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 asked my contacts "What does the eBay purchase mean for you and or your company?"

From Taiwan. A manufacturer of Skype hardware. He wouldn’t let me use his name.

"Actually, our eBay experience is terrible. I truly wish they (Skype) can become better... every email we sent to them is just like throwing a stone to the ocean. That is why I do not see any difference having eBay buy Skype."

From Sweden. Ben Isacsson:

"Yes a very, very new culture will emerge. At least for me. I will stay (with Skype) for a while - but only until I find a non US-owned program."

"To be honest I do not really think that it will impact our business much. We use Skype all the time in our business and love it. I am confident that this move will only mean that the product gets better.

I think that it could involve very interesting revenue generating opportunities for other businesses through the use of papal credit as opposed to Skype credit. I think the incorporation of PayPal is golden.

I am hoping that they don't move it into an exclusively North American thing now however.

I am very excited by the prospect. I listened to the eBay webcast and was very impressed with the eBay people.

"I'm amazed and astounded. It doesn't make any sense at all! I just heard the news and am thinking it thru give me a few minutes....

Well, first off, I guess that marks the end of the Internet ‘crash’ – or the beginning of a whole new bubble. Good news for the Internet industry (that someone would pay 2.6 BN for a company that's not yet turned a profit and only just starting to generate any revenue at all)

I have to say I can’t quite see the logic behind the marriage. Sure they can cross sell into each others' communities, but Skype hasn't exactly experienced problems with customer acquisition (maybe eBay has - I dont know). If this is all about enabling eBay buyers to talk to each other - and generating additional revenue from the voice calls, then:

a) I don’t see why they would buy Skype - why not build their own P2P voice functionality

b) I can see that generating some additional 'net new minutes' - but I don’t know that eBay users need to talk to each other, or how many would pay to do so (to justify that kind of a purchase price)

I might be being shortsighted, but I don’t quite get it. All of eBay's other recent acquisitions have been in the marketplace/ecommerce space – logical. Perhaps eBay were simply feeling left out of the VoIP hype/race with Google, Yahoo, Microsoft etc.

Also, it'll be interesting to see what they do with the brands....2 very powerful brands, but with really quite different brand values."

"Skype has undoubtedly fused with one gigantic community and infrastructure, ready to take on those 'other camps' currently making a lot of noise. If Skype's current partnering model holds up, we see great opportunities in relationship management and all the ideas going around this. This is 10+ in our scale."

"We hope that eBay's acquisition of Skype will mean a timely solution to the issue which all developers of services on Skype face, namely how to bill for services on the Skype network. As the owner of Paypal, Ebay already has expertise in the area of payment systems and has a well-defined eBay API and Paypal API. The next step for Skype/eBay should be to provide a payment API to allow developers to credit or debit a user's SkypeOut account for micropayments. Skype/Ebay would benefit by taking a percentage of each transaction, as Paypal already does.

From the UK. Martin Schoenenberger. Skype User and Swiss Investment Banker.

"Through this acquisition eBay gains a strong foothold in the the rapidly growing VOIP market. By joining the eBay, Paypal and Shopping.com platform, Skype will be able to aggressively expand their user population. The synergies will be enormous."

"A large part of the deal is the promise that Skype will stay independent, just as PayPal has. They got acquired by eBay some years ago but they're still operating fairly independently, joining forces with eBay at places where it's good for users, just as Skype will do. (Quote from Skype Forum: )

In your mind, is the eBay acquisition of Skype a good thing?

• Yes - 29% (8)
• No - 70% (19)
• I don't care - 0% (0)

Despite the negative poll numbers, most see it as an opportunity.

Many questions are answered in this eBay financial disclosure (pdf download). For an overview of the purchase visit this eBay investor relations page.

So eBay buys Skype. Who cares? I do. The road for the next year will be tough as cultures merge and evolve, but the end result will likely be very positive, as many developers above indicated. Skype will likely get the resources it needs to compete.

This is a shock. It touches all us Skypers. It appears end users are worried about the change; but most business people are embracing the opportunity.

