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Skype Identifies Microsoft as Key Threat to Business - 19 Oct 2005

Skype Identifies Microsoft as Key Threat to Business

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In the News
- Skype Identifies Microsoft as Key Threat to Business

==== In the News ====
by Paul Thurrott, [email protected]

Skype Identifies Microsoft as Key Threat to Business
Internet phone company Skype, which offers IP-based telephony services to more than 59 million customers, this week fingered Microsoft as one of its most dangerous adversaries. Microsoft doesn't yet compete directly with Skype, but it is working to consolidate various voice communications technologies into its PC-based software. Skype also identified online giants AOL (part of Time Warner) and Yahoo! as major competitors.

Skype's business is based around Voice over IP (VoIP) technology, which lets customers use telephones connected to broadband Internet accounts to place local and long-distance phone calls. Under Skype's plan, Skype customers aren't charged for calls they make with other Skype subscribers. Phone calls placed to non-Skype VoIP users, or to traditional phones, are typically inexpensive.

The market for VoIP phone service has exploded in recent years, and companies are consolidating to better handle the competitive environment. Online giant eBay recently purchased Skype for more than $2.5 billion, for example, closing the sale late last week. And Microsoft recently purchased VoIP provider Teleo, while Yahoo! recently purchased Dialpad.

Why the sudden surge in interest in this technology? VoIP has taken off in the market far more quickly than other lucrative technologies, and major online players like Microsoft and Yahoo! don't want to be left behind this time. "I'm convinced that over time pretty much all voice communication will be over the Internet," Skype CEO and co-founder Niklas Zennstroem said over the weekend. "Our objective is to change the way people communicate. In a few years' time, the idea of paying for phone calls will seem very strange."

Palm Signs Treo Deal with BlackBerry Too
PDA and smart phone maker Palm's recent deal to put Microsoft's Windows Mobile on a future Treo smart phone device sounded like a blockbuster move. But with news this week that Palm has signed a similar deal with BlackBerry-maker Research In Motion (RIM), it's apparent that Palm is just covering all the bases. The message to customers seems clear: If we build it, you will come. And now, for the first time, a smart phone maker will offer devices with all three of the major smart phone OSs available.

"We are extremely pleased to broaden the choice of BlackBerry-enabled handsets with the \[Palm\] Treo 650," said RIM Chairman Jim Balsillie. "We have already seen significant customer interest in this powerful combination, and we look forward to building on our relationship with Palm."

The move establishes Palm as more of a device maker and positions the company better with corporate entities, which have been more inclined to pursue Windows Mobile and BlackBerry devices than Palm OS-powered devices; those systems have more readily available connectivity with back-end messaging servers. BlackBerry devices, especially, are well known for their wireless email capabilities.

The deal is interesting for RIM as well. In its initial guise as a device maker, RIM had to compete head-to-head with Palm OS- and Windows Mobile-powered devices. Now, the company is moving toward a model in which it focuses more on software and services, as it ports its BlackBerry system to other companies' devices.

Smart phone sales are still growing slowly, however. While RIM has accrued more than 3.6 million subscribers over the years, various companies are selling 3 to 4 million smart phones each year. By 2009, these companies will be selling roughly 6 million units a year, according to estimates. Part of the expected growth will come from enterprises finally being allowed to purchase their favorite devices running their favorite OSs and services. In the past, getting a Treo, for example, meant sacrificing capabilities to get that device. On the flipside, many RIM users were happy about the service but not fans of the hardware.

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