Yahoos Dialpad Buy Pushes VOIP Toward Mainstream

VOIP analysts say Yahoo's upgraded PC-calling capabilities will have fans, but will stand in stark contrast to the service offered by Skype.

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?