Deal done. Retail VOIP in the offing? Views later.

eBay has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. For Q4-05, eBay expects the acquisition to be dilutive to pro forma and GAAP earnings per share by $0.01 and $0.04 respectively. For the full year 2006, eBay expects the transaction to be dilutive to pro forma and GAAP earnings per share by $0.04 and $0.12 respectively, with breakeven on a pro forma basis expected in the fourth quarter of 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20% to 25%.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.

Full text of news release...

On Skype.com:

eBay to Acquire Skype

London, September 12, 2005 – eBay Inc. (Nasdaq: EBAY; www.ebay.com) has agreed to acquire Luxembourg-based Skype Technologies SA, the global Internet communications company, for approximately $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration. The acquisition will strengthen eBay’s global marketplace and payments platform, while opening several new lines of business and creating significant new monetization opportunities for the company. The deal also represents a major opportunity for Skype to advance its leadership in Internet voice communications and offer people worldwide new ways to communicate in a global online era. Skype, eBay and PayPal will create an unparalleled ecommerce and communications engine for buyers and sellers around the world.

“Communications is at the heart of ecommerce and community,” said Meg Whitman, President and Chief Executive Officer of eBay. “By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”

Founded in 2002 by Niklas Zennström and Janus Friis, Skype offers high-quality voice communications to anyone with an Internet connection anywhere in the world. The Skype software is easy to download and install, and enables free calls between Skype users online. Skype’s premium services provide low-cost connectivity to traditional fixed and mobile telephones. Skype’s software also offers a robust set of features, including voicemail, instant messaging, call forwarding and conference calling. Upcoming product innovations include Skype video, expressive content such as avatars, and customized toolbars for Outlook and Internet Explorer.

One of the fastest growing companies on the Internet, Skype already has 54 million members in 225 countries and territories. Skype is currently adding approximately 150,000 users a day and has created a thriving ecosystem of products, services, developers, and affiliates. Skype is considered the market leader in virtually all countries in which it does business. In North America alone, Skype has more users and serves more voice minutes than any other Internet voice communications provider.

“Our vision for Skype has always been to build the world’s largest communications business and revolutionize the ease with which people can communicate through the Internet,” said Niklas Zennström, Skype CEO and co-founder. “We can’t think of any better platform to fulfill this vision to become the voice of the Internet than with eBay and PayPal.”

“We’re great admirers of how eBay and PayPal have simplified global ecommerce and payments,” said Janus Friis, Skype co-founder and senior vice president, strategy. “Together we feel we can really change the way that people communicate, shop and do business online.”

Zennström and Friis will remain in their current positions. Zennström will report to eBay CEO Whitman and join eBay’s senior executive team.

A Powerful Ecommerce and Communications Engine

Online shopping depends on a number of factors to function well. Communications, like payments and shipping, is a critical part of this process. Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles.

The acquisition also enables eBay and Skype to pursue entirely new lines of business. For example, in addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype. Pay-per-call communications opens up new categories of ecommerce, especially for those sectors that depend on a lead-generation model such as personal and business services, travel, new cars, and real estate. eBay’s other shopping websites — Shopping.com, Rent.com, Marktplaats.nl and Kijiji – can also benefit from the integration of Skype.

PayPal and Skype also make a powerful combination. For example, a PayPal wallet associated with each Skype account could make it much easier for users to pay for Skype fee-based services, adding to the number of PayPal accounts and increasing payment volume.

In addition, Skype can help expand the eBay and PayPal global footprint by providing buyers and sellers in emerging ecommerce markets, such as China, India, and Russia, with a more personal way to communicate online. And consumers in markets where eBay currently has a limited presence, such as Japan and Scandinavia, can learn about eBay and PayPal through Skype. Skype can also help streamline cross-border trading and communications.

With its rapidly expanding network of users, the Skype business complements the eBay and PayPal platforms. Each business is self-reinforcing, organically bringing greater returns with each new user or transaction. The three services can also reinforce and accelerate the growth of one another, thereby increasing the value of the combined businesses. Working together, they can create an unparalleled engine for ecommerce and communications around the world.

