Yahoos Dialpad Buy Pushes VOIP Toward Mainstream

By Libe Goad  |  Posted 2005-06-16

Yahoos Dialpad Buy Pushes VOIP Toward Mainstream

Yahoo on Tuesday bought Dialpad Communications, potentially turning the longstanding Internet portal into a communications vehicle that some say will rival Skype.

A Yahoo representative said the company will expand the recently announced voice options in its instant messaging service, allowing users to make both PC-to-PC calls and outbound and inbound calls to the PSTN (Public Switched Telephone Network).

Last month, Yahoo added PC-to-PC calling to its instant messaging client, bringing users limited voice contact–clients can talk only to other users on their Yahoo Messenger buddy list. A Yahoo spokesperson told Ziff Davis Internet News that inbound and outbound calls most likely will be integrated into the users buddy list.

Analysts say the acquisition will do two things: Turn Yahoo into a serious player in the VOIP (voice-over-IP) market and push the reach of VOIP further into mainstream users hands, thanks to Yahoo Inc.s tremendous mainstream appeal and Dialpad Communications Inc.s longstanding experience with PC-to-PC calling.

Will Stofega, an analyst at IDC, said the strategic relationship also will expand Yahoos voice reach beyond U.S. shores, bringing the company more access to international customers or to existing customers who want to call people overseas.

"In a way, it captures a lot of carriers and relationships with the telcos [telephone companies] that Dialpad brings to the table," Stofega said.

Other analysts such as John OKeefe, a senior analyst at Current Analysis Inc., say buying Dialpad and integrating VOIP into the IM service make Yahoo a leader among similar Web services.

"I think everyones been talking about VOIP, and Yahoo is one of those companies that, by enhancing its IM market, has become a leader in the IM market going into this VOIP space. I would not be surprised if other [companies] fall into these same footsteps," OKeefe said.

Skype Killer?

Some industry-watchers say the new, improved Yahoo voice service will pose serious competition for Skype Technologies S.A. and other PC-to-PC voice services.

Others say the Yahoo voice plan will be a stark contract to the Skype service, which, while it boasts 42 million users, has a business plan reminiscent of the dot-com boom era. Or it means that Skype is ripe for the picking by another company, i.e. Microsoft Corp.—a move analysts say would ensure that the company stays on top of the PC-to-PC voice market.

Stofega said part of Skypes appeal is that its traveling away from the mass market, unlike Yahoo and other PC-to-PC voice programs.

"Seem like theyre looking to get into the enterprise market," he said. "Does that mean theyll be selling to small businesses or enabling [their services] to work on large enterprises desktops? Its better for them to get a large contract and go to a large enterprise."

Kate Griffin, an analyst for the Yankee Group, said that despite a general skepticism about Skypes finances, the company wont be devalued despite the Yahoo-Dialpad deal.

"With the base that they have today, they have created options for themselves that cant be discounted," Griffin said. "[Skype is] courted by many people as a channel. While I was skeptical and didnt see how they would make it, they are a niche service for a niche market. Theyre not going to topple Verizon, but I can see them surviving."

Next Page: How will the purchase affect Yahoos deal with SBC?

SBC Deal

But how will the purchase of Dialpad affect Yahoos deal with SBC? Again, probably very little, analysts say. Yahoos new purchase may prompt a few changes concerning its four-year deal with SBC (Southwestern Bell Co.), a partnership that has spawned Yahoo-promoted DSL service in parts of the country and has given the Web site play in a traditional phone company. But most analysts say the three services will just create a more holistic picture for Yahoo.

"Yahoo is very committed to that relationship and SBC, [but] were in an increasingly confused area where we can no longer draw these boundaries," Griffin said. "There are pieces of Yahoos voice service with the potential to substitute a piece of SBCs voice calling, but that overlap is not that significant."

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Current Analysis John OKeefe said Yahoos partnerships with SBC and Verizon have been a windfall for the company, so he couldnt imagine that Yahoo making another deal would put that relationship in jeopardy.

"It could cause some rumblings, but honestly I dont think it will because [SBC and Dialpad] offer such different services," OKeefe said. "In fact, it could bring greater exposure to the partnership."

Consumers and VOIP

Even with all of the noise generated by the news, it doesnt necessarily mean that full-fledged Yahoo VOIP service will make the average consumer more comfortable talking over the Internet.

Using Skype as an example, The Yankee Groups Griffin said the concept of PC-to-PC calling has gained a lot of traction, but many people still have not heard of the technology.

"A name like Yahoo that can bring its ease of use will encourage more awareness," she said. "I can see more people using PC-based voice for small segments of their usage."

OKeefe of Current Analysis said consumers will be more willing to adapt to the technology if the price is right, and if consumers really want to use PC calling services as opposed to regular instant messaging.

"I dont think, by any means, that [Yahoo] will be a threat to the traditional phone-line communications," he said. "The overall emphasis [on the VOIP market] has yet to come."

Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.

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