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Skype's Next Moves

Skype co-founder Janus Friis says he wants to expand the Web-calling service into a "great company." Just how he and co-founder Niklas Zennstrom plan to go about getting there has drawn much speculation lately.

Reports have circulated for weeks that the 2-year-old outfit, which boasts 52 million users, will soon be acquired. One week, onlookers speculate that Yahoo (YHOO) is courting Skype. The next, it's search-engine giant Google (GOOG), and then Rupert Murdoch's News Corp. (NWS). The latest alleged suitor? Online auction powerhouse eBay (EBAY).

Or, Skype could go public. "Naturally, there will be a lot of companies that would like to acquire Skype," says Tim Draper, whose venture-capital concern Draper Fisher Jurvetson, which has funded the likes of Chinese search-engine Baidu, is a Skype investor. "Since the company has so much potential, I would like to see it remain independent," says Draper.

Friis, 29, won't comment on acquisition or IPO rumors. But he did talk to BusinessWeek Online reporter Olga Kharif about wireless efforts, an international push, and the increasingly competitive landscape. Edited excerpts are below.

Lots of companies are jumping into the market for Internet telephony. How will you differentiate Skype from all the other services?

Since we launched two years ago, we've amassed a user base of 52 million people. This user base continues to grow at the rate of around 150,000 people a day. And these are people who love Skype and want to use Skype also on wireless devices. So our user base is very much an asset for us. We are the largest Internet-telephony provider in the world -- and growing very fast.

With MSN (MSFT), Yahoo, and Google redoubling their efforts in this market, are you worried the competition is getting tougher?

I think many of these companies are great companies. Recently, several of them have announced improved versions of voice technology in some of their products. But we are way ahead of them. What they launch now is something that we had two years ago. And we continue to innovate and come out with new products, deals, and services all the time.

We have a very big lead. These companies focus on other things -- and may also have the communications function. We are 100% focused on providing great communications tools.

Google recently introduced Google Talk, an instant-messenger service allowing people to make voice calls via the Web. Have you seen any slowdown in your user growth?

No, no, no -- quite the opposite. Since Google came onto the market, this technology has gotten a lot of attention, and we've actually seen an increase in use. [Google's move] has further helped validate this marketplace and business model.

You just announced a joint venture with Tom Online in China. How does that relationship fit into your overall strategy?

China is a very important market for us. Broadband [penetration] in China is growing very quickly. We've had extremely good growth there, and we plan to launch many additional products in China. Tom has been a partner of ours for quite a long time -- and a very good partner. So we are just continuing in pursuing that successful partnership.

On Sept. 1, Skype unveiled an agreement with Germany's third-largest mobile operator, E-Plus, to allow its cell-phone subscribers to use Skype. Are you talking with other wireless carriers to provide Skype over their networks?

E-Plus is the first mobile operator to join forces with Skype. Their users can now get Skype as part of their subscription service at a flat fee per month. There's huge interest from other wireless carriers in a variety of different markets, and the discussions are ongoing.

What is your wireless strategy?

We think it's very important that people can use Skype not just from their computer but also from their mobile phones and mobile devices in general. This is one step in that direction. But we are launching a number of different products and deals that would allow people to use Skype not just from their computer.

One example is our deal with Motorola (MOT), announced more than half a year ago. Motorola is the first major handset partner to join forces with Skype. There will be products coming out of that [agreement] soon.

One reason for Skype's popularity is its free service. How do you convert these customers into paying subscribers?

Our SkypeOut service has been extremely successful. [SkypeOut lets PC users call regular and wireless phone numbers for mere cents a minute.] About 5% of our user base opts for SkypeOut as well. That's not because we are marketing it to them heavily -- we are not. They just find the service helpful and are happy to sign up.

You still have a long way to go before you start making money off the other 95% of your users. When do you hope to reach profitability?

We are very happy with our SkypeOut service, which is funding our global expansion. We have people on the ground in 14 different countries, and we are expanding very rapidly in terms of deals and products. We don't comment on any financial figures.

Would you consider selling Skype to another company?

We never comment on all these rumors. We are building Skype to be a great company.

Is an IPO a possibility?

No comment.

Some people suggest Skype needs to become more open and move away from using proprietary technology. Will Skype head in that direction?

Two weeks ago, we opened up for third-party companies and software developers to integrate our functionality into their applications. People can hook onto Skype and talk to people on the other networks. And we are seeing a lot of developer interest. We recently had a developer competition, and there were 400 entries. We are developing a great ecosystem, in which people are building products and businesses on top of Skype.

What kinds of cool new applications will result from this effort?

People are using our tool kits to make hardware [products] compatible with Skype. People are launching video-communication services, shared collaboration software, voice-mail products -- all kinds of products that work with Skype to improve the user experience. It takes Skype into areas where we just don't have the resources to go.

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