I’m a bit short of time, so I’ll keep my comments brief. But I have to echo James about the just-announced first phase of the Amsterdam municipal fibre network. They are creating an open “layer 1” fiber-optical network, with a diversified ownership model, low cost of deployment, and no public subsidy. This has more significance than meets the eye at first look, since muni network announcements are ten a penny these days.

I’ll chop out the tedious logic (and the effort of constructing an argument) and jump straight to the conclusions:

• The natural unit of purchase of connectivity is not necesarily the household. I see it polarising upwards around the municipal subdivision, and downwards around the devices tethered to a given access network. Application-level price discrimination disappears at one extreme, and is embedded in the form factor of the access device at the other. In response to James’s musing on the privatized market structure, I would only add that the failure was to make it easy for users to co-ordinate in their purchase decisions. We manage it for garbage collection and roof maintenance, but somehow struggle when it comes to telecom.

• The only escape routes from the paradox of the best network are (i) out-distribute the other guy by having a network that reaches places and offers capacity that the others cannot match. Verizon Wireless is following this in the USA, for example, offering speed and coverage the others can’t rival; (ii) move to a new ownership structure that better aligns user and network owner interests. OPLANs are an example, as are vertically integrated muni nets, mesh nets, user-built nets, etc; (iii) Get a politicaly-mandated monopoly/duopoly. This is the Baby Bell approach. Sustainability of this strategy remains in doubt.

• Telcos that divide connectivity from service, by design or through regulation, are in a better position to survive. I think BT will still be around in 30 years, and they’ll bless the day that the regulator forced their access division into being, and wish they hadn’t voluntarily gone further. But they’ve got to get leaner and meaner to compete against upstarts without legacy pension promises, union rules and wannabe media company distractions. Dig deep into your engineering, project management and finance talent and you’ll live to see another day.

• You can’t put the genie back in the bottle. It only takes one Napster to make people see that the music and the disc were separable. It only takes one Amsterdam to succeed to blow away the “it doesn’t work” argument. Bit haulage and application service are equally separable and economically viable independently.

If you’re ever invited to a funeral for a tired and expired telco, I suggest bringing some tulips to lay on the grave. Just don’t grin too much, folk will get suspicious.

via Telepocalypse

How would you like the freedom to buy In-And-Out services for your Skype client from another company? I think you’ll have that option. It will be good for Skype. And for you.

Let’s start with what you’re paying for when you buy SkypeIn or SkypeOut.

SkypeIn and SkypeOut bring Skype nearly $60 million a year.

These are “call termination” services that let callers talk between the Skype network and non-Skype numbers. SkypeIn gives you a phone number anyone can call, your Skype softphones ring, and you and your caller can talk. Two examples. I have SkypeIn numbers in London, Manhattan, and San Francisco, numbers that connect to my Skype phone. The Katrina.info hotline bought a SkypeIn number in the middle of a disaster zone to accept local phone calls from New Orleans. You rent the number from Skype by the month or year. SkypeOut lets you call a traditional phone number from your Skype software. You pay Skype by the minute, about one euro per hour in most places.

Skype retails the InOut Services

To a Skype user, Skype builds and operates all of this. But they don’t. Skype retails these services, buying them from termination service providers. They provide the logical and physical interconnection to traditional phone networks in various countries. Skype’s partners include Level 3, iBasis, and Teleglobe. Skype sets up billing, buys blocks of phone numbers to be used for SkypeIn, meters use of these services, and sells them to Skype users. When you pay for SkypeIn and SkypeOut, some of the money goes to those partners and Skype keeps the rest. Think of the partners as InOut wholesalers.

Skype locks in customers through bundling.

Skype users can only use SkypeIn or SkypeOut. They can’t use other termination services.

[ Food analogy 1: In-N-Out Burgers. Famous West Coast drive-through hamburger chain. High quality, limited menu, only available at their restaurants. If you want their special sauce, you have to buy their burger in their store. And you can’t bring your own sauce. ]

This will change. Customers will have choices. And you will be able to thank Microsoft.

Microsoft must unbundle termination services from Windows

Microsoft will include a VoIP platform and client in Vista, their next version of Windows. Vista rolls out in 2006 and 2007 and hundreds of millions of people will wake up with at least one softphone on their computer.

Seems like happy days for Microsoft, right? Not so fast. If you thought Microsoft was in trouble for not having competitor browsers on their desktop, what do you think will happen when it comes to telephony? Can Microsoft put together a termination service deal that everyone, in all countries will find acceptable? Without massive litigation and regulatory involvement? Not likely.

So Microsoft will pass the choice to customers. They will unbundle the softphone from termination services.

Unbundling creates a new type of business: the InOut Retailer

People will experience this like unbundling your local phone service from your long distance carrier. You get to choose your in+out provider, probably in your softphone preferences or a control panel.

How will this work? Retailers will combine termination services and offer them up in a simple package. And you’ll choose among the packages. Skype could offer SkypeIn and SkypeOut services to non-Skype users, for example. Or you may prefer to get your In service from someone else.

[ Food analogy 2: You manufacture frozen pizza. Eight topping varieties. Then Microsoft comes out with bake-it-yourself pizza dough (a la Boboli). that lets you choose exactly the combinations and proportions of sauces and toppings. An abundance of personal choice and control. ]

Competition and shopping for InOut create opportunity.

So Microsoft unbundles, and Windows users around the world pick from a short list of early InOut services. We may even have a Windows wizard or a web catalog to help shoppers. Each InOut product will include geographies covered, voice networks covered (Skype, Yahoo!, et al), rates and tariffs, and links to account and billing pages. And branding, don’t forget the branding.

This data will be published via xml, RSS syndication style. This will make it very easy to keep millions of subscribers around the world updated. Side effects include very efficient competitive information, useful for those who compete strictly on price. It will also create options for those smart enough to game these markets the way airlines game ticket sales.