Transaction and Financial Information

eBay will acquire all of the outstanding shares of privately-held Skype for a total up-front consideration of approximately €2.1 billion, or approximately $2.6 billion, which is comprised of $1.3 billion in cash and the value of 32.4 million shares of eBay stock, which are subject to certain restrictions on resale.

The maximum amount potentially payable under the performance-based earn-out is approximately €1.2 billion, or approximately $1.5 billion, and would be payable in cash or eBay stock, at eBay’s discretion, with an expected payment date in 2008 or 2009. Skype shareholders were offered the choice between several consideration options for their shares. Shareholders representing approximately 40% of the Skype shares chose to receive a single payment in cash and eBay stock at the close of the transaction. Shareholders representing the remaining 60% of the Skype shares chose to receive a reduced up-front payment in cash and eBay stock at the close plus potential future earn-out payments which are based on performance-based goals for active users, gross profit and revenue.

The above-mentioned dollar and eBay share amounts are approximate, based on the Euro-Dollar exchange rate and eBay’s stock price as of September 9, 2005. The final value of the stock component of the consideration may vary significantly from this estimate based on the value of eBay stock at closing.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. For Q4-05, eBay expects the acquisition to be dilutive to pro forma and GAAP earnings per share by $0.01 and $0.04 respectively. For the full year 2006, eBay expects the transaction to be dilutive to pro forma and GAAP earnings per share by $0.04 and $0.12 respectively, with breakeven on a pro forma basis expected in the fourth quarter of 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20% to 25%.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.
About eBay Inc.

Founded in 1995, eBay pioneers communities built on commerce, sustained by trust, and inspired by opportunity. eBay enables ecommerce on a local, national and international basis with an array of websites – including the eBay Marketplace, PayPal, Kijiji, Rent.com and Shopping.com – that bring together millions of buyers and sellers every day.

About Skype Technologies SA

Skype, the Global Internet Communications Company™, 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 163 million times in 225 countries and territories. Fifty-four million people are registered to use Skype’s free services, with over 3 million simultaneous users on the network at any one time. Skype Technologies SA is headquartered in Luxembourg and is growing its offices in London and Estonia.

Forward-Looking Statements

This announcement contains forward-looking statements regarding Skype and the expected impact of the acquisition of Skype on eBay’s financial results. Those statements involve risks and uncertainties, and actual results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to, the timing of the closing of the transaction, the possibility that the transaction may not close, the reaction of the users of Skype’s services, the future growth of Skype’s user base and public acceptance of Internet voice communication services, rapid technological changes in the Internet voice communications sector, the reaction of competitors to the transaction, global developments in the regulation of Internet voice communication services including those provided by Skype, the possibility that integration of Skype’s offerings following the transaction may be more difficult than expected, and the possibility that entry by Skype and eBay into potential new lines of business will not be successful. More information about potential factors which could affect eBay’s business and financial results is included in eBay’s Annual Report on Form 10-K for the year ended December 31, 2004, the company’s Quarterly Reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements are based on information available to eBay on the date hereof, and eBay assumes no obligation to update such statements.

The eBay announcement:

***A New Way to Communicate***

I’m excited to let you know that eBay plans to acquire Skype, the leader in online voice communications.

Skype has set a new standard in online voice communications with
outstanding sound quality and unmatched ease of use. And like eBay,
Skype has a fast-growing community -- some 54 million Skype users
around the world already use their PCs to talk with one another.

And best of all, conversations between Skype users via PC are free. You
can get up and running on Skype in just a few minutes. Just go to http://www.skype.com/go/x.home to learn more and download the free Skype software application. Try it – it’s fun!

Over time, we intend to make voice communications a part of the eBay
marketplace – a huge step forward in making transactions faster and
easier, as well as bringing even more interactivity and humanity to the
eBay Community.

