The Power Of Us

The 35 employees at Meiosys Inc., a software firm in Palo Alto, Calif., didn't know they were joining a gang of telecom-industry marauders. They just wanted to save a few bucks. Last year they began using Skype, a program that lets them make free calls over the Internet, with better sound quality than regular phones, using headsets connected to their PCs. Callers simply click on a name in their Skype contact lists, and if the person is there, they connect and talk just like on a regular phone call. "Better quality at no cost," exults Meiosys Chief Executive Jason Donahue. Poof! Almost 90% of his firm's $2,000 monthly long-distance phone bill has vanished. With 41 million people now using Skype, plus 150,000 more each day, it's no wonder AT&T (T ) and MCI Inc. (MCIP ) are hanging it up.

How can a tiny European upstart like Skype Technologies S.A. do a number on a trillion-dollar industry? By dialing up a vast, hidden resource: its own users. Skype, the newest creation from the same folks whose popular file-sharing software Kazaa freaked out record execs, also lets people share their resources -- legally. When users fire up Skype, they automatically allow their spare computing power and Net connections to be borrowed by the Skype network, which uses that collective resource to route others' calls. The result: a self-sustaining phone system that requires no central capital investment -- just the willingness of its users to share. Says Skype CEO Niklas Zennström: "It's almost like an organism."