Service providers will compete on how well they serve specific markets. One gives great rates to the Philippines. Another provides customer service in Hindi. Enterprises will be able to map InOut service to their customer segments. Some services will be flat rate, others prepay, and yet others a hybrid.

Just as the syndicated product data informs the sell-side of the market, it may make it easier for customers to shop. Depending on the products, it may be as simple as buying a prepaid calling card or as complex as tiered long-distance plans. Expect third-party reviewers to compare services to help your choice.

Will there be switching costs? Aside from the customer attention burden, the biggest built-in switching costs will come from identity and credit verification.

What this means for Skype

Skype, and others like Skype, will respond to the new system. They will play in four ways.

As an InOut service provider. Skype will continue to offer simple, vanilla, global services. As they learn more about their user segments, they will create products optimized for types of use and markets. Perhaps spun off as a sister company, Skype could offer InOut services to people who use competing softphones.

As a softphone network operator. Skype will become a channel for other InOut providers. They will compete against Yahoo!, MSN, AOL, Google, QQ, telcos and others by:

• making it ridiculously easy to buy the right InOut service,
• adding trust to the InOut relationship by screening, rating, and certifying InOut services,
• easily managing my service (Am I really getting what I should out of it? Is the quality high?), and
• easily participating in referral sales through my social network.

As a complementor. Skype is in a great position to lower the costs for InOut retailers. They need back office systems for billing, profile management, credit checking and profiling, usage analysis, and selling to users. Those systems are expensive, a barrier to entry. By polishing up their own back office software, Skype can offer these services to InOut retailers for a fee or a piece of the action.

Non-PSTN Peering. Skype may offer InOut services that peer with selected IM and softphone makers. There’s no technical reason that lowest common denominator chat and telephony shouldn’t work across vendors.

Net: new sources of revenue and new brand touch points.

Skype is adept at hiding the plumbing so users focus on what works. That's their brand, to date. Those skills and brands should do well for them in this new space.

I firmly believe one of the things about Skype that is frequently misunderstood is what makes it special. Many media articles tend to focus on the people ("lanky forrin folk") and the product. But what makes Skype unique is really how it is adopted.

A department store sells a unique aggregation of goods. The trousers are the same as in the fashion store next door. The scented candles no better or worse than those from the boutique candle shop. So the products are pretty standard. Likewise, the standard goods were manufactured in standard ways. They are sold in a standard way — just pick one off the shelf, walk up to the counter and lay down your credit card. (This isn't always so — for example, Argos in the UK has its catalogue retail stores where the goods are picked for you from its warehouse while you wait.) The department store is financed in standard ways, marketed using standard techniques.

So it is the distribution of the goods that is what makes a department store special. And the same applies to Skype.

In essence the Skype product feature set has never differed much from instant messaging and open source competitors. At least when viewed as a simple feature 'tick list'. What Skype has done uniquely well, though, is to tailor every part of the product experience for ease of adoption: from investigation to use to recommendation onwards.

This could glibly be dismissed as 'viral marketing', but that doesn't do justice to the depth of their achievement. For the term 'viral marketing' doesn't explain how everything in the web site and product is oriented towards getting people on board with the minimum of obstruction. The term 'viral marketing' merely focuses on the moment of contagation.

To find out how well Skype's doing, you just need to take a look at some of the competition. Let's examine the download experience of AOL Instant Messenger, MSN Messenger and Yahoo! Messenger, and contrast them to that of Skype.

(Apologies in advance for the layout mess of this article; I just don't have the energy to do some fancy CSS to put borders around the images and scale them better.)

AOL Instant Messenger (AIM)

First up to the plate is AOL. "Mum, just go to the AOL home page and grab their messenger client, then we can chat for free." Oh, yeah.

AOL, MSN and Yahoo all have a problem from the word 'go'. An a non-US resident, which web site do I go to? The ".com" or the ".co.uk" one? (Skype is notoriously global in outlook.) Let's assume we go the .com route every time. After all, my IP address is trackable to be in the UK, my browser is telling them my preferred language is "en-GB". They've got enough clues.

So let's hunt for the entrance to the rabbit hole:

OK, it's there. It has a nice biggish icon. It just requires you to be telepathic and know that "AIM" is their codeword for their instant messenger. And that "Join AOL" isn't the same thing as, um, joining AOL's IM network. Let's click forth…

Good - a call to action, bang in the middle. But there are some niggling 'buts'. What if I get distracted by their kind offer of a trial of their new client? I'm outside the US (see bottom of screenshot) — do I need to download something different? I don't have a screen name — am I supposed to get one before I download?

So AOL have given you plenty of excuses to abandon you shopping cart.

Next!

Mon dieu! You mean it didn't just start the download? Am I an upgrade or a new user? OK, let's go to 'new user'.

Note the sidebar — AOL are positively inviting you to abandon the download and go sniff around some of their other stuff.

Phew! They want my mother's dog's date of birth before I can download it and try it? Luckily I'm a 102 year-old Swiss woman today.

Um, except Switzerland apparently comes between "Congo" and "Cote D'Ivorie". I guess AOL forgot to pay the license fee for the advanced sort option when they bought in SQL Server. Naturally, "Germany" comes right before "Djibouti", too. I'll bear that in mind. (I couldn't find the UK, anyway.)

Nooooh! It can't be true! But I love you — I want to give you my life story, hold and caress your IM product in my hand! Don't leave me now…

MSN Messenger

So, AOL was an embarassing user experience catastrophe. Can MSN do better? At least the rabbit hole has a sign, even if painted somewhat obscurely:

Click on…

OK, so what do I do now? The top of the screen is animated, and marquees through their key products (Hotmail, Messenger, Spaces) each with their own "learn more" button. So one usability problem is that if it switches just before you click, you get the wrong product.

Anyhow, we wait for "Messenger" to be shown, and click…

Oops! Just takes me right back to the same page, minus the fancy graphics. Maybe they never tested their web site with Firefox?

