Internet phone company Skype is testing a new version of its cheap call service that supports high quality video conferencing for the first time.
Skype 4.0 beta can stream full screen, high resolution video calls over a standard broadband connection.
In the current version of the software, video chat is limited to a postage-stamp sized box in the corner of the screen.
Video calls already account for a quarter of all traffic on Skype.
The company’s product development manager Mike Bartlett said: “There’s now a video call button for every one of your contacts. We’ve tried to make it easier to get up and running.
“We’ve made the picture a lot bigger and you can now resize the image plus you can run an instant message conversation along side it really easily.”
New interface
But users must first connect to a friend and then hunt around for a tiny camera icon after the audio link has already been established.
The new software, which Skype calls a “major” update, treats video, text and audio conversations equally.
Other 4.0 features include a brand new user interface, automatic detection of hardware settings and simpler record-keeping functions.
It is designed to work with software from other manufacturers, allowing users to import contacts from services like Microsoft Outlook, Hotmail and Yahoo! Mail for the first time.
Tighter integration with the PayPal money transfer service should make it easier to send cash to friends, contacts and shops over the Skype network.
Making money
Skype, which is owned by the auction giant eBay, works over the standard internet instead of traditional phone lines, letting users make calls between computers for free.
Calls to other landlines and some mobile phones are charged at between 2 pence and 14 pence a minute.
Skype claims to have 309m registered members and 12m users at the busiest times of the day. But although it is the largest company of its type in the world, it has struggled to make money.
EBay recently said the business is worth $1.4bn less than the $2.6bn it paid for it in 2005.
According to some reports, it is thinking of selling Skype before the end of the year if it cannot find a way to integrate the technology into its main auction site.
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In spite of its global popularity, Internet telephony (VoIP), which is almost free for users, has not become a gold mine for its pioneers such as Skype and Vonage.
Popular online auction firm eBay, which bought Skype two years ago for 2.6 billion dollars, affirmed that message in a costly way on Monday when it devalued the once-darling firm, knocking 1.43 billion off its value.
The accounting move was long anticipated.
“We are glad to see eBay admit that it overpaid for Skype and that much-hyped synergies have not yet materialized to any large extent,” said global financial services firm Cantor Fitzgerald.
“We have struggled with the economics of the Skype transaction relative to the financial expectations for the business.”
Analysts interviewed by AFP wondered how Skype could convert its extraordinary global popularity into hard cash and corporate revenue. Skype saw its number of users double in the past year to 220 million.
Skype fans as far away as China download software that enables them to make telephone calls from one computer to another anywhere in the world for free.
A problem for the company has been that few of those fans use additional for-fee services such as SkypeOut, which lets people call from computers to traditional telephones for per-minute rates.
People also prefer combination telephone, Internet, cable television deals offered by major telecommunications companies to relying on Skype or Vonage for long-distance calling, according to iSuppli analyst Steve Rego.
“Vonage has around 2.8 million paying customers and Skype 2.4 million,” Rego told AFP.
“Customers preferred bundled services with television, telephone and Internet, I really don’t know if pure specialty companies such as Skype can draw them in.”
Often bundled service packages channel telephone calls using VoIP, voice over Internet protocol, without customers realizing it, meaning multi-service providers are cashing in on the technology, Rego said.
“I don’t think pure players like Skype will make a big dent in the market,” said Forrester analyst Sally Cohen.
“They can still make money. Skype needs to think how they can monetize the base of users. The first thing that comes to mind is advertising, for example click-on ads.”
EBay’s original plan was to integrate Skype into its online auctions so, for example, sellers and buyers could call each other instantly using their computers.
This course seems to have been abandoned by eBay.
“We feel like we can do a lot more with Skype as a stand-alone VoIP provider,” said eBay spokesman Hani Durzy.
But Skype has heavyweight competition in the online telephony arena. Google, Microsoft, and Yahoo have woven VoIP calling into their online messaging services.
Vonage, a major Skype competitor in the United States, spent a fortune promoting its cheap Internet-based telephone service only to find itself in hellish straits of late.
Vonage showed a loss of 338 million dollars in 2006 and is defending itself against accusations it violated patents owned by telecom industry giants.
Vonage stock that debuted at 17 dollars on the Stock Exchange in May 2006 was valued less than a dollar a share on Tuesday.
Large companies are converting en masse to VoIP telephone service, but are relying on network specialists such as Cisco, Alcatel, or Nortel which guarantee reliability and quality.
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