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Skype – The Google of VoIP?

2004 has been a stellar year for adoption of Voice Over IP here in the United States as the FCC cleared the way for open competition by ruling that VoIP is not interstate in nature and is subject to Federal jurisdiction for future laws and regulations.

The ruling had it’s opponents of course including the National Telecommunications Cooperative Association (NTCA) who accused the FCC of giving VoIP a "free ride" and an unfair competitive advantage over copper legacy networks operators. A quick check of the NTCA’s web site reveals that they are a non-profit association representing small and rural telephone cooperatives here in the US. More specifically, the NTCA has 557 telcos amongst it’s members.

The fact that telco vested interests are speaking out against VoIP and lobbying Congress shows how seriously they are taking the issue, and so they should.

Skype - the most popular VoIP software in the world – is here. Already with 38 million downloads (around 5% of all Internet users), Skype is possibly the fastest growing free service ever offered on the web and it has just been bundled with the Kazaa Peer 2 Peer music swapping service that has 170 million users worldwide.

The ‘Skype Out’ service (you can call non-Skype phone numbers for around 2.2 cents a minute) now has 290,000 paying customers. While this number is tiny in terms of overall telephone penetration, the real marketing power of the Skype business model – and something that the telco’s cannot match - is it’s viral nature.

People really love something free on the Internet, and the fact that telephone companies have acted as - and been perceived as - utility services for years gives them zero brand equity in fighting off this challenge, in fact it works against them. There is an appeal surrounding Skype that harkens back to the early days of the Internet, a time of technology revolution where traditional services and business models were turned on their heads by ‘disruptive’ technologies.

The Early Adopter base of Skype were those techies who instinctively understood and grasped the value of breakthrough technologies, they didn’t need to be convinced about Skype through marketing pitches, they just tried it and it worked.

Add to this the following. The company has received funding from Draper Fisher Jurveston, a powerhouse venture capital firm here in Silicon Valley; the software is being enhanced to work on multiple platforms including wireless and PDA technologies; equipment vendors are rushing to introduce telephone handsets that integrate with Skype.

But does Skype have the ability to break through into a market leadership position? After all it’s going up against some very substantial competition in the form of the telcos and cable companies.

Well, yes. Rule One of launching a successful new technology is ‘Execute, Then Improve’. It worked for Microsoft and Bill Gates, and it’s working here. We could be seeing another Google in the making.

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