eBay/Skype: Giving the calls away for free

Let's think inside the box for a change, understanding that communications is the Ultimate Reality-Distortion Universe, where assets are really liabilities, customers have loyalty so low that it can be measured in picoseconds, and every vendor yearns for yesteryear when there were real profits.

In this universe, the power winner is eBay/Skype. ("Howard, you are nuts as a bunny. EBay/Skype isn't a carrier or even a technology equipment company, it's a middleman.") Let's think this through. EBay paid $4 billion for a company with sales of $60 million that essentially gives its product away. Communications cost is now effectively zero. Consumers have figured out that if you are just technically conversant enough, you shouldn't have to ever pay for communications again. Those are the early adopters of VoIP; eBay is betting that the whole system goes mainstream by 2007 and that all those eBay buyers/sellers will be using eBay/Skype.

But it goes even further. Can it make money where there is not money to be made? Yes, if you look at eBay as kind of a Google clone delivering some sort of advertising/communities to businesses that want to address them.

Which other companies will jump in? Players will include Google, Yahoo, Microsoft, even AOL - any that understand the "free with added features" concept.This is Ivan Seidenberg's (Verizon CEO), Duane Ackerman's (BellSouth CEO), Ed Whitacre's (AT&T, formerly SBC, CEO), nightmare - a company that gives away its product and may even pay customers to call. And doing the same thing wirelessly!

Years ago, IBM invited me to address its management committee, a bunch of senior, balding, white guys who ran the place, along with Miss Ellie (Ellen Hancock). I suggested the day was coming when computing, storage, software and communications would be free. The committee responded as if I were a closet commie who should immediately retreat to Cambridge where my ilk came from. But have you figured out what your cost per MIP is today? Or what the open source movement does to software pricing? At the same price, each year, communications cost drops 66%, storage drops 50%, processing drops 45%. It's all free, and free is very tough to compete against.