Let's go back and click on that "MSN Messenger" text link…

Err, where do I go now? What am I supposed to download? Abandon ship, I think.

Yahoo! Messenger

I think our friends from Sunnyvale can do better, don't you?

The good news: a prominent icon, clearly labelled. And you can even tell that it lets you talk!

OK, since the icon didn't set up the expectation of a download starting, they've got to stick an intermediate screen in. Note the lack of clutter and diversions. Download, learn more, nothing else.

Uh oh! Which one should I choose? Is there anything good — or missing — in the UK version? I think I'd get a call from my mum at this point. Remember, a lot of newbies are really afraid of making mistakes.

Cool. Simple download instructions. Although I'm not sure that the idea of saving to your desktop is going to be universally understood.

All in all, high marks to Yahoo!. A force to be reckoned with?

Skype

So, on to the masters of the slick download.

Subtle? No way! But effective, absolutely.

It's good. It tells you what to do without any jargon. I think they can do better, though. I should get instructions perfectly tailored to my browser, not just generic Internet Explorer instructions.

Scores on the doors

You would have thought that by now the traditional IM networks would have got this process down to a fine art. But clearly not. Marketing clutter, technical faults, invitations to abandon ship. These are cumulative. Someone isn't doing their job. (That said, it could be worse. Ask your mother to provision herself with an open SIP softphone and establish a public identity. Ouch!)

There are lots more bits to the Skype adoption puzzle that make it sweetly special. The greater degree of internationalisation. The lack of use of the registry, so it'll install on locked-down corporate laptops. The fact that incoming calls ring, triggering a Pavlovian "answer the call", rather than popping up an obscure dialogue box. And so on.

The only mystery is why Yahoo! is the only one rising to the challenge of out-distributing Skype. AOL were once the kings of distribution, via CD carpet-bomb. Microsoft outran them by bundling with Windows, a superior distribution strategy. Yet neither can get the basics right of a simple download of their most personal, sticky and vital communications tool.

Until the competition starts putting the user front and centre in the experience, and not bizdev marketing deals or internal product marketing struggles, Skype will continue to sweep up new users faster than the opposition.

via Telepocalypse

The web 2.0 meme map, from a foo camp presentation by Bill O'Reilly.

Skype's Choice by Gordon Cook for Strategy+Business magazine. Published pre-eBay deal, Cook explores the tension between users of this wild software network and enterprise IT managers who want control; but who are unlikely to get it.

Andy Abramson blogs tidbits from his talk with Skype's new CMO, Saul Klein. A summer survey of IM users, comparing what they say about their behavior by IM brand. Skypers are more likely to use voice, to use it at work, to talk internationally, and to use phone-like features, like call forwarding. Russell Shaw interviews Klein too; good questions.

Three thoughts:

1. Polls don't replace ethnographic research or instrumented clients that show what people do (not what they say they do.
2. Summer may be the worst time to survey IM users; so many are out of school and out of touch with their school-year social networks.
3. This survey focuses on IM competitors vs. the people who don't use softphones: mobile and landline phone users - the unserved market you most want to convert.

Veli Hazar is building a directory of businesses in Turkey that use Skype to talk with customers. This fills a useful language/geography niche. People always look for businesses that speak their language and use their favorite communication channels. This behavior drove the workplace adoption of the telegraph, the telephone, the fax machine, and email.

Directories like Konush.net will become obsolete if they only focus on Skype. Large existing directories continue to adapt to customer demand. They add fields for alternate contact types (chat IDs, SIP numbers, fax numbers, web sites, and the like) to their databases, enhancing self-serve and operator assisted searches.

Skype is walking away from helping people find each other.

They dumbed down profile search to simplify the form. In the latest release for Windows, 1.4, Skype cut search of the "About Me" field. I used to be able to search that field for "bondage," "bearings," "bicycling," "bacteriologist" or "blonde." I love being able to look for people based on similar interests, needs, goals, or backgrounds, without preconception or structure. Skype's p2p directory is a great place for experimentation.

With a little evolutionary force, we'll see easy group forming per Reed's law, subject to security and performance limits. In December 2004 lots of people put "tsunami" in their profiles to help find each other. Skype just turned that off.

Two weeks ago, I explained how Google needed Skype to move Google up the value chain from when an advert is clicked. I noted that eBay was Google's real competition for connecting consumers to merchants, and eBay has a structured transaction environment. They don't just do the search, they also help complete the transaction, including payment.

So, a fortnight later, and eBay buys Skype. What does it mean?

Companies like Dell, eBay, Google, etc. got big by thinking big. They picked a unique business model, and drove it to completion without losing focus. To understand this transaction, you need to look for where the big prizes are.

The obvious one is the wrong one. Google and eBay are already in the business of generating sales leads. The Skype community, for all its size and vibrancy, is not being bought because they can be pitched to and turned into eBay users. Or if it is, this story will have a nasty ending where all the heroes get bumped off and the princess just grows old and ugly.

There are two conveniently located stones under which to look: transaction revenue, and the freefone number business.

Banking is big, slow, cartel-like and lacking in innovation. eBay is unbundling part of the transaction chain using Paypal, and re-intermediating the settlement process. Remember that Paypal is largely a virtual payment mechanism, used to front other payment services. Communications services are a natural generator of the small transactions that Paypal thrives on due to its low comission fee structure compared to credit cards. Skype and Paypal also have an international footprint, leaving many parochial banks struggling to offer a competing product. They fit together nicely.

This is classic Innovator's Dilemma stuff. Eat your way up into the big boys' businesses by starting with the small stuff.

So the first big prize is to suck some of the profit out of the banking payments system. This is a big pool, and Skype is just a small straw. That makes the eBay/Skype transaction interesting, but not critically important.

Guess what? Telecom is big, slow, cartel-like and lacking in innovation. And it has some big prizes ready for snatching. Almost all of current retail VoIP plays are abount disintermediating high end-user toll charges. It's a massive race to the bottom, where you get your monthly talk time by cropping three coupons off your Shreddies packet.

