone number into the click-to-call box. But the process connected him instantly to a human being. Presumably, this level of service will be necessary: surely, no merchant would have the audacity to call you back only to put you on hold.
In an unexpected way, Skype, for all its peer-to-peer ingenuity, has yet to catch up with the plain old telephone system. "People want instant gratification," Mr. Zollman said. "Many do not have Skype, but everyone has a phone."
Randall Stross is a historian and author based in Silicon Valley. E-mail: firstname.lastname@example.org.
Copyright 2006 The New York Times Company