Tuesday, January 17, 2006

A Skype Rashomon: P2P, Voice and the Read/Write Web

Tim O'Brien, a group manager platform strategies at Microsoft, challenged recently the scalability of web2.0 applications: "When you look at Web 2.0 companies out there, they have user bases on order of 300,000. The question is when the base goes to three hundred million, how do you deal with that?"

Undoubtedly, there are several answers to the above challenge. But only one got 2.6B$ (and if all milestones are met – 4.1B$), and that's Skype.

Skype is, for and foremost, a proven (KaZaa, Joltid, Altnet) peer-to-peer architecture that successfully imitates the organic behavior and topology of scale-free (or power law) networks. This type of networks, to which the Internet is a prominent model, get stronger and unbreakable as the number of nodes grows (ok, ok – almost unbreakable; there's always this small Achilles Heel [=the hubs]). And because peer-to-peer networks – just like their step brother (or, rather, step son) of grid computing – are utilizing the endpoints as computing resources, they are extremely cost-effective in comparison with other networks in a need to provide the scalability and reliability that the above mentioned Microsoft's Tim O'Brien is seeking.

Skype architecture and The InternetSimilarly to traditional grids, peer-to-peer networks are usually associated with batch-oriented operations, such as file sharing. Yet Skype is a living proof that mission-critical, real-time services can take advantage of the same underlying peer-to-peer architecture, in order to gain internet-grade scalability and reliability for a fraction of the traditional cost.

Can eBay harness the underlying peer-to-peer architecture of Skype to the advantage of its future Services? My answer is – definitely. I think eBay is building what many expected will come from Google - some sort of a global, infinitely scalable and reliable web2.0 platform. eBay could, naturally, wait for the Gorillas to provide the ultimate grid platform for their services; they decided, though, to go with the proven grid-makers of the Internet. They voted KaZaa.

As said, Skype is another plug-in to the peer-to-peer network infrastructure that the Skype founders successfully implemented in at least three earlier companies. Now, why would eBay want to have a VoIP infrastructure?

One of the official and logical explanations is figured in the eBay-Skype investors' presentation. It appears that 40% of eBay's revenues are attributed to complex transactions that usually require a human touch. This human interaction happens in a form of emails and/or voice calls. In eBay's terminology, this is a friction. Skype will hopefully enable faster Time-To-Deal and remove the friction by allowing natural, intuitive and quick human interaction. As Amazon demonstrated genially with its Mechanical Turk - sometimes it's much simpler and cost-effective to let humans do the job.

I think, though, that eBay needed a VoIP infrastructure for at least two more (unofficial) reasons. The first is related to the future of web2.0; the second – to a viral adoption.
As we know, web2.0 is the social web, in which people are taking active part in the creation of World Wide Information. When technology leaders explain the foundations of web2.0 they usually refer to open source, SaaS – software as a service, scripting, users rating, tagging, rss, ajax, rest and (probably) soap.

But something fundamental is still missing in the people's web, and that's the ability to communicate as people do. The interaction model of web2.0 hasn't changed from web1.0 - it is still browsing and mouse-clicking and not human. Think about any sci-fi movie in which people interact with machines via browsers and mouse-clicks – you won't find any. Voice is the missing protocol of web2.0.

VoIP technologies provide eBay with the ability to create mash-up "humanoids" that would interact with people in the most natural protocol – voice - thus further removing the friction between the man and his mechanical friends (see picture). Actually, eBay (or Skype) has already started encouraging community developers to create this kind of voice-enabled services.

What's left is to bring the people in. How do you do that? Provide the world with a free ticket to Disneyland… or in the Skype terminology – provide the world with free, high-quality and reliable voice calls, and viral adoption (of Skype? - No! of the eBay services platform!) is guaranteed (by the way, the topology of virus propogation is that of a scale-free network... like Skype's).

To conclude, by acquiring Skype eBay got:
- a proven, [potentially] infinitely scalable, reliable and cost-effective network, on top of which both Batch and Real-Time services can be deployed.
- a voice-enabled services platform - the future of the people's web 2.0
- a great viral service that will allow the creation of hundreds of millions of subscribers - ready-made prospects for the consumption of current and future eBay' services.

If that's not worth 4 Billion, what is?

This is the second post on Web2.0, SOA and the Future of Telecom. The next post will be dedicated to the Telco companies and their perspective on what's going on here.


Blogger Paul Jardine said...

Why didn't they just license Joltid?? I heard that they didn't even get the IP for the P2P in the Skype purchase.
Are Joltid licenses $4.1 billion for 200 million users?

4:25 PM  
Blogger Muli Koppel said...

Thanks for the question.

Skype is obviously not just peer-to-peer network. If it was just that then licensing Joltid would have been a logical step. But Skype provides the VoIP infrastructure and the viral service – so it's a completely different story than just p2p infrastructure.

There is, though, another answer to why 4B$ which is completely psychological. I think eBAY wanted to make it clear that it didn't buy a software company, but rather a Telecom company! When you look at Telecoms M&A, 4B$ is what I would consider an "average" deal. For instance, last month Vodafone acquired Telesim, a Turkish operator with ("just") 9 million subscribers for 4.5BUS$.

5:23 PM  
Blogger Paul Jardine said...

Sorry, it took me a while to get back here. I'm not sure that I buy the 'not just peer-to-peer network' as Skype licenses its VoIP from GIPS, so essentially the part that is Skype is whatever authentication/authorisation is outside Joltid, the client, NAT traversal and the session initiation (that they developed instead of SIP).
However, I do agree that Skype could quite easily be valued the same as a telco, with the only qualification being that the ARPU of the Skype subscriber base is probably in the order of cents rather than dollars per month.
Skype is user-friendly and 'it just works' - that is the thing that really sets it apart right now. There is a significant advantage in being the market leader in the field, but I wonder how long it will last. Skype's innovation and momentum look like they might be drying up.
They face the dilemma that the telcos face, to retain control and place huge inertia on service development, or to open up and potentially give away huge amounts of revenue on the back of your network. 10% of X or 90% of Y? I believe I'd rather have 10% of X, but the telco position is, and will probably continue to be 90% of Y, even as Y tends to zero.
Ok, enough rambling! I'll connect to you on LinkedIn if that's ok.

2:57 PM  

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