There are other puddles of money in telecom, though. One is the 800 number revenue bucket. I don't have the figures to hand, but this isn't a small deal. And because Skype is a child of the "stupid network", it can evolve quickly to integrate new transaction-supporting functionality making the profit pool bigger.

I suspect that eBay's ambition is to become the mediator of 800-number style interactions between consumers and merchants. The www.eBay.com web site is their text distribution channel, and Skype is the audio one. Each will have different sets of merchants, buyers and transaction structures. So don't look for "eBay" functionality to appear in Skype, because they're addressing strategically similar but functionally different needs.

One last thought. If you're a telco, now is a great time to cross your chest and start saying your Hail Marys. Someone with deep pockets is about to give away telephony to support their adjacent transaction business. Browsers are free — as long as enough people tip Bill G., search is free — as long as enough people leave a few cents in Larry, Sergey and Eric's pension plan. And telephony will be free — as long as you click the "pay here" button on your Skype-powered eBay telephony device often enough.

PS - eBay still hideously overpaid given the size of the effort needed to claim the prizes.

I have my tickets for VON Boston. Skype Journal will have three of our tribe there. Stuart Henshall (accumulating Tallinn-California-Tallinn-Boston jet lag), Martin Geddes (winding up his North American tour), and myself. Tuesday we're going to most of the keynotes, including Skype's CEO, live, but not in person. There's a blogger dinner Tuesday night. Wednesday is our meet and greet day; we're blocking in 19 minutes here and there to visit with our favorite people. Are you one of our favorite people? One of our rabid fans and stalkers? Would you like to tell us about your Skype strategy? Or asks us for all kinds of inside secrets? Just Skype Patti, our calendar maven, for a time that'll work. We're ducking into the exhibitor lunch on Wednesday so you may see us there or as we actually catch up with people and check out the exhibition on Thursday morning. Flying home Thursday night.

Today's announcement on Skype Voice Services is quite exciting.

It puts some real positive spin on Skype being a Global Network; not just an application sitting on my desktop. Opening up Skype Credits will bring a smile to Markus Williamson at Connectotel who proposed something like this (download the pdf) 31 July this year.

The key point of today's announcement:

Chargeable services: callers pay per minute from their Skype Credit. You receive a share of the call revenue.

Skype "minutes" becomes currency, money to trade with.

So is Skype adding to its disruptive power against the RIAA record label owners of the world? Publishers who leave artists poor and broken?

Not with a 30 percent transaction charge for Skype. Then Tellme wants 40 percent.

Such a deal.

Niklas Z seems to want Skype to replace the RIAA Label Owners. At these rates content producers can only choose one new evil over an older one. Hey, Niklas, read Courtney Love Does the Math: "Today I want to talk about piracy and music. What is piracy? Piracy is the act of stealing an artist's work without any intention of paying for it. I'm not talking about Napster-type software. I'm talking about major label recording contracts."

Niklas' message, "We challenge the world’s most creative content providers to work with us and our partners at Tellme, Voxeo and Voxpilot to develop these new and exciting forms of Internet voice services."

The world's most creative content producers get to keep the remainders. Lucky us.

Content producers have been screwed by Hollywood, Book Publishers and RIAA Label Owners. Now we can get screwed by Skype. Content producers need a disruptive technology to unseat this tyranny. The dream we had that our saviour would be Skype and Niklas just got shattered.

I just loved this line in the press release:

"Content providers will join Skype's ecosystem of more than 400 Skype developers worldwide who are already offering hardware and software products to Skype's 53 million members."

What wasn't said was how much money these 'more than 400 Skype' developers have been raking in. No question that some hardware people like RTX are creating good revenue streams, but the majority of the 400 plus developers are into software and haven't made a dime. At least Courtenay Love did better than that with the RIAA Label owners.

Here is another great line:

Skype keeps 30% for promoting your service and connecting callers.

Inside the press release we find out what promotion to 53 million members means: "Content providers' voice services will be reviewed and the most popular will be deployed and listed on the Skype website." This is like telling Courtney Love to make her album a run away hit before we bother recording it and marketing it. At least the RIAA Label owners committed hard cash to bribe opps market the recording as it went to market.

Creating Skype Minutes as money is a brilliant move by Skype. It has the possiblities of helping Software developers monetize their efforts and of course creates a whole new set of opportunities for content producers. Especially when Skype Video ships. But I can't say anything good about the economic model Skype and Tellme propose. It is a mess.

TOM Online faces severe competitive and regulatory problems in China per reports compiled by Jirong Zhou. Jirong posted to his Zalbazone blog that TOM Online is not only far last in a three-way race for the Chinese IM market, but that major telecom operators are defending their own VoIP strategies (vaporware?) by blocking Skype.com and SkypeOut in major Chinese cities.

This is another example of telco incumbents aggressively defending their turf. Could Skype have picked a better partner, one with stronger guanxi, one better able to negotiate access to China's major markets and forge more alliances with China's regulators and incumbents? Right now they're walking away from SkypeOut revenue. How long until Chinese users get the same service as Skype users everywhere else?

The full article, including screenshots of the blockage and quotes from Tom.com CEO Wang Leilei follow...

From this post.

Cold Water

For Tom.com, third largest Portal in China
For Skype, world's largest VOIP player
For Tom Skype, their Joint Venture.

Just 3 days after Skype and TOM Online announced an exclusive joint venture (51% TOM Online, 49% Skype), there appeared a negative news on Sina's homepage, China's largest Portal. Telecom Operators are going to block Skype in ShenZheng, Shanghai, Beijing, GuangZhou. Red circled in the up picture.

