Thursday, July 14, 2005

Microsoft, GIPS, Skype, and Money

So Microsoft has licensed the Global IP Sound VoiceEngine product, which provides the broadband codecs that Skype uses. (Several other bloggers have already noted this; I picked it up from Andy and James.)

Previously, when I conjectured on how much Skype was paying for its GIPS license, a commenter claimed that GIPS doesn't always charge on a per-port basis; rather, they "use the business model of each of their customers," and that since Skype doesn't charge for downloads, the license fee will be a percentage of revenues.

Hmm. MSN Messenger is a free download, just like Skype. Think GIPS is getting a percentage of Microsoft's revenues?

Facetiousness aside, this item and some recent commentary about the tension between Skype the platform and Skype the company developing applications got me thinking on several levels.

First, if in fact GIPS is getting licensing fees from Skype based on Skype's revenue, I would think they could be getting nervous about an explosion of third-party applications that contribute nothing to Skype's top line. Particularly if those applications are ones that don't drive Skype interworking with the PSTN, which is the only place Skype makes money currently. If I'm using Skype as a platform for video communications using one of the third-party video apps, there's nothing particularly driving me to buy SkypeIn, SkypeOut, or Skype VM.

By the same token, Skype itself has got a fundamental conflict, which makes it very different from, say, Microsoft. It makes no money off its basic platform. The more ability it gives developers to invent creative new applications, the less likely it is to be able to sell similar applications itself. Mindshare is great, mass adoption is great, but it doesn't pay the bills.

Companies in a situation like this have several options:
  1. Limit the ability for third parties to develop applications that compete with in-house applications. Keep some capabilities out of the API, for example. Doesn't exactly endear you to third-party developers.
  2. Charge developers in some way for access to the API. Also doesn't endear you to third-party developers, and inherently reduces the number of people who will want to be third-party developers.
  3. Charge for the platform. Probably a rather unpopular move, and dangerous if user barriers to switching are as low as people think.
  4. Charge for parts of the platform. Segment the product into two, for example: a "Skype Lite" and a "Skype Pro", with more capabilities in "Skype Pro" -- but only "Skype Lite" available for free.
  5. Build applications that are so much better than what the third parties will build that customers will buy yours instead of someone else's. Hard, given the ability of third parties to focus more narrowly.
Personally, I'm betting on Number 4.