Google voice: Trouble calling for Skype?

Olga Kharif/BusinessWeek
24 Jul 2009

Google's push into the Web phone-calling market is likely to cut into sales by Internet phone companies such as eBay's Skype unit, and could put pressure on Microsoft and Cisco, which sell online calling software to businesses.

On July 15, Google released a downloadable Google Voice application for BlackBerrys and smartphones powered by Google's Android operating system, which could make the voice service more popular. In late June, Google concluded a private test of Google Voice and began inviting consumers on its waiting list to sign up for the service. Users of Google Voice use the Internet to make phone calls, listen to voice mails and read transcripts of them, and also to get a unified phone number that can track them down based on what phone they're near.

Google hopes to make inroads in the market for so-called Voice-over-Internet-Protocol phone calls by taking a friendlier stance toward wireless service providers than other VoIP companies have done. Google has additional advantages in the market: Upcoming products, including its Wave collaboration software and Chrome OS operating system could help spur usage of Google Voice on devices from smartphones to netbooks. 'Our point is to make your existing services better, not to replace them,' says Craig Walker, a product manager at Google and founder of GrandCentral, the company Google acquired in 2007 that serves as the basis for its Voice software.

Skype's Hurdles in the Mobile Market

Skype could be among the first to feel the pressure. A foray into mobile phones has been at the top of Skype's agenda this year as the Web-calling company seeks to step up its revenue growth and prepare for an initial public offering next year. 'It's probably the biggest current threat to Skype,' Jeffrey Lindsay, an analyst with Sanford C. Bernstein, says of Google's VoIP foray. Eventually, 'it could be a duopoly' between Google and Skype in the market for Web calling via cell phones, Lindsay says. Google may end up holding 60% of that market, he adds.

Google's mobile announcements come at a bad time for Skype, which has struggled to wring additional revenue from its nearly 450 million customers. Skype's sales rose 22%, to $159 million, in the second quarter, Bernstein's Lindsay estimates. But its number of users likely grew by 40%. That means many consumers use Skype for free PC-to-PC calls without paying for any extra services. Those using mobile devices may be more apt to pay, say analysts. The trouble is that Skype has had difficulty expanding its number of mobile users as carriers have limited the ease with which cell subscribers can use the service, according to Jon Arnold, principal at tech consultancy J. Arnold & Associates. Skype declined to comment.

Google's free Voice software could also compete with so-called unified communications software from Cisco Systems and Microsoft that ties together companies' phone and e-mail systems, Arnold says. Laurent Philonenko, a Cisco vice-president, says his company's security features and customer support are 'not necessarily easy to replicate' and give Cisco an advantage.

Skype Is Broadly Entrenched

Startups in the Web phone-calling market could also feel pressure. Tom Carter, president of Truphone Americas, put a brave face on Google's move. 'The interest of a large Google is a sign of validation that the market has arrived,' he says. But competition with Truphone and such other startups as Fring and Jajah may only mount as Google prepares enhancements for Voice, including an app for Apple's iPhone that product manager Walker says is in the works.

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