You can include your Skype ID in your About Me page. For now, however,
Skype links may not appear in View Item pages. We’ll be working with
you, our Community, over the next few weeks to thoughtfully work out
the details of how eBay and Skype will interact, including any policy
changes that may be required.

We expect this acquisition to be finalized soon. In the meantime, you can learn more about our Skype plans in the news release we issued just a few minutes ago.

Working together, eBay, PayPal and Skype will redefine online trade and
community. I hope you’ll join us in this exciting new chapter in eBay’s
history.

Sincerely,

Meg

The Ebay rumors are hilarious. Nobody can verify or confirm anything. Not even vague denials from any of the parties. Who benefits from the leak? Skype's VCs pushing valuation buzz and Skype's bizdev team, both to better arm-twist partners.

Everything Skype can offer eBay or its subsidiaries (technology, network access, Skypification of its user experience, PayPal currency conversion of Skype Minutes) can be delivered as a service, without an equity entanglement.

And then you get the Skype Voice announcement. Bill Campbell does a fine job skewering the outrageous charges imposed by Skype. Can you imagine paying 30% of a sale to your credit card company? Or to your phone company for letting you hook up your computer to the phone network? That's Skype's program!

But that's not the worst of that deal. It's that Skype's BizDev team is driving for tactical profit but creating a strategic disadvantage. I'm tempted to say they're trying to think like a mobile service provider but Bill says it looks like simple opportunism.

This deal is an innovation killer.

This type of deal, cherry picking three players out of an entire industry, only reinforces Skype as a "walled garden," a private, tightly controlled place with one master. The other way to do it is to set things up so anyone who wants to compete can do so. Publish protocols and specs and some common tools for call termination (SkypeLite, maybe?) and for commerce. Set rates comparable to what credit card processing companies charge for debit transactions; Skype minutes are risk free since all funds are prepaid cash.

By the way, do you understand what Skype Voice companies do? They are middleware. You call a number. Their computer picks up the phone and answers with a recorded message. It creates a user experience for you using a library of prerecorded messages, a little speech recognition, Voice-XML to guide the conversation, and whatever database of content you're sharing. Like calling up for movie times and making it easy to search for the blockbuster playing near you.

Enormously helpful.

And these companies offer the service now, on regular phone lines, on toll free numbers. They make their money by selling their service to companies that want to engage their customers over the phone. Like banks for bank balances. Or a newspaper for delivery problems. Or a shipper for tracking problems. In none of these examples does money change hands. It's just my business process talking to customers in a convenient, narrow, well structured conversation.

They don't pay the phone company extra for the privilege.

Skype's partnership model doesn't allow this. If there's no revenue, nobody gets paid. And Skype must be paid before they let you pick up when a Skype caller rings you.

Skype's model doesn't allow public service implementations. The volunteers who put together KatrinaHelp would love to implement a service like this but will not charge the dispossessed to find a lost child.

And companies that want to plug in their own IVR systems are shut out too.

Like Bill said, it's a mess.

Instead of putting up a new api, protocols, etc. upon which vendors can innovate and add value the way tellme adds value (terminating calls and doing something with it), they are doing custom deals for a handful of players for short term cash, closing out the developer and entrepreneurial ecosystem including dozens of Tellme rivals.

Skype can fix it but, as it stands, the Skype Voice program is one step back.

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.

Congratulations to the Jyve team who submitted a personal presence server with browsing and call forwarding to win the Skype Developer Competition. Full kudos to them. All the details can be found on the Skype site here. I certainly enjoyed supporting them during testing and constantly asking for more. Well done guys! Some of the others won't come as any surprise to Skype Journal readers, you have already read about them on these pages. Certainly shows the inventiveness and in some cases playful nature of Skype Developers.

Some of the other entrants. The only one I'm yet to try is the Dial MP3.

