Tom Petrocelli's take on technology. Tom is the author of the book "Data Protection and Information Lifecycle Management" and a natural technology curmudgeon. This blog represents only my own views and not those of my employer, Enterprise Strategy Group. Frankly, mine are more amusing.

Friday, October 14, 2005

What's REALLY Cool About Skype and eBay.

When eBay announced that it was acquiring Skype, the free VoIP service, for more money than most of us can imagine, there was a feeding frenzy amongst all of us pundits. Everyone jumped up and down trying to explain why an on-line marketplace would buy an on-line phone company.

There was a lot of speculation that it would allow eBay to connect buyers and sellers using voice. This way , if you had a question about an item and the seller was around, you could just phone them. Wow! That must be it.

Not! The whole point of eBay is that you don't have to have long conversations to buy and sell things. Can you imagine what it would be like to be an eBay seller and have every moron in town who didn't understand what you were selling, or simply wanted to haggle around the auction system, bugging you on the phone? It would drive sellers away in droves.

Even as a buyer, I don't see much to like about this. So I can ask a seller questions. That only gives them an opportunity to talk around problems with their products. If a seller is going to yank my chain they will do it more easily on the phone then via e-mail, where it's written down. Again, where's the advantage.

I think that the advantage is really in the other direction. As someone who has used Skype for some time now, especially for business purposes, I can attest that it works and is really useful. It's free as long as you stay in the network. If you want to call a regular old PSTN phone, then you have to pay a fee. Same goes if you want the ability to have old-fashioned phones call you. You buy minutes, just like a cell phone.

There's the clue. Mobile phones suffer from the need to predict your usage in advance. No ones usage is ever that steady. Sometimes, you want to talk a lot. Other times, very little. So you either end up paying overage fees or not using the minutes you have already paid for.

Now, imagine for a minute, if you could sell your unused minutes to someone who needs them now. Later on, you could buy more minutes from someone who has extra that they aren't using. How would you price these minutes? Should you price them higher because it's the holidays and you know people want to talk? Price them lower because you don't know what the demand is? Too high, and no one buys them. Too low and you leave money on the table and feel like an idiot. What if you let the market decide? What if you instead open the sale up to bidding? Like on eBay.

If you think this is far fetched, please be reminded that telecommunications companies do this all the time. They buy and sell bandwidth (and minutes are a form of bandwidth) on exchange markets. Electricity is sold this way too. The only difference is that the big boys do it in massive quantaties, in closed markets, that are hard to join. They aren't interested in your 50 extra minutes not do they really want you to try and sell them. They especially don't want someone to buy them and not pay overage fees.

Skype and eBay have a different perspective on markets. Skype offers basic services for free and would love to have us all buy Skype minutes. Since you don't lose them like most cell phone plans, they really don't care who uses the minutes so long as people buy them in the first place.

eBay, loves small transactions. That's what they do.They enable regular joes and jills to sell anything no mater how small or odd, so long as it's legal. As long as activity is generated, they make money.

So, it is in the best interest of both companies to create a communications system where a small number of minutes can be purchased, then resold many times over. A combined eBay/Skype makes money selling minutes and again when consumers buy and sell them.

For consumers, this could be a true breakthrough in telecommunications - The ability to make maximum use of the resources we purchase. I don't doubt that it will be only a matter of time before other premium minutes become trasnferable and hence open for sale.

I'm sure there is tremendous risk to eBay in this acquisition. It's expensive and based on an unproven busienss model. But if it works, it will transform telecommunications forever.

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