Not All Hype About eBay-Skype

Of all the buzz-worthy projects and developments in the Voice over IP sector right now, by far the biggest chat generator is eBay’s acquisition last week of VoIP company Skype.

The $2.6 billion deal is by itself signaling a major shift upon us in communications technology, according to a leading light on VoIP technology.

“Innovation continues to happen at the edge,” said Jeff Pulver, VoIP advocate, whose VON conference kicked off in Boston this week.

“What’s transformative about eBay and Skype teaming up their services in a merger,” he added, “is that both are bottom-up sites that were and are community-driven. eBay did it with [its] PayPal purchase. Now they’re adding to their own communications service. This offers an interesting dynamic.”

There’s no reason why they couldn’t be creating a Skype for Amazon.com, he added. Because what phone providers and other legacy telecommunications providers, as well as end users are realizing, “is that finally, we’re getting to a point when communication is being driven by communities of interest, such as one bottom-up community merging with another.”

Sure, a lot of what’s happening was forecast about seven or eight years ago, Pulver added, but it was written off as silly pabulum during the dot-com crash. “But we really are seeing that mushy point between communications and computing and about how one goes about communications.”

Where many analysts and investment houses appear skeptical of the eBay Skype merger, especially about the price and whether the deal will pay off for the online auction giant, as well as Skype, plenty more are weighing in behind Pulver’s enthusiasm over what the deal represents.

Take Probe Financial Associates, the first investment research firm to cover Skype back in October 2003, which called the deal nothing less than a stunning move.

“The telcos and cable companies have been asleep at the switch,” said Victor Schnee, president of Probe Financial Associates, in a statement about the deal. “Skype was a category two storm; now as part of eBay it has category four or five potential.”

Why? Schnee said firms such as Probe have been advising investors for years to be aware that IP detaches applications from access. The eBay deal should help put that advice into high relief.

“Now they’re facing a leading digital commerce provider in eBay that can offer functional tie-ins among its services — e-commerce, payment services and now communications — as well as the most experience with VoIP itself.”

Pulver said he thinks phone companies now realize this, especially as video over phones moves closer to consumers and businesses. After all, wireless carriers are chasing the ideal of live video with a voice call. Just look how big a hit camera phones have been.

“If you look at the video quality, it will look damn good,” added Pulver.

“We’re coming to a point in time when we can deliver better quality images over the Internet. All of a sudden, this idea of disruption is spreading beyond phone providers. If you think of American Idol instead broadcasting over the Internet, a new dawn has come for the broadcast space. It’s more of a point where the video becomes more functional to the way one works and lives.”

But for now, the possibilities of eBay and Skype — such as video over IP — are giving the industry plenty to talk about. Investment analysts are urging some cautionary tales of their own.

“The more Skype interconnects with the public-switched telephone network — and its revenue model depends a significant extent on such interconnection — the more likely it is to eventually face new regulation (e911, CALEA, Universal Service) that will increase its cost per subscriber of offering the service,” noted Legg Mason in a research note.

“Skype will face increasing competition from the voice, video and data bundles of the Bells/ILECs and cable, with voice revenues diminishing in importance as part of that bundle.”

Not to mention other providers burning the midnight oil in order to launch similar, community-based voice services such as Yahoo, Microsoft, Google and AOL.

Still, added Legg Mason’s note: “If the community-based voice services overcome the many obstacles to interoperability, their services will constitute a far greater threat to traditional voice services.”