• Jybe, a simple and easy to use tool for sharing office documents and enabling real time collaboration over the web with Skype contacts.
• Dial Mp3, which allows you to listen to any mp3 in your collection on your phone.
• Pamela Basic, a personal assistant for Skype that answers calls and chats for you in 32 languages when you are away.
• Gizmoz, which lets all Skype users communicate with animated, 3D talking headz. :
• YapperNut Answer Machine for Skype ("Amy"), which offers voicemail, delayed messaging and allows you to receive and send messages when away from the computer.
• Spontania Video4IM, a high-quality video solution

Commercial Mentions:

• KhaosLabs - Free ActiveS COM wrapper.
  
• Columbus CRM (Skype integration with CRM solution)


• ISkoot (free call forwarding)


• Audiomatic (voice activated macros including Skype commands)


• SalesForce CRM integration

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.

By Karim Pedersen, ComON. Translated for Skype Journal by Torben Nyhuus, Aalborg, Denmark.

The Padborg (a Danish border town to Germany) company Dangaard Telecom has made a partnership agreement with Skype. The agreement means that Dangaard Telecom may distribute Skype related products like headsets and wireless phones in Europe, Middle East and Africa (EMEA).

Dangaard Telecom is Europe's largest distributor of mobile/cellular phones and the agreement opens the possibillity that Skype’s software can be integrated into smart phones.

Furthermore Dangaard Telecom and Skype will start a push/campaign to sell the ip-telephony products on the net.

Dangaard Telecom employs 1400 people in 16 countries. $1.5 B US in revenues. Dangaard Telecom focuses on distribution and Logistics.

For Skype this means more marketing clout in Europe, the Middle East and Africa. For Skype users, better access to peripherals and support. Also watch for Dangaard to intoduce mobility products.

Skype is on the move, building relationships with portals around the globe and now with distributors.

João Brogueira writes:

On 1 June 2004, Jean Mercier posted an article on SkypeJournal making an analysis of how many users are online at a certain our within a 24 hours period. This raises the question of how to register the values without being waked up during all night.

The same Jean Mercier as per request of Bill Campbell, of SkypeJournal, shows how to make a video to register the Skype window and the number of users online.

I was surfing the Web today and I found this very interesting post claiming to have miniSkype, a small program that can not only register these values but also export them directly to a database for later analysis.

In short:

1. Jirong Zhou posted a test program on his blog, likely written by others.
2. It logs in to the Skype network, without Skype.
3. It gets data from the Skype network, like the number of people online.

Let me describe the screenshot for you...

It is a Windows XP desktop and three windows are open.

Two stacked on the left are titled "miniSkype v0.0.0.01". They each have a Log In/Out dialog panel on the left, showing "shantou001" logged in with a five character password and a "Log Out" button. To the right of the dialog panel is a text box showing a log of miniSkype's activity.

The first window's log shows:

Login
listen on random port
connecting SkypeNet ...
SkypeNet connected

The status bar shows a "1", "3", "login success", and "305271 Online".

The second window's log shows:

Login
listen on random port
connecting SkypeNet ...
SkypeNet connected
Logout
SkypeNet not connected
Login
listen on random port
connecting SkypeNet ...

and then scrolls out of sight.

The second status bar is the same as the first except that the number of people online is 3047812.

The third window is an application, what appears to be a utility from Gunagzhou's http://www.sky.net.cn/, makers of personal firewall software. It shows open applications and their network connections. One of the instances of MiniSkype.exe (running on drive E:) is shown with both a TCP connection (open on port 1389?) and a UDP connection.

Accessing the Skype Cloud Without Skype?

So does this mean...

• Skype's access to the cloud can be reverse engineered? If so, we can write applications that can write and read to the cloud from servers or clients. So if Skype doesn't write a version for your platform (let's say the PalmOS, for example) you might write your own.
• Cloud data is posted in the clear? While conversations are encrypted, it isn't clear that profile data and presence status is. And, I'm assuming that MiniSkype didn't encrypt the login process beyond common https.
• The MiniSkype client successfully logged in through Skype's own admin servers? If so, can Skype be selective about which clients have access? Should Skype publish a Terms Of Service about touching the cloud? In other words, how should Skype sanction access to the cloud?
• Having accessed the cloud, what other data from the cloud is available? Everything described in the Skype APIs? More?
• Can MiniSkype ask questions about other people, the way the Skype client can see buddy list presence and profile information?
• Is this intensely cool? Widely important? Or dangerous?

