blogging.vc blogging.vc A European Perspective on Venture Capital and the Internet Creative Labs announce PC-less Skype phone January 12th, 2006 I just came across this announcement from a few days ago by Creative: Creative Announces Skype Internet PhonePLUS - Enables Skype Calls Directly Through A Router Without Requiring A PC I have been waiting for something like this for quite some time and if you have the patience to read my ramblings about consumer VoIP before I get to the point why I think this is really important, please read on: 1) The disintegration of the telco value chain : IP separates transport and applications. With your old PSTN (Public Switched Telephone Network) the phone company owned the access (the copper and the signals running on the wires) and the application on it (the dialtone and calls). Even with dial-around numbers the dialtone was technically always controlled by the owner of the copper pipe, restricting the flexibility of providers “renting” the line permanently or for the duration of a call from the pipe owner (typically the incumbent telco). With IP, these two layers can be entirely separated: You can get Internet from, let’s say, Deutsche Telekom, and use Vonage or Skype for telephony. In general, there is no technical reason why you should buy your IP connectivity (Internet access) and voice services from one vendor. The value chain of the local phone company customer breaks apart, rather than having one supplier (the phone company), there is now two companies that can provide the product “phone call”:the access provider, i.e. ISP, and the VoIP provider. 2) Broadband VoIP: Looks and feels like PSTN, but it’s cheaper: The above opened the floodgates for the likes of Vonage , that are offering voice services independently from your ISP. All you need is a little adapter (called ATA, or “Analog Telephony Adapter”) that plugs into your home broadband router on one end and your existing phone on the other end. Why would you do that Price and features, although I would contest that features are much less of a differentiation than price. However, the Vonages of the world significantly helped drive flat rate telephony, and you can now call as much as you want in the US at about $25 a month for example. However, there is still a distinction between local and international calls which are mostly billed by the minute, you have a regular phone number, and you call people by dialing their phone number. 3) Skype or the marriage of Voice and Presence: Skype looks more like an IM client, which brings a few changes: First, you have a nickname rather than a phone number and second, you can see when people are online (presence) and then call them for free. While Skype was originally PC to PC only (you needed to be online and connect to someone as a “buddy” first), it has been expanded to allow for outbound calls into the PSTN (Skype out) and also give people an inbound phone number (Skype in) so that they can be called from a regular telephone line. There are also adapters that look like phones and hook up to your PC. With this, you have the equivalent to a Vonage line for the time that your PC is switched on. (if we leave PocketPC clients out for a moment). 4) Why I think the PC-less Skype phone announcement is big: Having to boot up a PC whenever you want to make a phone call is not an option for many people. Forwarding calls to a cell phone if you are offline may not be economical either. But: If you have (1) a Skype account with a Skype-in number and Skype-out credit and (2) the Creative device that hooks into your router just like the ATA, with a look and feel of a regular phone, you have the equivalent to Vonage. In fact, you have more: You can see which ones of your Skype buddies are online. If they make use of their status like it’s common on IM (”Away”, “Busy”, “Available”…) you might even get an idea when might be a good time to call them. In other words, you now have presence and voice services at a low monthly cost without the need of a running PC (which, by the way, may cost you as much as a few hundred Euros in yearly power bills in Germany if it’s running 24/7). I think this devices closes the gap between Skype and broadband telephony , and it is fair to compare the likes of Vonage with the Skype service. This is why I think this announcement actually has strategic impact (if reasonably priced), and it will certainly followed by similar products, and will exist for Skype’s competitors as well. 5) Vonage vs Skype and a side note on the network effect: In VoIP, calls between people on the same network are typically free, since there is (almost) no cost to the provider for those calls. However, the more users on the network, the more valuable this feature becomes. Vonage had hit 1M subscribers last September and a few days ago announced that there is now more than 4M users of broadband telephony in the