The Skype Economy

Like the iPod, free phone service Skype is creating a coattail economy as hungry developers rush to cash in on its popularity.

In just 18 months, Luxembourg-based Skype has signed up some 31 million registered users, promising free phone calls over a broadband connection between two members anywhere in the world. Now Skype is hoping to take the service even further by recruiting third-party developers to build add-on programs that might attract even more customers and possibly take its technology in new and unexpected directions.

Since the company began licensing or giving away its proprietary source code late last year, an estimated 1,000 programmers have jumped on the bandwagon, creating dozens of free and commercial products for the service. Developers get the source code by promising to either give their products away for free or provide Skype a share of the profits.

Skype's developer program has seen some limited success so far. In the vanguard are relative unknown companies such as VOIPail, Connectotel and Meinskype, offering free Skype voice mail, SMS and ring tones, respectively.

Third-party applications are an important competitive bulwark for Skype, which is pushing to make its proprietary software an industry platform. Most of its competitors have turned to open standards-based technology known as Session Initiation Protocol, or SIP, that's used in instant messaging and Internet telephony and can be freely licensed by anyone.

Some backers of SIP have criticized Skype for potentially splitting the Net phone industry, undermining standards and interoperability--a threat that would become all the more acute should Skype's developer community take off.

Since developers must pay Skype to sell products based on its source code, it could face a long-term disadavantage against SIP if its market share begins to slip.

Furthermore, because Skype is a relatively small company with more than 100 employees, developer support is a costly luxury. Some developers have complained they were basically left on their own to navigate complicated licensing contracts and technical issues, leaving it unclear whether developers are allowed to profit and under what conditions.

The risk for companies or developers who build on these newer platforms is that they're totally beholden to the provider -- and that puts them at risk. They have no control over the environment they're working in. Skype could decide to build the same functionality themselves. Or, other products could become more popular than Skype. Sometimes it works... but many companies don't realize the danger of putting all their eggs in one basket. If they pick the right platform, it can be lucrative for a while, but it's not always easy to know who's going to win.

Source : http://www.techdirt.com/