Yahoo Takes Aim at Skype With VoIP Calling Feature

Taking aim at VoIP leader and new eBay (Nasdaq: EBAY) acquisition Skype -- and to a lesser extent at established phone companies -- Yahoo (Nasdaq: YHOO) is poised to roll out an Internet calling service that will enable low-cost calls between computers and traditional phones.

The service, set to launch in the next few days, according to various reports, would add Voice over Internet Protocol, or VoIP, calling services to Yahoo Messenger. And it would offer rock-bottom calling rates of as little as one or two cents per minute, lower than most established vendors in the space, including Skype, currently charge.

The service will include both "Phone Out" service to let PC users call traditional phones and "Phone In" calls that will connect phone callers to users on computers. Users will also be able to make free calls between PCs.

Yahoo plans to launch the service at once in most of the markets served by Messenger, or about 180 countries worldwide.

Calls made from within Yahoo Messenger to U.S.-based phone numbers will cost a penny per minute, while calls to 30 other countries in Europe, Latin America, Africa and Asia will cost around 2 cents per minute. Users can also rent phone numbers through Yahoo that will enable them to receive incoming calls on their PCs through the "Phone In" service.

Users will not have to enter into long-term subscriptions, but instead will pre-pay for such calls in blocks of US$10 or $25, with the credit good indefinitely.

Joining the Club

According to research firm TeleGeography, third-quarter revenue from VoIP in the U.S. rose some 473 percent over a year ago to $304 million as the number of subscribers grew five-fold. Meanwhile, the firm says extensive growth opportunities remain, as evidenced by a survey showing that 30 percent of broadband users in the United States say they had never heard of VoIP.

The growth, and the opportunity that remains, goes a long way toward explaining why virtually every Internet-related company has moved to offer some form of VoIP calling, including Google (Nasdaq: GOOG) and AOL. Microsoft (Nasdaq: MSFT) is bidding to bake VoIP into desktop applications, acquiring small software firms that make voice-calling applications.

Meanwhile, giant telecoms are also recognizing that VoIP is at once a threat and an opportunity, rolling out their own plans as the market rapidly matures.

For Yahoo, the timing of the move may be essential, said Search Engine Journal editor Loren Baker.

"Yahoo is probably wanting to get their Yahoo VoIP system rolling and widespread before [eBay CEO] Meg Whitman revolutionizes Skype to the eBay demographic and Google begins adding similar features to Google Talk," Baker said.

EBay raised eyebrows across the Internet world when it bought Skype for $2.6 billion in September.

Other analysts pointed out that Yahoo has offered many of the same features as Skype -- including PC-to-PC calling and video chatting -- that Skype is now becoming well-known for, and may want to level the playing field by extending to voice.

Evolving Attitudes

Telecom analyst Jeff Kagan told the E-Commerce Times that VoIP has gotten over many of its early problems -- poor quality and unreliability to name two-- and is now considered a legitimate alternative to landline phones.

"Internet companies, like Yahoo and eBay are getting into phone service since many of their customers already use a broadband line," Kagan said. "These are companies that are offering a phone service without a phone network."

Kagan said over time, customers will become more sophisticated about their VoIP choices, though low prices will remain a lure.

"Customers may think the quality of the service will be the same among all users, but that is not the way it works," he added. "Phone service over the Internet is not at the quality and reliability of the phone service over the phone networks, but it is getting there."