David Gibbons has hired a team of software developers in Calcutta, India, to work on his new media software startup. He talks to them every...
David Gibbons has hired a team of software developers in Calcutta, India, to work on his new media software startup. He talks to them every day — free.
The Fremont resident was born in South Africa and has been using software for years to make calls over the Internet from his computer. He chats with his family back home and his development team regularly, avoiding traditional telephone lines and long-distance charges.
“It definitely has got appeal,” he said. “You just need to open your mind to the fact that you can make phone calls for free.”
It’s taken Microsoft and its rivals a little while to open their minds. They’ve dabbled in the technology over the years, but generally placed it on the back burner while Skype — a favorite of Gibbons’ — and others have won over users.
That’s all changed. Microsoft, Yahoo! and new entrant Google have been fine-tuning instant-messaging systems that let users have voice chats with each other over the computer. In the next few months, users will be able to go a step further and call people on ordinary telephones.
The technology is generally known as Voice over Internet Protocol, or VoIP. Unlike the more sophisticated VoIP systems from Vonage, big telecommunications companies, cable systems and others, the voice chat on instant-messenger programs isn’t intended to replace a land-line service.
Voice over Internet Protocol, or VoIP, enables voice calls over a digital network, including the Internet. That can mean calling from a VoIP-enabled phone or from a PC using a headset or built-in microphone. Here are some companies offering consumers VoIP technology.
Vonage: Founded in 2001, the Edison, N.J., company helped introduce VoIP to mainstream users with service intended to replace traditional land-line phones. Unlimited calling to U.S. and Canada for $25 a month.
America Online: Debuted TotalTalk in the spring for AOL members and opened it to anyone in the U.S. last month. The service is intended to replace traditional land-line phones. Unlimited calling to U.S. and Canada for $30 a month. Offering PC-to-PC voice chat on instant messaging with PC-to-phone capability (for a charge) expected early next year.
Comcast: Rolling out Digital Voice product in Western Washington, with service in Seattle expected sometime next month. Offering $40 to $55 monthly tiered pricing for service intended to replace traditional phones.
Microsoft and Yahoo!: Linking instant-messaging systems by mid-2006 to allow for text and voice chat between both. Looking to add PC-to-phone calling on IM soon with recent acquisitions of companies specializing in the technology. Will likely charge a fee for outbound calls, at least; inbound calls could be free.
Google: Debuted slimmed-down instant-messaging service in August. Has PC-to-PC capability but no PC-to-phone service. Keeping hush-hush, as usual.
Instead, voice chat is being touted as an add-on to IM and another way users can talk for less money. More important, they will open up new ways to sell advertising by allowing people to call companies directly from their computers.
An early start
For years, MSN had a calling service available with its MSN Messenger program, using technology from partners such as Net2Phone that allowed PC users to make calls to phones. But the service wasn’t popular with customers, and MSN quietly shut it down in summer 2004.
“The quality bar just wasn’t being met,” said Brooke Richardson, a lead product manager with MSN. “Quite frankly, that’s why we decided to take a step back.”
So MSN turned its focus mainly to improving PC-to-PC calls, putting aside for the moment the more complicated PC-to-phone scenarios. Over the past year, it released two upgrades to Messenger, each with improvements to the PC-only calling experience.
But PC-to-PC calling was just the tip of the money-making iceberg. To really get in the game and make the kind of money that rivals Google and Yahoo! are going after, MSN knew it had to take another look at PC-to-phone calling. In the business, it’s known as “phone termination” — calling from your PC to someone on a phone line at the other end.
That’s when Microsoft pulled out its wallet. In August, it bought a small San Francisco company called Teleo for an undisclosed amount. Teleo specialized in exactly what MSN was lacking — technology that allowed users to call from Internet-based phones or PCs to cellphones and land-line phones.
Teleo charged a base rate of 2 cents a minute for outbound calls to phones in North America, Europe and Asia. It did not charge a fee for incoming calls.
Those rates are comparable to those offered by Skype, one of the best-known providers. Microsoft hasn’t said whether it plans to charge the same rates when it rolls out a Teleo-integrated service, expected in test form by the end of the year.