For the last few days I've been trying out Skylook an Outlook integration that works with Skype. It's an effective integration, enabling easy chat and voice calling from Outlook while adding additional features not seen with other Outlook plugins for Skype. Eg Look2Skype, and Skype's own Outlook solution.

The benefits:

Archiving:
Skylook will automatically archive your chats into Outlook. It creates a folder Skype conversations and then records each session separately. I had hoped this would then be picked up by Google desktop search, however so far I've not been able to search them. Still the archiving feature is important. The downside - there are no real archiving controls. Topics, folders by person, etc. Additional work is also required for formatting.

Recording:
Skylook enables full recording and thus archiving of all conversations again into Outlook. The recording is effective and archived as an MP3. Skylook doesn't act as an answer machine, and while it provides warning when setting it to record all calls, you cannot control this on a record by record basis.

Message Forwarding:
Having the Skype records in Outlook makes forwarding a chat conversation or call easy. Simply forward as you would any email.

Presence:
Connecting to another Skyper is simple with click to call and chat options. Current online status is visible.

This product has not been Skype certified.

Overall an effective integration that goes further than others I've seen. Also a plus - it hasn't yet crashed my Outlook. On the reservations side I didn't like the privacy and profiling information that I viewed when I downloaded it. It said too much about cookies and gathering information for me to be comfortable. So while I've tested it, I'm uncomfortable about the data it said it may be collecting. So after testing it for one more day I'm going to restore my sytem to an earlier time. It doesn't yet have my trust. It will cost you money after 14 days.

"How the hell can you make money with a system that is for free?" , asks Skype Forum member, tropicaljantie, the real-life Belgian Jan Geirnaert, residing in Kuala Lumpur, Malaysia.

That's a good question Jan. The big travesty in the growing Skype Ecosystem, Skype Developers Program, and the API is the lack of thought by Skype staff about how developers will make money.

We have had some feedback in the Skype Journal...

Here is a comment to Stuart's post Skype Developer Ecosystem Gets a "D-". Jason Terando, the developer of the Skype API COM Wrapper, had this to say:

"One unfortunate trend seems to be Skype adding functionality without regard to what has already been developed. One example is voice mail. A few parties went to great trouble to build voicemail apps, only to have Skype include it as an included feature (albeit not for free). Likewise, Skype has committed to an API/web-based mechanism for retrieving on-line status, which a couple of parties have already worked hard on developing, only to see the rug pulled out from under them."

In an interview about Spontania's Video4IM, CEO Enrique Dominguez talked briefly about his business model.

"As you say, Skype is free, but out of the free version comes premium services. We follow the same strategy. We are a private owned profitable company, and obviously we need to generate revenue to keep these black figures ongoing."

"Regarding Spontania Video4IM, in some weeks we will announce some cool premium features; among others, videoconferencing between PC users and 2.5 and 3G mobile devices. This would drive Skype-Out minutes and open the door for new subscription models."

Niklas Zennström created a market of 45M users who want just about everything for free. Niklas makes millions and soon billions by nickel, diming and Euroing his captive Skype Users with valuable services, while members of the Skype Ecosystem get economically pummeled.

Jan, let's hear how our readers might answer your question, "How the hell can you make money with a system that is for free?"

From China Tech News:

China's Ministry of Information Industry (MII) reiterated that it still has not formulated guidelines concerning VoIP businesses and that many current VoIP businesses could potentially be illegal.

Companies like Netease (NTES), Tom Online (TOMO), Skype, and Tencent have all started VoIP services in China. And the 263 Group and HL95 have also recently entered the sector.

The VoIP sector offers great financial rewards for companies because voice communications on the network can be as much as ten times cheaper than traditional fixed-line phones.

MII says that it is still testing VoIP and forbids illegal "phone cafes" from opening in China. It also offered no clear date on when it will issue guidelines for businesses to operate legally.