First, it's the latest venture by the two guys — Niklas Zennstrom and Janus Friis — who created and launched Kazaa. That file-sharing software, notorious for aiding and abetting massive music piracy, is the most downloaded program in history — going on 320 million copies. So you know that anything the founders do is going to be closely watched. It's like awaiting Outkast's next act after Hey Ya!
Second is the disruptive technology thing. Some industry watchers think Skype or something like it could eviscerate all the world's phone companies.
Skype is a way to make high-quality voice calls over the Internet for free. There are already lots of ways to do voice conversations over the Net — the ubiquitous AOL Instant Messenger even does that. The key for Skype, though, is the quality, which on a good broadband connection can sound like a CD of the incoming caller's voice.
A beta version was launched nearly a year ago. Skype recently said that the free software has been downloaded about 10 million times.
To the user, Skype works a lot like instant messaging. On your screen, you see a box that lists which buddies — fellow Skype users — are also on the system. To make a connection, both you and the other person have to have the Skype software and be logged in at the same time. Then you click and make a call, talking either through a headset or using the PC's microphone and speakers. You can't call to a traditional phone.
That's what Skype is. More interesting is what it's not. Skype is not a company in any 20th-century sense of the word. It's an entity that could only happen in this era of the Internet and globalization.
Skype has barely any staff and has no real headquarters. It has no infrastructure whatsoever but is serving millions in 170 countries and could, with the same lack of infrastructure, scale that up to billions. It doesn't seem to have a PR department, either: I couldn't get hold of anyone who could put me in touch with Zennstrom and Friis.
The software comes out of Estonia from people who sort of work for Skype and sort of don't. Skype's offices, if you can call them that, are peppered around Europe while it sets up a nominally central office in London. Meanwhile, Skype just got $9 million in funding from Draper Fisher Jurvetson, based in California's Silicon Valley, and has signed partnerships with Germany's Siemens and Plantronics of Santa Cruz, Calif.
Zennstrom is from Sweden; Friis from Denmark. The two met while working in Amsterdam for a Swedish telecom company, Tele2. While there, they contracted with the Estonian programmers for a project.
In 1999, Zennstrom and Friis left Tele2 to start Kazaa. They again hired the Estonians, this time to write Kazaa's software. By 2001, Kazaa was a phenomenon. Various government and music industry entities have since tried to shut it down and sue Zennstrom and Friis. To protect themselves, Zennstrom and Friis shuffled Kazaa off to other ownership based in Vanuatu, an island nation near Australia known for a popular cultural activity called land diving, which pretty much involves diving off towers over dry land.
Kazaa works by using the Internet and each user's computer as the infrastructure. When logged on, the users' computers act as a worldwide directory of files and users, and they help connect Kazaa users to each other. Kazaa has no central computer, no fiber-optic lines, no 800 number for technical support, nothing.
Zennstrom and Friis recognized that the technology behind Kazaa could be used in other ways. They brainstormed and decided that the best opportunity was to use it for voice calls. The Estonians again got tapped to write the code.
This time, though, Zennstrom and Friis set out to create a legitimate business, though one that is as hard to touch as a late-morning fog.
Sometimes Skype does business in Tallinn, Estonia; sometimes in Luxembourg, Stockholm or London. Because Skype technology works much like Kazaa, the company's hard assets are little more than a Web site. It's a phone company with no network, no switches, no repair guys in trucks. The users, the users' computers and the public Internet do all the work.
It costs almost nothing — one-tenth of a cent — for Skype to add a new customer. Skype is almost like running a cookie company by just sending out recipes.
Can this strange new business become a blockbuster? Will it undercut and undo the world's phone companies? Tim Draper, partner at Draper Fisher Jurvetson, believes Skype will have the impact of his biggest hit company, Hotmail, which changed e-mail into a free service. Telecom investor and pundit Peter Cochrane says, "I think it would be foolish of any telco to dismiss (voice over Internet), and especially Skype."
Others aren't so sure. "Skype will remain a niche player, remembered more for the disruptive idea than for the actual business they take from the major phone companies," says telecom market analyst Jeff Kagan.
Or maybe, decades from now, it will be remembered for a different disruptive idea. As Sloan developed the corporate structure for his century, Skype's house of bits and fog might set the tone for this one.
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