I found the picture in Tom's Skype forum showing he is unable to login SkypeNet. A journalist from First Financial Daily reported his experience by calling China Telecom Shenzhen branches' 10000 service number. They said:

We detected that he used SkypeOut which is illegal to use. His number is in the black list. He must Guarantee not to use it any more. Or he will get the FINE.

Tom failed to land SkypeOut in June. And the Information Industry Department files that it is illegal to operate VOIP except the 6 Operators in China.

Within one year, TomSkype successfully get a 3.4M user group. It's an amazing rapid speed, however it still looks too slow, compared to Tencent's hundreds of Millions user group. Wang Leilei, Tom.com CEO, said,

"It's impossible to be profitable even if the 3.4M users are all using SkypeOut. So we are not going to seek opportunities to land Skypeout in the near future. The joint company is going to enrich user experiences with TomSkype."

Virtual Operators

Though it's illegal to offer VOIP Service, there are many operators making deals under the surface. Up to now only 263 got a pc to pc VOIP operating license.

Phone to Phone and PC to Phone are settled as basic Telecom service, only the 6 Operators has the legal identity to offer service. All other parties are designated as Virtual Operators. What's their fate?

[Posted by Jirong Zhou 2005-09-08 19:36:22. Mr. Zhou is business development and marketing director for Skype developer The Masters Team, maker of PowerGramo (coming into beta soon).]

Skype and TOM Online announced an exclusive joint venture (51% TOM Online, 49% Skype) to "further cement their strategic partnership in China's rapidly growing online communication market." Hutchison Whampoa Ltd. owns TOM Online.

The deal is for "simplified Chinese" which seems code for "not-Taiwan." Executives have not been named. Neither company responded to questions about which personnel will leave TOM or Skype for the new firm.

Hutchison Global Communications works with Skype as a distribution partner in Hong Kong, facing customers through the "HGC-Skype" portal. TOM and Skype do the same thing for China.

Li Ka-shing owns TOM Online and Hutchison Wampoa. He is a 75 year old Hong Kong billionaire (Net Worth: $12.4 bil), number 19 on the Forbes list of the 400 richest people in the world in 2004.

In Skype Journal:

• Skype’s new Portal Plays..., where Skype actually modifies their software to include a browser that links to TOM-Online properties.
• China keeps VoIP Illegal despite various Chinese companies' projects.

The Skype and TOM Online news releases...

From Skype...

TOM ONLINE, SKYPE ANNOUNCE JOINT VENTURE IN CHINA

Skype's First Joint Venture Demonstrates Commitment to China’s Fast-Growing Market

(Beijing, China & Luxembourg, September 5, 2005) - TOM Online Inc. (Nasdaq: TOMO; Hong Kong GEM: 8282), China's leading wireless Internet company, and Skype, the pioneering Global Internet Communications Company which makes it possible for anyone with an Internet connection to make free high-quality phone calls to anyone in the world, today announced they have signed an agreement to establish an exclusive joint venture to further cement their strategic partnership in China's rapidly growing online communication market.

Working together will allow an even deeper level of integration between Skype's award winning software and services with TOM Online's over 70 million wireless Internet users. The joint venture will leverage TOM Online's mobile and Skype's Internet communications expertise to further develop advanced communication and community features for mobile Internet platforms.

Skype and Tom Online launched their relationship in November, 2004 with a customised, simplified Chinese version of Skype, which was co-developed by the companies. The co-branded software has already attracted over 2.5 million registered users. The latest simplified Chinese Skype version incorporates a TOM Online tab, which makes TOM Online's leading wireless products and the contents of its popular media portal directly accessible from within the Skype experience. China is one of Skype's top three markets.

The joint venture holding structure will be 51% and 49% by TOM Online and Skype, respectively. Under the agreement, this joint venture company will develop, customise and distribute simplified Chinese version of Skype software and premium services to Internet users and service providers in China.

"Tom Online have already been a wonderful partner to Skype and we're delighted to now take our relationship to the next level through the formation of this joint venture. By uniting Skype's market-leading global Internet communications platform with TOM Online's wireless leadership and understanding of the needs of the Chinese market we believe we have a powerful mix of skills in place to bring the Skype experience to millions of Chinese consumers." said Niklas Zennström, Chief Executive Officer and Co-Founder of Skype. "We expect this relationship to accelerate broadband penetratation, already growing quickly in China."

"In less than a year since beginning our cooperation with Skype, we have seen robust growth in user numbers. It indicates Chinese Internet users' readiness to take advantage of the latest communication technologies available." said Wang Lei Lei, Chief Executive Officer and an Executive Director of TOM Online. "The signing of this joint venture agreement is a testament to both companies' confidence in the tremendous business potential of the joint venture, given Skype's unrivalled technology strength and TOM Online's unique knowledge of China's market."

China is the world's largest mobile phone market by users, with more than 360 million subscribers at the end of June, 2005. Its numbers of Internet users are expected to grow to approximately 154 million by 2007, representing a compound annual growth rate of 18% since 2003, according to technology consultancy IDC. In addition, the demand for broadband grew by more than 140% to almost 43 million users in January 2005 from a year earlier. With the convergence of mobile and Internet technologies, Skype and Tom Online's joint venture is uniquely positioned to capture the growth opportunities in China's substantial communications market, which was RMB 572.6 billion (or about US$70.8 billion) for the year 2004, according to government statistics.

Terms of the deal were not disclosed.

About Skype Technologies S.A.

