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December 08, 2005


Bob Estrada

A very pro-Yahoo viewpoint here:

Steve D

With all the power of Microsoft and Yahoo, they have not overthrown AOL in instant messaging and are trailing it in number of users by a great margin and are unlikely to catch up with AOL in the next 5 years if ever at all (the reason is network effect AOL enjoys). Skype's success will be tested by comparing it to AOL usage - not to laggards such as Yahoo and MSN.

1) Skype's brand (it became a verb when it comes to phone calls),
2) laser focus,
3) network effect,
4) huge upcoming increase in usage from being integrated into Ebay (imagine you want to bid for a pricey item and you start a video call to the seller and he rotates the item in front of his webcam and shows its condition, let alone proves that he has the item indeed) - very useful and will be adopted very fast,
5) faster than rivals growth rates of already largest community (more than 60 million registered users as of end of 2005),
6) broadest support from hardware makers
7) better sound quality and stability (I used to use DialPad and Net2Phone as recent as 4 months ago and it was a struggle just to get connected let alone stability and quality of the connection itself). I don't know the reason and how hard it's for others to reproduce what Skype achieved in technology, but Skype became #1 for this exact reason - it just works, plain and simple, with very high quality)

the above factors will make it very very very hard if possible for anyone at all to catch up with Skype. And Yahoo's planned advantage to undercut Skype on pricing will not last for any meaningful period of time anyway because Ebay itself predicts all calls will be free within next 3-5 years. Yahoo's pricing plan is just a prove that it's already happening.

Steve D

Also add:

8) By far the broadest support from third-party developers and conscious bet on being a platform rather than just an application (like Yahoo and others)
9) Lower operating cost structure and lower capital intensity (because of being peer-to-peer without centralized servers)

Also, don't forget that both Yahoo and MSN offered free PC-to-PC calling for years and that feature from them never took off - despite that both had huge lead in terms of user base over Skype - two years ago Skype just started and had almost nil users while both Yahoo and MSN had millions. Still, somehow, Skype managed to overshadow both Yahoo and MSN. Now, when Skype is bigger than Yahoo and MSN combined, there is even less chance any of them will catch up (assuming Skype does not do anything really stupid). So far, Skype did something right because they even jumped over AOL in terms of registered users - something neither Yahoo nor MSN could achieve despite being two most popular web destinations on the planet and despite all that content, resources, and whatever else they have.

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