Magazine article The Spectator

A Radical Change in the Relative Value of Everyday Things

Magazine article The Spectator

A Radical Change in the Relative Value of Everyday Things

Article excerpt

It was a man in my club who first enthused to me about the special attractions of Skype. Given the normal boundaries of clubland conversation, this might suggest to those unfamiliar with the name that Skype is either a shooting estate in the Highlands or a dominatrix in Bayswater. But mine is an enlightened sort of club, providing a 'business room' equipped with modern technology, and what the member in question was so excited about was the fact that he had just made a free phone call to South Africa through a head-set connected to his laptop.

The software that made this possible is called Skype. It costs nothing to download, and calls between its users anywhere in the world are free. Though big names such as Microsoft and Google are positioning themselves in the same territory, Skype is currently the hottest thing in 'voice over internet protocol' ('VoIP') telephony. So hot, in fact, that eBay, the online auction house, agreed last month to pay $4 billion for it.

This fortune has been collected by Niklas Zennström and Janus Friis, respectively a Swede and a Dane, who founded Skype less than three years ago. Their previous venture was KaZaA, a 'file-sharing' network which, like the more famous Napster, was chiefly used as a source of free downloaded music -- a practice that has now effectively been outlawed for breach of copyright. The Skype concept has also been criticised -- for its dependency on other companies' networks -- but no one has challenged its legitimacy. It has attracted 54 million users around the world so far.

But it is still a small thing to buy for $4 billion. It generated only $7 million in income last year, and has not revealed whether it has ever made a profit. The eBay deal thus values this fledgling at a multiple of almost 600 times its last published income. This tells us that eBay has either succumbed to a call-themen-in-white-coats recurrence of the dotcom insanity which gripped the business world and wrecked the stock market five years ago, or that the Next Big Thing has just arrived. Spectator readers -- known for their thirst to be at the cutting edge of technological advance -- will want to know which.

The answer, unhelpfully, seems to be both.

Commentators were unanimous in declaring that eBay had overpaid. But since Rupert Murdoch, one of the world's shrewdest investors, was recently rumoured to have offered $3 billion for Skype, eBay's offer may in the end be judged merely over the top rather than completely bonkers. It all depends on what Skype does for eBay: the cyber-auctioneer does not, apparently, want to become a phone company, but it does want its buyers and sellers (who send each other 5 million email messages a day) to be able to talk freely to each other, one-to-one or in giant conference calls, adding exciting new dimensions to the auction process.

But VoIP is about much more than making it easier for bidders in Honolulu and Hendon to squabble over items of Dylan memorabilia.

The software behind it -- the magic that turns the human voice into 'packets' and sends it over the internet -- will enter all our lives within a few years. Subscribers to VoIP services will multiply, while major conventional networks -- the likes of BT, America's regional 'Baby Bell' companies, and Bell Canada -- will convert to VoIP technology anyway, slashing costs by sending long-distance traffic through a 'national internet protocol backbone'. …

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