Skype, the Global Internet Communications Company(TM), allows people everywhere to make free, unlimited, superior quality voice calls via its award-winning innovative peer-to-peer software for Windows, Linux, Mac OS X, and Pocket PC platforms. Skype is available in 27 languages and is the fastest growing voice communications offering worldwide. Since its launch in August 2003, Skype has been downloaded more than 155 million times in 225 countries and territories. Over 52 million people registered to use Skype's free services, with over 3 million simultaneous users. Skype has more than 2 million premium customers, with over 12 billion minutes served. Skype Technologies S.A. is headquartered in Luxembourg and is growing its offices in London and Tallinn. Skype Technologies is privately held and backed by top tier international venture capital firms, including Bessemer Venture Partners, Draper Fisher Jurvetson, Index Ventures, and Mangrove Capital Partners. www.skype.com

Monday September 5, 4:59 PM

PRESS RELEASE: TOM Online, Skype Announce Joint Venture In China

TOM Online, Skype Announce Joint Venture In China

BEIJING, China and LUXEMBOURG, Sept. 5 /Xinhua-PRNewswire/ -- TOM Online
Inc. (Nasdaq: TOMO; Hong Kong GEM: 8282), China's leading wireless Internet
company, and Skype, the pioneering global Internet communications company
which makes it possible for anyone with an Internet connection to make free
high-quality phone calls to anyone in the world, today announced they have
signed an agreement to establish a joint venture to further cement their
strategic partnership in China's rapidly growing online communication market.

Working together will allow an even deeper level of integration between
Skype's award winning software and services with TOM Online's over 70 mn
wireless Internet users. The joint venture will leverage TOM Online's mobile
and Skype's Internet communications expertise to further develop advanced
communication and community features for mobile Internet platforms.

Skype and Tom Online launched their relationship in November 2004 with a
customised simplified Chinese version of Skype, which was co-developed by the
companies. The co-branded software has attracted about 3.4 million registered
users to date, making China one of Skype's top three markets. The latest
version incorporates a TOM Online tab, which makes TOM Online's leading
wireless products and the contents of its popular media portal directly
accessible from within the Skype experience.

The joint venture holding structure will be 51% and 49% by TOM Online and
Skype, respectively. Under the agreement, this joint venture company will
develop, customise and distribute a simplified Chinese version of the Skype
software and premium services to Internet users and service providers in
China.

"Tom Online have already been a wonderful partner to Skype and we're
delighted to now take our relationship to the next level through the formation
of this joint venture. By uniting Skype's market-leading global Internet
communications platform with TOM Online's wireless leadership and
understanding of the needs of Chinese market we believe we have a powerful mix
of skills in place to bring the Skype experience to millions of Internet
users," said Niklas Zennstrom, Chief Executive Officer and Co-Founder of
Skype.

"In less than a year since beginning our cooperation with Skype, we have
seen robust growth in user numbers. It indicates Chinese Internet users'
readiness to take advantage of the latest communication technologies
available," said Wang Lei Lei, Chief Executive Officer and an Executive
Director of TOM Online. "The signing of this joint venture agreement is a
testament to both companies' confidence in the tremendous business potential
of the joint venture, given Skype's unrivalled technology strength and TOM
Online's unique knowledge of China's market."

China is the world's largest mobile phone market by users with more than
360 million subscribers at the end of June, 2005. Its number of Internet users
is expected to grow to approximately 154 million by 2007, representing a
compound annual growth rate of 18% since 2003, according to technology
consultancy IDC. In addition, the demand for broadband grew by more than 140%
to almost 43 million users in January 2005 from a year earlier. With the
convergence of mobile and Internet technologies, Skype and Tom Online's joint
venture is uniquely positioned to drive even more broadband uptake and capture
the growth opportunities in China's substantial communications market, which
was valued at RMB 572.6 billion (or about US$70.8 billion) for the year 2004,
according to government statistics. Terms of the deal were not disclosed.

About Skype Technologies S.A.

Skype, the Global Internet Communications Company(TM), allows people
everywhere to make free, unlimited, superior quality voice calls via its
award-winning innovative peer-to-peer software for Windows, Linux, Mac OS X,
and Pocket PC platforms. Skype is available in 27 languages and is the
fastest growing voice communications offering worldwide. Since its launch in
August 2003, Skype has been downloaded more than 155 million times in 225
countries and territories. Over 52 million people registered to use Skype's
free services, with over 3 million simultaneous users. Skype has more than 2
million premium customers, with over 12 billion minutes served. Skype
Technologies S.A. is headquartered in Luxembourg and is growing its offices in
London and Tallinn. Skype Technologies is privately held and backed by top
tier international venture capital firms, including Bessemer Venture Partners,
Draper Fisher Jurvetson, Index Ventures, and Mangrove Capital Partners.
http://www.skype.com .

About TOM Online Inc.

TOM Online Inc. (Nasdaq: TOMO; HK GEM stock code: 8282) is a leading
wireless Internet company in China providing value-added multimedia products
and services. A premier online brand in China targeting the young and trendy
demographic, the company's primary business activities include wireless
internet services and online advertising. The company offers an array of
products such as SMS, MMS, WAP, wireless interactive voice response services,
content channels, search and classified information, free and fee-based
advanced email and online games. As of June 30, 2005, TOM Online is the only
portal in China that enjoyed a top three ranking in every wireless internet
service segment.

TOM Online is a subsidiary of TOM Group Limited ("TOM Group"), one of the
leading Chinese language media groups in the Greater China region. TOM
Group's diverse operations span five media sectors: the Internet (through TOM
Online Inc.), outdoor (through TOM Outdoor Media Group), publishing, sports
and TV & entertainment.

Forward Looking Statement

The Press Release of TOM Online Inc. (the "Company"), constituting
Exhibits 1.1 [and 1.2] to this Form 6-K, contain statements that may be viewed
as "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements are, by their
nature, subject to significant risks and uncertainties that may cause the
actual performance, financial condition or results of operations of the
Company to be materially different from any future performance, financial
condition or results of operations implied by such forward-looking statements.
Such forward looking statements include, without limitation, statements that
are not historical fact relating to the financial performance and business
operations of the Company, the continued growth of the telecommunications
industry in China, the expected benefit of any strategic alliances with other
companies and our ability to cooperate with our alliance partners, the
development of the regulatory environment and the Company's latest product
offerings, and the Company's ability to successfully execute its business
strategies and plans, including its ability to expand its market share and
revenue through strategic alliances.

