Skype 4.0 - is Bigger Better?

Today, Skype officially announced the test version of
its latest upgrade, Skype 4.0. Quite a few media types and bloggers picked up on this yesterday, but I wasn't one of them. So, if you know where to go, this may not be news, and otherwise, I'm happy to pass on the highlights.

I participated in the call and briefing today, and it was made clear from the top this is a Beta version with a long test period. Skype wants to be sure they get this right and are really looking for our input to help.

In short, the story is video - that's the gist of 4.0
- bigger, better, faster, easier. Translation - Skype becomes much more fun and much more social. Leading off the call, Don Albert
explained they were "placing some bets" on where communications is going, and for Skype's money, it's on video.

Just to clarify this is not a desperation move or a shift away from
voice, Don spelled out some basic metrics to show that Skype is doing just fine as a business. They did $126 million in Q1 2008, and are on track for $500 million overall this year. Last year they did $400 million, and have now had 5 consecutive quarters of being profitable.

VoIP is a volume business, and even though most Skype users spend little or nothing to make their calls, those $3/month subscriptions sure add up. Let's not forget that unlike the Vonages of the world, their "customer acquisition" costs are very low, so this can be a profitable business once you reach critical mass and get past the growing pains of managing your customers. That's another topic, so let's just stick to the news.

So, why video? They told us that 28% of current Skype calls include
video, and this usage level is rising. This means that a healthy share of Skype sessions are now multimedia, with voice, chat and video. Figure that about 12 million Skype users are active at any give time, then roughly 3 million will be using video.

That's a lot of video calls, and it's a great way to make communications more social, which seems to be the name of the game these days. For now, it's just for the desktop, so it's behind the curve for the mobile video trend, but Skype did tell us they are testing smaller form factors, so it's definitely in their plans.

Following Don Albert's comments, Skype Product Management Director,
Michael Barlett took us through a live demo. It was a bit choppy, but we got a pretty good idea of what the new interface looks like as well as the experience. The key idea here is that Skype 4.0 makes it easier for the mass market to do video calling. It's easier to set up with Skype-certified hardware, it's easier to import your contacts from other directories, it's easier to find other Skype users to call, it's easier to troubleshoot, and it's easier to discover and use new features.

Ease of use has long been a hallmark of Skype's success with voice,
and it looks like they're replicating this now with video. It was
also good to hear them explain how and why earlier iterations of Skype
video were not as market-ready, so I'd have to hope there has been some learning there. Anyhow, for a more technical and visual sense of Skype 4.0, please have a look at Michael Barlett's post today on the Share Skype Blog. And if you want to try it for yourself, there's a link near the end of his post to download it.

On a more technical level, I'll steer you to Jim Courtney's post on Skype Journal. He got an advance look at this, and provides some good reasons why you should not use this as a full replacement for earlier versions of Skype, especially if you're a regular user. Basically, 4.0 does not have all the voice/chat features of 3.8, so you'll likely lose a few capabilities. Furthermore, the full screen interface will take some getting used to, and may not be a great user experience if you're just texting and/or making calls. Good points.

So, is bigger better? I ask this because the big
change is how Skype 4.0 takes over your full screen rather than the side panel we're used to seeing. They're figuring that video makes a better impression when it's big, plus they've done lots of work on compression codecs to ensure a consistent experience, even if you don't have enough bandwidth. After all, big screen video only looks great if it is great. Poor resolution or jumpy streaming becomes that much more noticeable and can really work against you.

I should also add that the experience was enhanced by hosting the concall using Hi Definition audio, courtesy of their partnerhip with
Vapps. They're not the first company to combine HD audio with high end video, but for the general market, it's a nice selling point. On the whole, though, this Beta is definitely on the right side of the trend towards video, and in time will be a key driver in expanding Skype's user base. Perhaps more importantly - as I concur with Andy Abramson's take on his post - Skype 4.0 creates much better opportunities to support advertising and ecommerce.

Doing this would be a radical departure from Niklas Zennstrom's initial vision of keeping Skype pure and commercial free, but they have a business to run, folks. And video is a far more engaging medium for this than text or voice. The possibilities are pretty boggling, especially if advertising is context-aware, and can be shared with multiple parties. For now, unlike voice and text-based Skype, version 4.0 is single party - it's just one-to-one. When they evolve to multiparty video, I think that's where the potential for advertising and ecommerce - PayPal - don't forget about that! - really becomes real. So, is bigger better? For end users, it probably is, but the full screen thing will take some getting used to. For Skype, bigger will no doubt be better, especially if it opens up new revenue streams and finally creates some real synergies for eBay.

Technorati tags: Jon Arnold, Skype 4.0, video calling, Jim Courtney, Skype