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Last Updated: Friday, 26 January 2007, 18:47 GMT
The Skype roadmap: Trial and error
By Tim Weber
Business editor, BBC News website, Davos

When Niklas Zennstroem shows up at sessions on digital issues here at the World Economic Forum in Davos, an aura of awe surrounds him.

Skpye co-founder Niklas Zennstroem
Mr Zennstroem has a unique way of looking at the wired world

He is the man who helped revolutionise the world of online music with the Kazaa file sharing software, which he developed together with Janus Friis.

Mr Zennstroem is also the co-founder and chief executive of Skype, a free internet telephony service, which is striking fear into the hearts of telecom firms around the world.

Now he and Mr Friis are giving broadcasters jitters as they test new software that delivers films online and on-demand, a venture known as Joost.

Quiet pride

Mr Zennstroem, a tall soft spoken Swede, is sparse with his gestures.

Just over a year ago he sold Skype to eBay for a cool $2.6bn

He still runs the company, and a quiet pride shines through when he speaks of the continuing success of Skype.

More than 171m users have registered with Skype so far, and 200,000 new users are signing up every day - although he refuses to be drawn on the number of active users.

Still, at any given time more than 8 million people are "online" and using Skype.

'Free' money

The success can easily be explained: The software can be downloaded for free, calls between Skype users, video calling and instant messaging are free as well.

Skype's "core business", its revenue drivers, are two features know as Skype Out and Skype In.

The services allow users to pay to call landline or mobile telephones, which in most cases is much cheaper than picking up a traditional telephone, and where they get a real telephone number in a country of their choice to receive calls from other people.

That helped push Skype's net revenues to $66m during the last three months of 2006 alone.

During the past year, Skype's main focus was the integration of its service with the online auction services of parent company eBay.

Scooter with the Skype logo
Skype sees mobility as a key part of its plans for growth

Now Skype is looking for new targets. And the strategy can probably best be described as "Skype everywhere".

"We are going in a few different directions," says Mr Zennstroem.

Skype wants to be "where users want to use us", they don't want to "sit in front of a computer all the time", he adds.

New hardware (Skype phones that look like normal home handsets but hook up to the user's broadband connection) and new software (Skype for mobile phones and Windows Mobile devices) are supposed to drive reach.

There are new services, call forwarding and conference calls, some of them free ("for now", says Mr Zennstroem), others already revenue drivers.

And there is e-commerce, transaction-based services that allow companies to provide content to buyers.

Skype itself is in the content business, selling personalised "avatars", or representations of the user in the digital world.

All in all, Skype is not just about phone calls, Mr Zennstroem says.

"We want to enable conversations," in whatever form, he explains.

But will all these services work?

"We are pioneering this business," he says. "We have to do a bit of trial and error, see what works."

Video vision

And Mr Zennstroem has yet another new and disruptive venture, called Joost.

Users download a small application that allows them to watch films on demand through their broadband connection - in astounding quality.

So far the software has been released to just a few beta testers, which number in the low five digits. Joost will open to the public later this spring.

Content is also lacking, but Mr Zennstroem says he is rapidly building up the films on offer.

Joost is a long play, a long-term project that is dependent on the much-awaited digital "convergence".

Skype website
More users are seen switching to on-demand media content

So how will it happen?

"I think everything will be an internet device," he says.

Televisions will "become more and more computerised and internet enabled," he predicts, adding that there is "not much difference between a Plasma television and a computer monitor".

Once that happens, he says, television will no longer have to rely on "big bulky networks," he says with apologies to the BBC.

In Mr Zennstroem's vision, traditional broadcast distribution still has a long future, counted in decades.

But he offers Joost as a platform for the rapidly growing video on-demand market.

Joost's business model is based on advertising, with revenues shared between Joost and the content provider.

The platform will be open to both small and large content producers.

But for the first time, he says, "even a small film producer can become a broadcaster."

"That's the vision."

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