Such forward-looking statements reflect the current views of the Company
with respect to future events and are not a guarantee of future performance.
Actual results may differ materially from information contained in the
forward-looking statements as a result of a number of factors, including,
without limitation, any changes in our relationships with telecommunication
operators in China, the effect of competition on the demand for the price of
our services, changes in customer demand and usage preference for our products
and services, changes in the regulatory policies of the Ministry of
Information Industry and other relevant government authorities, any changes in
telecommunications and related technology and applications based on such
technology, and changes in political, economic, legal and social conditions in
China, including the Chinese government's policies with respect to economic
growth, foreign exchange, foreign investment and entry by foreign companies
into China's telecommunications market. lease also see the "Item 3 - Key
Information - Risk Factors" section of the Company's Annual Report for the
Fiscal Year ended December 31, 2004 on Form 20-F (File No. 000-50631), as
filed with the Securities and Exchange Commission.

Whilst perusing my daily feeds, I see Kim Cameron bring up the following idea:

When I was in Britain earlier this summer, I met Toby Stevens. How should I describe him? Can we invent the category of privacy entrepreneur?

Was trying out the Skype 1.4 beta today, with auto-forwarding. You know, Skype is now in a position to re-intermediate the mobile and other carriers (for a fee!). If your cellular carrier doesn't "get it" and see that there's a demand for innovation in voice features (like enhanced privacy), you just hand out your Skype number instead and have it intelligently forwarded.

Only want to be called on your mobile at certain times of day, or when you're not in a meeting, or when you're at your keyboard with a certain presence status? Then just set up your forwarding accordingly.

The current forwarding mechanism is just a binary on/off, but it doesn't take a genius to see how extensions could play into this.

So Skype Inc. is indeed a form of privacy entrepreneurialism. Roll up! Roll up! Come here to buy your missing telecom privacy features!

Now all Skype has to do is find a way to remunerate developers whose extensions lead to more billable minutes and up-sell to premium features. Unless of course they like pissing in their own pond and killing the little developer fishes...

Now here's a really evil thought. Want to upset the incumbent telecom players with some progressive regulation? Then force a separation of connectivity and service markets upon them. Allow users to port their number to a service provider like Skype, but still allow termination to your mobile device. Finally make numbers logical addresses associated with service, not physical addresses associated with routing and connectivity. Add a dash of wholesale pricing rules, stir in some termination rate sauce, and serve with gusto. Et voila! A competitive market in advanced telephony service emerges, unconstrained by the low level of competition in connectivity.

And we didn't even need to buy a single IMS box...

Unfortunately, the implementation will be really messy with all sorts of craziness because even things like a 3G data card needs to be assigned a telephone number to be accepted by the provisioning system. Doh! But where there's a political will, there's a technical way.

The SkypeNet and SkypeWeb announcements are interesting. A bit scary too. Not for Google, the intended target, but possibly for members of the Skype Developer Community.

Lenn Pryor in today's Share Skype blog had this to say,

"We are announcing two new initiatives that make Skype and the Web a little more interesting and open up new possibilities for the developer and partner community... "

I am glad Lenn feels that SkypeNet and SkypeWeb will "open up new possibilities" because Skype's actions have been shutting down opportunities for developers.

Using the Skype API the Development Community created Web Presence Applications, integrations to e-mail systems like Outlook, and browsers like Internet Explorer, along with voice messaging/answering systems, like Pamela. In each case Skype moved into these tested and proven markets, thus eating the children they had spawned. Now the Skype Ecosystem is offered another API─ SkypeNet API.

For me, Skype’s new announcement just killed a $10,000+ contract for web presence I spent five months cultivating. Thanks, Skype. However, where I see a blunder of biblical proportions (lev 26:29 And ye shall eat the flesh of your sons, and the flesh of your daughters shall ye eat.), Martin Carleton, a developer of the Jyve Web Plugin for Skype, sees the move by Skype to be very positive.

A third perspective comes from Martin Geddes,

“Skype's limited resources are too diffused. Is a Skype toolbar really the biggest strategic imperative, something that cannot be done by a third party? An in-house video solution? Yet another web presence server?”

If Martin's insight is correct then Skype may be shooting itself in both feet: loss of strategic focus and a disheartened ecosystem. These are big problems to have just as Google Talk is emerging into the marketplace and as Yahoo and Microsoft sharpen their swords.

I have yet to meet a software developer who has made any money with their Skype Add-on applications. And yet these add-ons have created value for Skype. CRM and Outlook add-ons increase the use of SkypeOut. But the developers get no share of the revenue. Isn’t sharing good?

What do you see? Is Skype eating its children? Is SkypeNet and SkypeWeb creating new developer opportunities? Is Skype losing strategic focus? Tell us what you see.

Skype hasn't told us important information about their numbers. This hurts our ability to interpret them (not that we'll stop trying). Continue and see our letter to Skype.

Dear Skype,

1. Have you always measured "minutes served" the same way? Or has the data collection changed?
   
2. Does a 5 minute conversation among 3 friends = 15 minutes served? Or 5? Are they "person-minutes" or "conversation-minutes"? If one of the friends is only on for 2 of the 5 minutes in the call, do you report 12 minutes served (5+5+2)?
   
3. Are you including fractional minutes? Your contract says you bill 64 seconds as one minute and 65 seconds as two minutes. Are you counting "minutes served" this way too?
   
4. How do you get your data? Are Skype clients pinging you as they enter and exit a call? Or do they ping you during a call, a keep-alive ping? Do all pings get through; are you scoring 100% of the calls made p2p in the network?
   

1. Why do I see a different number than someone else in the cloud?
2. People log in or log out all the time. How long does it take for you to learn of this action?
3. What happens when someone just kills their Skype client, not politely changing their presence. How long does it take for my absence from the network to reach you?
   