Microsoft’s rivals are working just as intensely on competing services. Yahoo! has offered PC-to-PC calling for years, but overhauled the system this past summer to improve its quality. It’s emphasizing the technology so much that in August it renamed its messaging product Yahoo! Messenger with Voice.
Yahoo! also made a voice acquisition this year, buying Milpitas, Calif.-based Dialpad Communications in June for an undisclosed amount. Dialpad offers PC-to-phone calling, and Yahoo! is integrating the technology into its network. The combined service will be introduced in coming months, the company said.
America Online, the leader in the instant-messaging market, has offered PC-only voice chat for years but plans to roll out PC-to-phone calling into its messenger product early next year. It’s developing the system on its own rather than acquiring it.
Late last month, AOL unveiled TotalTalk, an advanced VoIP service that aims to compete directly with Vonage and replace traditional land-line telephone usage.
Google’s Kirkland research office played a big part in the development of its messaging product, Google Talk, which debuted in August with both instant messaging and PC-to-PC voice chat. Still in test form, the slimmed-down program lacks many of the features touted by competitors, such as emoticons and voice-mail messages.
Google has based its system on open standards to make its instant-messaging features compatible with those of other companies, such as Apple Computer’s iChat. But so far, PC-to-PC voice calling is limited to only Google Talk users.
Google had been expected to debut an instant-messaging platform, but the most curious entry into the business this year has been online auction giant eBay, which completed its $2.5 billion acquisition of Skype earlier this month.
Skype has been the darling of early adopters in the U.S., but most of its usage takes place outside the country. Nearly half of its 58 million registered users are in Europe, and a fourth are in Asia.
The Skype acquisition pushes VoIP technology squarely in the commercial arena, particularly as a vehicle for advertising sales.
“Internet voice communications can help remove what we consider to be a key friction point in e-commerce: people who aren’t in the same location and don’t know each other,” said eBay spokesman Hani Durzy.
If you’re buying a book from someone, you probably don’t need to call that person. But Skype might come in handy for expensive and complex transactions, such as a used-car purchase, Durzy said.
eBay’s designs on Skype don’t stop there. VoIP ties in directly with what could be the next big movement in online advertising: click to call. A real-estate agent, for example, could display an ad on eBay with the phrase, “click here to call me.” When someone clicks, the agent gets a new sales lead and pays eBay a small amount of money.
“If we can create a lead-generation business for people selling goods and business, Skype may be the channel,” Durzy said.
One limitation to that kind of advertising model is the fractured instant-messaging market. Until recently, most instant-messaging users could communicate only with people using the same program.
Google led the way in breaking down some of those barriers by embracing open standards. The open approach is key to moving instant messaging to the mass market, said Google, and the mass market is where advertising flourishes.
“The pie could be so much larger,” said Mike Jazayeri, a product manager for Google Talk. He compared the situation to the huge growth in cellphone messaging that occurred when mobile carriers moved to make their networks interoperable.
Rivals are getting the message. Earlier this month, Microsoft and Yahoo! said they would link their instant-messaging networks next year to allow for text messaging and voice chats across both sets of users.
Richardson at MSN said that the click-to-call system could click with users searching pizza restaurants, for example.
MSN’s search results might include a link that directly calls a specific restaurant from the computer. The technology likely will find a home in other Microsoft products as well, such as the Outlook e-mail program, MSN Messenger and Internet Explorer.
“The whole capability of doing click-to-call plays really well with the service offerings that MSN has,” said David Lemelin, a senior analyst at In-Stat. “They can be a big player.”
Are traditional phone companies worried? Not really, analysts say. They’re facing more competition from Vonage and from cable operators such as Comcast, which are pitching VoIP phone packages that completely replace a traditional land line. Those packages include backup for power failures and the ability to call a 911 operator.
“Wireline telephony is a low-margin business, and will become increasingly commoditized over time,” said John Delaney, an analyst with Ovum. “Why would Microsoft aspire to enter such a business?”
Instead, he said, Microsoft and its rivals are using communications services to position themselves against one other. As search engines continue to evolve into all-around information and service providers, voice technology is likely to be a standard feature and not an added bonus.
Kim Peterson: 206-464-2360 or firstname.lastname@example.org