Skype on the Hot Seat

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Skype is in a unique position. As a standalone company, it is doing quite well. But its position within the eBay family appears tenuous. This point is made quite well in this BusinessWeek story, which says that Skype's revenue was up 51 percent in the second quarter. That's pretty good, even considering that the figure was less than half of the year-ago quarter.


eBay already has admitted that the $2.5 billion it paid for Skype in 2005 was too much because the phone provider isn't doing enough to aid its core business. Skype's challenge is on two levels. It has to deal with the changes affecting its business. Cable and telephone companies are cutting their prices, and the technology continues to evolve. Open networks and devices that more readily accept third-party applications present opportunities -- and difficult choices. The other level of challenge is dealing with these changes when the ultimate goal is doing supporting eBay.


Clearly, it's been a trying time for Skype. In addition to rumors that it is on the block, the service is dealing with a potential public relations disaster in the news that Taliban fighters are using the service against Britain's MI6 intelligence service in Afghanistan. Thisislondon.co.uk reports that British and American experts are trying to crack Skype encryption and that legislation has been introduced in the UK to force activity logging. The story doesn't say whether the service is being used against American troops -- though it is a good bet it is -- and whether the Taliban are using other forms of VoIP.


As if corporate inertia and being the communications mode of choice for Islamic fundamentalists isn't enough, Skype's technology security was a big topic earlier this month. The stories said that Skype PayPal accounts were being hijacked and that the company was unresponsive to consumer complaints and questions. The stories also said that Skype was suspected of building back doors into its software.


This is an interesting video interview and accompanying story with Skype CEO Josh Silverman and GigaOm's Om Malik. Silverman, who seems to be on the spot -- the first sentence of the BusinessWeek story says that he is "on the defensive" -- points out how big Skype is and how quickly it has grown. Silverman is trying to position Skype as the leading company as the telecommunications structure moves from voice to a voice/data mix and from hardware- to software-based. Malik pushes Silverman on the practicality of the eBay/Skype marriage.


The VoIP industry continues to go through growing pains. The business changed as powerful legacy telecommunications companies realized that IP-based communication is the future, and the technology is evolving quickly. It was important for Skype top grab a partner for this uncertain journey. The question remains whether it chose the right one.