4. It takes time for the cloud to propagate data. Are you getting this data equally from all regions in the world?
5. Dial-up users come and go more frequently than midband users. Do you have any way to distinguish dial-up presence from others?
6. If my presence is set to "invisible" do I still show up in your numbers? If my presence is set to "away" or "do not disturb"?
7. If I have multiple identities / instances of Skype running on my computer, do you count each of them, from the same IP address? Are you counting Skype IDs or people?

Google to raise billions for a buying spree. Reports keep mentioning Skype Technologies as a potential acquisition target. Rumors. Wouldn't hard news be nice for a change?

Om posted interesting numbers last night suggesting Skype growth has slowed. I'm more inclined to believe they provide some insight into the evolution of the community.

Om comments:

I managed to get my hands on some data which shows that the growth might be “really” slowing down, and that is perhaps one of the reasons Skype is out shopping itself. For instance, active users dropped 19% from April to May 2005 in the US, while France and Brazil had no growth during that time. UK and Germany grew at low single digit levels for that time frame. The overall active user base for Skype grew between 35%-to-50% from Q2 2004 through Q1 2005, but in the Q2 the numbers dropped to around 7%. Q3 is showing similar downward trend. Gigaom

I’m also not convinced that a slowing growth rate means it’s all going backwards. It’s difficult to convert new people. I spend very little time getting new Skypers on board. Yet in the beginning I worked hard to get key members of my network using it. As the base of users grows, the “newbies” struggling to build up a buddylist are less visible in terms of impact --- on infecting others. As a result, growth percentages will decline. Their incentive to infect others also declines when there is a large immediate community ready and available to connect.

The numbers suggest that users for more than, say, three months aren’t adding new buddies to their lists; rather they just add more people already in the Skype community. At some point in the growth of your buddy list there just isn't the same same incentive to find new Skypers. Add SkypeIn and SkypeOut with a big buddylist and converting others becomes even less important to those heavy users.

As an observation and hypothesis. For many, a buddylist of 25 may seem perfectly adequate. The ultility and behavior changes when buddylists expand exponentially. I doubt the number of calls and time in a call grows exponentially with a doubling or tripling in the size of your buddylist. You simply couldn't cope. However more buddies means Skype is more sticky and more useful.

How big is your buddy list? When is the last time you introduced someone new to Skype? Go on. Convert a new Skyper today!

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This is a great example of a strong and healthy social network migrating to a new channel. It's no fun if you're the only one with a fax machine, right?

Hmmmm.... Five million new registered users in the last three months? No big deal. In fact if I was running Skype I'd be concerned if I didn't know already that the registered user number is grossly overstated. In gross terms this is the way the IM industry appears to count. Even then I'm not sure the players count apples and apples. For example in Yahoo you can have more than one alias on one account. How many registered users is that? In Skype each name is counted as a different user. In real terms like the downloads it's just another fiction. Here's why.

When we look at the last three months we see approximately five million new registered users. Cool, they just broke 50 million. Growth has apparently slowed. Skype added only 10% in the last three months. So what is this five million number comprised of. What does it mean?

1. Legitimate New Users. These people are new to Skype have never registered before and are just getting started. A percent will download and forget it after the first few experiments. I have no figures on abandonment. What would it be? How many percent over the first six months? 10% or 50%? Perhaps 10% even before they make a calI and 15% before the second call. (Part of the no buddies connundrum and no free minutes). So the conversion loss could be quite high. Users install to satisfy a friend or family member. Others add it and then don't get enough of their social network across. It's a hard life for a new user. Skype knows this and has added all sorts of features to help. Import contacts, toolbars etc. The more contacts / buddies a person has the more power the application provides.

2. Aliasing: Many users want more than one name. Each registration counts as a new one. The fact is for the most part users aren't running these as multiple lines on multiple computers. They log in and off. They may use one for SkypeMe and another for more legitimate business. I've lost count of how many names I've registered. I'm not alone. Most of those names are idle. I'd think most new users will over time end up with at least two names.

3. Name churn. My daughter churns her AOL name quite often as do many of her friends. It's a way of cleansing their buddylist. The more youthful Skype's appeal, the greater the likelihood that "churn" has an impact. While I doubt 1 in 10 users churned their name in the last three months, given the base (45 million) churn could now have a significant impact on the growth of new registered names. Thus the larger the Skype user base, the more churn in new registrations we get.

Now there is another way to look at the 5 million new registrations. If we saw five million new users then at a minimum we would say we had added 10%. If all else remains equal then we would expect the number of active users online to have increased similarly. At the end of May the daily peak for active users concurrently online was consistently through the 3 million mark and I think reached approx 3.25 million. Since then, growth of active users online appears is static (at best). That means the number of new registration is significantly lower. Alternatively, many abandoned Skype in the period.

Separately, don't underestimate the impact of summer, college kids at home, perhaps less access to broadband. Skype surged last September and I'd expect it to surge again this September. Plus some Skypers share an account. So that's one registered account but two Skypers. A number Skype has been releasing that does matter is the number of SkypeOut users (round to 2 million). A good portion of those are using it daily. Separately Skype has quoted that 30% of Skypers use it for business. So they are online all the time too.

In the end it's all guesswork.

Conclusions:

1. Nowhere near 5 million new Skype users have been added in the last three months.
   
2. The registered user number does not represent with any degree of accuracy actual Skype user numbers. It is more materially wrong than right.
   
3. Many factors account for the difference, behavior, peer groups, legitimacy, size of buddylist, SkypeOut,early experiences, etc.
   
4. My number on unique Skype users last seven days would be 12.5 million tops. I'm happy for Skype or you to prove me wrong.

Finally the only numbers that matter is the number of users that have conversations and exchanges each day. Be nice to know how many actually held calls and how long those calls lasted for. The health of the community is in the numbers. The 50 million may make it seem like Skype is the gorilla. In fact Skype is still an ant and the definite underdog. People like underdogs. Perhaps Skype will come clean and report more representative numbers. Unless of course they are trying to sell.