The Engadget Interview: Niklas Zennstrm

Veteran journalist J.D. Lasica interviews Skype co-founder and CEO Niklas Zennström about the future of voice communication, using Skype through wi-fi handhelds, and the coming death of the telecom dinosaurs:

Please give me a quick backgrounder on Skype.

We were founded on Aug. 29, 2003, and now have 70 employees, about half in London and half in Tallinn, Estonia, and some in Luxembourg. With our work at Kazaa, we began seeing growing broadband connections and more powerful computers and more streaming multimedia, and we saw that the traditional way of communicating by phone no longer made a lot of sense. If you could utilize the resources of the end users' computers, you could do things much more efficiently.

So what is Skype all about, and what's the difference between Skype to Skype and SkypeOut?

Skype to Skype lets you call anyone else in the world who has downloaded the Skype application on their computer or PDA [personal digital assistant], for free. You just download the free software from our site. With SkypeOut you can call anyone anywhere in the world at cheap local rates, often two or three cents a minute.

How many Skype users are there, and how fast is it growing?

We have 2 million users in the U.S. and about 13 million worldwide in more than 200 countries. We're getting 80,000 new users each day. And more than half a million people are connected via Skype at any given moment. In fact, we just surpassed our first 1 million simultaneous users online. The average call time is over 6 minutes - longer than traditional phone calls.

What platforms does Skype work on?

Windows, Linux, Mac OS 10 and Pocket PC, and we're now working on some other mobile platforms.

What is SkypeIn and what are the plans for it?

SkypeIn will allow phone calls from the traditional phone network in to Skype. We don't have a specific launch date yet, but hope to offer it sometime this winter.

Who's using Skype? Who's your typical customer?

Skype is for any individual who has a broadband Internet connection. Our early adopters were primarily male, 18 to 38 years old, but we have users now from across every demographic, from young children using it to keep in touch with a parent who may be traveling on business to great grandparents using it to keep in touch with family living all over the world. Skype is easy enough to use so that people don't need to be tech savvy - a lot of users just want to communicate with their friends and family, and they find this is the easiest, cheapest way. If you can use a Web browser, you can use Skype.

Do you still use a land-line phone?

At home, I still have a regular phone line because I sometimes need to send faxes. At the office, we actually don't have a land phone line. We use Skype mostly, and mobile phones to receive calls from people not on Skype.

I hear that Skype has higher penetration in some countries than in the United States. Why is that?

We have a much higher penetration in countries like Brazil and Poland, where phone rates are high and service is hit or miss in some places. In Poland, for example, an awful lot of families have relatives in Chicago and other U.S. cities, and so they place a lot of international calls. A lot of people in China, Taiwan, Japan and Germany are using Skype, too. There are different drivers in different countries.

How does Skype differ from Vonage, 8x8, and VoIP offerings from Verizon or AT&T or the other telecoms?

Vonage is much more similar to Verizon and AT&T than to us. With Vonage, you're using a regular telephone, dialing a number, and its services have rates similar to the telecoms. What we are doing is taking advantage of the broadband Internet to provide basically unlimited free calls to anyone at a higher voice quality than they can with the phone lines.

Another differentiator is that Skype is free and simple to set up, and it costs us virtually nothing for a new user to join the Skype network, which is why we can offer the service for free.

The telephone is a 100-year-old technology. It's time for a change. Charging for phone calls is something you did last century.

I imagine this also appeals to multi-taskers. You can text-message someone at the same time you're talking with them.

Right. They also can combine voice with instant messaging and online file sharing. You can also instant message with others whle you're talking to someone else, which makes the whole communication experience much richer and more efficient for businesses, too. We also have a conference call feature where up to five people can talk on one Skype call.

How do you plan to make money?

We're making money right now by selling value-added services like SkypeOut, which brings in revenue. We don't need to make as much money per user as the traditional phone companies because our marginal costs are so low. We're also working on new paid-for features to offer users. But let me stress that Skype to Skype calls and all the features that you see today - except for SkypeOut - will remain free.

You recently unveiled Skype WiFi. How does that take your company in new directions?

We decided to make Skype available on multiple platforms and independent of the PC. People need to access Skype wirelessly, no matter where they are, and what happens is that we'll be taking advantage of the rollout of Internet everywhere - WiFi and WiMax in particular.

We started with Pocket PC, and now we're looking at other mobile platforms like Windows SmartPhone, Symbian and Palm. We don't have any launch dates yet for any of those platforms. It's going to be wonderful to be able to make a Skype call from cell phones or PDAs.

So the idea is that anyone in a WiFi cloud can make a free Internet voice call to other Skype users using their Pocket PC.

Right. At no charge, if they both have the software installed. Or by using SkypeOut if they need to call a land line or mobile at low rates.

Several users have told me Skype to Skype typically sounds much better than SkypeOut to a land phone. Why is that?

That's correct. Skype to Skype uses our broadband technology and we're not limited to the phone network. The phone network imposes certain technological limitations on what we're able to do with SkypeOut, unfortunately.

What equipment do you recommend to Skype users? Using a headset improves sound quality markedly, doesn't it?

We do recommend headsets, and Plantronics is our headset partner. It's good for your neck and frees up your hands, and it can improve sound better than some built-in computer microphones.

Have you considered incorporating Skype into other applications? For example, wouldn't it be cool to integrate it with your Outlook contacts?

Exactly. We're talking with third-party developers to integrate their applications with Skype.

And people can use Skype for other things, like sending documents to colleagues or downloading photos.

Yeah. What we want to do is remove the barriers in modern communications. If I have a Word document or digital pictures, it's easy to do and we don't have the limitations you get with e-mail.

What other kinds of gadgets will we be seeing Skype on in the future?

There are several manufacturers that you'll see turning out cordless phones that you can connect to the computer via a USB dongle. We're working with Siemens on that.

Will the wide deployment of WiMax affect the marketplace for Skype?

Sure. The more broadband wireless connections there are, the more you'll see Skype proliferate.

Should the FCC regulate the VoIP market as it does traditional telephony?

The phone market was regulated so that customers get good service and also to enable fair competition in a monopolistic arena. Voice over IP should not be regulated because there is no monopoly. Today, millions of people and teenagers in particular aren't getting land lines, they're getting mobile phones and Internet connections. The phone companies are clinging to old business models rather than transforming themselves into services companies and reducing operational expenses by using the Internet. Soon, most of us will be using the Internet for voice communication, and the idea of charging for that makes as much sense as charging for email or for using a Web browser.

A lot of people associate peer-to-peer with piracy. Will Skype change people's attitudes toward P2P?

Definitely. First of all, the Internet has been a P2P network from the very beginning. There are plenty of uses of today's P2P networks that have nothing to do with music file sharing or piracy.

Any trouble with your traveling to the States because of your role with Kazaa? We have some fairly onerous copyright laws here.

Well, that's not a problem. We have a number of investors from the United States. The entertainment industry is still spending a lot of money on lawyers, even though they don't have a case anymore. They're still trying to drag me into things. I'm free to travel there whenever I wish.

J.D. Lasica is the author of the upcoming book Darknet: Remixing the Future of Entertainment.