US . When I look at my Skype account, there is 4.3M users online at this moment, and while I am sure that lots of them have it sitting idle in their system tray without using it, I guess that the chance that your friends are on Skype rather than on a broadband VoIP line is a lot higher…and even if they are not, getting them to use Skype is a lot easier than convincing them of getting a monthly billed broadband phone line. Let’s do a quick cost comparison. Vonage’s plan for unlimited calling in the US is $24.99 (about Euro 20.58). With Skype, you pay 3Euros/3months for your SkypeIn (beta) number and Euro 0.017 per minute. Hence, you can use 1,034 mins or 17.3 hrs per month on Skype calling the US or any other country out of their international one-rate list and pay the same total as for Vonage. If you are a heavy US domestic user, you may be better off with Vonage at this point. Thinking of the network effect and how many people you can reach for free though, I am sure this calculation is only going to get more favorable for Skype… 6) Winners and losers: Old news: The telcos are in for tough competition. However, they have a huge brand asset, they still send a bill to most households and if they make the right technical choices they should keep a strong seat at the table. The Vonages of the world were the first ones to threaten the telcos, now I think they are threatened themselves. Om Malik had a good piece on Vonage’s latest fundraise which I can only second. I think the winners are the big Internet Consumer brands that have the marketing muscle to reach the end consumers (and as we said in 1), access is separated form any service you offer), and can build a strong network effect among their user base. In other words: I think that Yahoo, Ebay(Skype), MSN, Google and folks like these will be the telcos of tomorrow. Voice will be a part of your Yahoo, Google or you-name-it account just like IM, email, your stock portfolio or anything else. Update: Just after posting I realized that Netgear had announced a similar product , and that there may be bas news for people on volume-based broadband plans - read here at Aswath’s blog . Posted in Geek , Technology & Internet | No Comments » Webjay, Truveo…Lots of Acquisitions January 11th, 2006 The Internet giants are shopping again: Yahoo acquired the playlist community site Webjay (based in Honolulu….yes!), video-search engine Truveo got bought by AOL (its rival, blinkx.tv had allegedly been in talks with IAC, but those supposedly failed) and I am sure a few more of these early acquisitions will happen soon. There is also a good list of acquisitions by Yahoo, Google and Microsoft collected at readwriteweb . What is to be noted is that all of them are relatively early stage acquisitions, where companies like Yahoo get hold of a good product, strong engineering team and sometimes a (still small by their standards) dedicated user community. Then, they can go about throwing their distribution power at it and integrating it into their product portfolio. I remember long ago a senior exec at Yahoo saying something along the lines of: “I just need my customers to do three things on our site, but it doesn’t matter what those three things are…”. Looks like they are all busily adding more “things” to their product palette, which will increase switching costs and let them know their customers better. Ultimately, recently announced Google Pack goes in the same direction, although desktop vs web-based apps is a whole different discussion. One company that was heavily rumored to be acquired by Google, Riya , announced a $15M funding . Looks like they prefer going it alone, and who knows whether the acquisition rumors were true. Their product promises to recognize faces in consumer photographs and helps you sort your collection that way. Can’t wait for the first working release. Posted in VentureCapital , Technology & Internet | No Comments » CES, Macworld…and Google Earth for Mac! January 11th, 2006 Macworld is going on right now, and Steve Jobs announced that as of today Apple will start selling iMacs based on Intel chips - same price, same looks, but a lot faster. That was quick, given that the partnership was announced in fall. Engadget has a roundup of MacWorld coverage . Probably not related is the fact that Google Earth is now officially available for download in the Mac version after having been flying across the web for some time. If you are like me, you didn’t have a lot of time to follow the Consumer Electronics Show in Las Vegas (CES) and maybe you could say that the dominating theme from an Internet perspective is that the big players (GOOG, YHOO,MSFT) are starting to look a lot like media companies, and aiming to conquer the TV screen. If you didn’t have a chance to catch up, the BBC has a set of articles summarizing the show. Posted in Mac , Events | No Comments » Consumer Internet, Digi