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Skype (IPA pronunciation: /skaɪp/, rhymes with type) is a peer-to-peer Internet telephony network founded by the entrepreneurs Niklas Zennström and Janus Friis, also founders of the file sharing application Kazaa and the peer-to-peer television application Joost. It competes against existing open VoIP protocols such as SIP, IAX, and H.323. The Skype Group, acquired by eBay in September 2005, has headquarters in Luxembourg, with offices in London UK, Tallinn Estonia, Prague Czech Republic and San Jose, California USA.


Skype has experienced rapid growth in both popular usage and software development since launch, both of its free and its paid services. The Skype communications system is notable for its broad range of features, including instant messaging, file transfer, voice and video conferencing, its ability to use peer to peer (decentralized) technology to overcome common firewall and NAT (Network address translation) problems, its use of transparent, strong encryption and its extreme countermeasures against reverse engineering of the software or protocol


Purchase by eBay


01 Oct 2007


skype (acquired by eBay in late 2005) announced today that co-founder and CEO Niklas Zennstrom will step down, retaining his role as chairman (which doesn’t mean much for a subsidiary of a public company). Andy Abramson says this is a sign that eBay isn’t happy with the way Skype has been run to date. He also speculates that it may be spun off at some point into a free standing public entity. I wouldn’t be surprised to see that happen.


More interesting is the news that the earnout in the transaction, which could have amounted to $1.7 billion, was settled for just 1/3 of that possible total, or $530 million. The earnout was to be based on specific active user, revenue and gross profit targets that were to be achieved in 2008 and the first half of 2009. It’s clear those objectives are not being met.


eBay is taking a financial statement write-off of around $1.5 billion in connection with the transaction. Analyst Henry Blodget calls the eBay - Skype merger a failure based on the performance of the deal to date. That may or may not be the case for eBay; but for Skype’s stockholders it was most definitely a big win.





Skype profits


Skype generates revenue through fees associated with calls from Skype to outside lines (SkypeOut), and vice versa (SkypeIn). There are additional fees for international calls, voicemail service, and other features such as ringtones. Like PayPal, Skype generates an estimated 20-25% margin.








Political issues


China 2005

For a brief period, SkypeOut was blocked in some regions of mainland China (notably Shenzhen) by the operator China Telecom for undisclosed reasons; it has been speculated that this may relate to SkypeOut's ability to take lucrative international and long-distance business away from the People's Republic of China's state-controlled telecommunications companies.


Skype is one of many companies (others include AOL, google, Microsoft, Yahoo, Cisco) which have cooperated with the Chinese government in implementing a system of Internet censorship in mainland China. Critics of such policies argue that it is wrong for companies to assist in such policies, which might allow them to profit from censorship and restrictions on freedom of the press and freedom of speech. Human rights advocates such as Human Rights Watch and media groups such as Reporters Without Borders state that in their view, if companies stopped contributing to the authorities' censorship efforts the government could be forced to change.


Niklas Zennström, chief executive to Skype, told reporters that its joint venture partner in China is operating in compliance with domestic law. "Tom Online had implemented a text filter, which is what everyone else in that market is doing," said Mr Zennström. "Those are the regulations," he said. "I may like or not like the laws and regulations to operate businesses in the UK or Germany or the US, but if I do business there I choose to comply with those laws and regulations. I can try to lobby to change them, but I need to comply with them. China in that way is not different."



France 2005

In September 2005, the French Ministry of Research, acting on advice from the general secretariat of national defence, issued an official disapproval of the use of Skype in public research and higher education; some services are interpreting this decision as an outright ban. The exact reasons for the decision were not given, but speculatively may relate to issues noted earlier, relating to inability to monitor the nature of information being communicated, possible extreme resource usage, or unknown potential actions of the software.



United States, CALEA 2006

In May 2006, the FCC successfully applied the Communications Assistance for Law Enforcement Act to allow wiretapping on digital phone networks. Skype is not yet compliant to the Act, and has so far stated that they do not plan to become compliant.



India 2006

In December 2006, the Government of India announced they are preparing a crackdown on Internet telephony services, citing security risks and loss of revenue. The clampdown is targeted at outsourcers and other Indian IT businesses that use foreign owned Internet telephony services, such as Skype and Yahoo!, to cut their phone bills and evade the six percent revenue share and 12 percent tax imposed on local services by the government. According to The Times of India, companies must reveal the names of licensed service providers they purchase bandwidth and internet telephony minutes from. Companies will also have to undertake that they will not use the services of unlicensed internet service providers.



United Arab Emirates 2006

Skype was abruptly blocked in the UAE for undisclosed reasons—Skype users in the United Arab Emirates are being blocked from the Skype.com site, which prevents them from buying minutes for use with SkypeOut and taking advantage of deeply discounted international calling rates. The blockage has been speculated to originate within Etisalat, the only ISP in the UAE. Since Etisalat has a monopoly on telephony there, the motive could be economic, or it could be one of political control due to Skype's encryption of conversations.




The Sultanate of Oman has also blocked access to the Skype.com website preventing users from accessing skypeout in order to maintain Omantel's monopoly on the telecommunications market in the country. This has also to do with security issues as well as economic ones as it is difficult to monitor the calls made with skype. If one is to attempt to reach the Skype webpage, the monitor says: "Access Denied (policy_denied) Your system policy has denied access to the requested URL. For assistance, contact your network support team." Many other Persian Gulf countries pursue similar policies regarding Skype for largely the same reasons.

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