Does Skype make sense for business?

special report Skype is hoping to move from being a consumer application for low-cost Net telephony to a tool to enable business communications. Will enterprises bite?
Written by Sylvia Carr, Contributor

special report Skype -- the Voice over IP software--is known for offering a way to make free calls anywhere in the world. Its friendly user interface, which you can personalize with pictures just like instant messaging applications, screams "consumer" and one would imagine customers include university students and home users.

Yet Skype CEO Niklas Zennström plans to make the software an accepted part of corporate communications--both on the desktop and on smart phones.

Already a third of Skype users use the software for business, Zennström told silicon.com during a recent interview at the company's London offices. This user base consists largely of small firms with geographically dispersed workers or departments within larger businesses.

The idea is to create a package similar to the free Skype but with extra features--such as videoconferencing, user groupings and company directories--that business customers would be willing to pay for. The offering, Skype for Business, is due out next year.

"It's not about getting rid of your PBX," Zennström points out. Rather, it's meant to be a service that's complementary to the existing phone service.

But will companies buy it?

Security is sure to be at the top of the list of concerns.

All Skype communications are encrypted to ensure they can't be intercepted and read while passing through the ether. But a bigger issue for IT directors in this age of worms and viruses is the risk any application could provide to their network.

To this Zennström said: "Skype does not present any more risks than any other software connecting to the Internet."

But Irwin Lazar, senior analyst at the Burton Group, thinks Skype might have trouble winning over businesses. "[For IT directors], bringing in an application you don't know and can't test could be a problem. What if someone writes a virus for Skype?"

Zennström said the company has always been mindful of security but is careful not to promise anything. "We go through rigorous testing and make sure our software is as secure as possible," he said. "So far we haven't had any security issues. But that doesn't mean there's a guarantee there will never be one... but no one can make that guarantee with any software."

IT departments may also be turned off by claims that Skype contains spyware or adware.

Zennström is adamant Skype does not, though he understands people probably got the idea because the upstart file-sharing network Kazaa--a previous entrepreneurial project of his--did allow adware.

It's a different situation for Skype, though, Zennström said. Kazaa relied on advertising for revenues whereas Skype plans to make money charging for features such as voicemail and SkypeOut, a service which allows Skype users to call standard telephones.

Plus, Skype relies on viral marketing--satisfied users recommending Skype to others--to drive downloads, a strategy that's gotten Skype over 14 million users since the public beta launch 15 months ago.

"If we had adware in Skype, it would kind of be counterproductive to our business model," Zennström said.

For viral marketing to work, he continued, "you need to gain trust of end users... If there is a bunch of adware in the software, you probably don't recommend it to friends and family."

Along with its easy-to-use interface, the relatively high voice quality on calls has contributed to Skype's popularity. But, said Quocirca service director Clive Longbottom, businesses may require more in the way of quality and reliability than Skype can guarantee: "It's all very well for a group within a company to be using Skype but for using it as a main means for lowing costs for company, it better work."

Zennström stands by the quality of Skype calls. He said the quality "in general is superior to PSTN" and for businesses "if they have a good enough Internet connection, the quality is very good".

However Jeff Ace, director of business development at AT&T, said this is the very problem with Internet telephony: "VoIP is only as good as your ISP and quality of service you get from them."

Businesses, he claimed, prefer centralized systems they can manage themselves--not the peer-to-peer, distributed model Skype uses.

Yet Zennström likens the quality of VoIP service to mobile phones. Mobile companies never guarantee you'll be able to make a call from every location but businesses still rely on them for communications.

"This notion that you need to guarantee quality of service is something that incumbents are telling (businesses) to sell their existing services," he said.

Small businesses in particular could be willing to accept some quality degradation in return for the significant cost savings they could incur with Skype, according to the Burton Group's Lazar, while large organizations are likely to be least interested in Skype for desktops as they may already have a VoIP phone system.

The ideal business customer for Skype, said Lazar, would be decentralized companies or road warriors--workers that travel frequently, need to make a lot of calls (especially internationally) and could save a lot of money on their mobile phone bills.

Speaking of mobile phones, Skype has plans for them too.

Making Skype available on mobile platforms is "a natural evolution", said Zennström. Skype is already out for Pocket PC but the next step is smart phones. Zennström said the company is in the process of evaluating various mobile platforms such as Windows Mobile, Symbian and PalmSource.

This could appeal to businesses even more than using Skype on the desktop.

Pete Smith, director of IT and telecoms, Inmarsat, said: "We are looking at Skype to see if PDA users could make and receive all their international mobile calls using Skype over GPRS and avoid the roaming GSM costs... We are waiting for (Skype) to develop a version which uses the BlackBerry platform from RIM."

Silicon.com's Sylvia Carr reported from London.

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