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A radical change in the relative value of everyday things

A radical change in the relative value of everyday things

22 October 2005

12:00 AM

22 October 2005

12:00 AM

It was a man in my club who first enthused to me about the special attractions of Skype. Given the normal boundaries of clubland conversation, this might suggest to those unfamiliar with the name that Skype is either a shooting estate in the Highlands or a dominatrix in Bayswater. But mine is an enlightened sort of club, providing a ‘business room’ equipped with modern technology, and what the member in question was so excited about was the fact that he had just made a free phone call to South Africa through a head-set connected to his laptop.

The software that made this possible is called Skype. It costs nothing to download, and calls between its users anywhere in the world are free. Though big names such as Microsoft and Google are positioning themselves in the same territory, Skype is currently the hottest thing in ‘voice over internet protocol’ (‘VoIP’) telephony. So hot, in fact, that eBay, the online auction house, agreed last month to pay $4 billion for it.

This fortune has been collected by Niklas Zennström and Janus Friis, respectively a Swede and a Dane, who founded Skype less than three years ago. Their previous venture was KaZaA, a ‘file-sharing’ network which, like the more famous Napster, was chiefly used as a source of free downloaded music — a practice that has now effectively been outlawed for breach of copyright. The Skype concept has also been criticised — for its dependency on other companies’ networks — but no one has challenged its legitimacy. It has attracted 54 million users around the world so far.

But it is still a small thing to buy for $4 billion. It generated only $7 million in income last year, and has not revealed whether it has ever made a profit. The eBay deal thus values this fledgling at a multiple of almost 600 times its last published income. This tells us that eBay has either succumbed to a call-the-men-in-white-coats recurrence of the dotcom insanity which gripped the business world and wrecked the stock market five years ago, or that the Next Big Thing has just arrived. Spectator readers — known for their thirst to be at the cutting edge of technological advance — will want to know which.

The answer, unhelpfully, seems to be both. Commentators were unanimous in declaring that eBay had overpaid. But since Rupert Murdoch, one of the world’s shrewdest investors, was recently rumoured to have offered $3 billion for Skype, eBay’s offer may in the end be judged merely over the top rather than completely bonkers. It all depends on what Skype does for eBay: the cyber-auctioneer does not, apparently, want to become a phone company, but it does want its buyers and sellers (who send each other 5 million email messages a day) to be able to talk freely to each other, one-to-one or in giant conference calls, adding exciting new dimensions to the auction process.

But VoIP is about much more than making it easier for bidders in Honolulu and Hendon to squabble over items of Dylan memorabilia. The software behind it — the magic that turns the human voice into ‘packets’ and sends it over the internet — will enter all our lives within a few years. Subscribers to VoIP services will multiply, while major conventional networks — the likes of BT, America’s regional ‘Baby Bell’ companies, and Bell Canada — will convert to VoIP technology anyway, slashing costs by sending long-distance traffic through a ‘national internet protocol backbone’.

A Darwinian contest is therefore in prospect between new species such as Skype and old ones such as BT, which must adapt to survive — comparable to the tussle between low-cost airlines like Ryanair and lumbering ‘flag carriers’ like British Airways and Air France. In both cases, national operators accuse newcomers of piggybacking unfairly on an established infrastructure: VoIP services in this country depend ultimately on BT’s telegraph poles and repair vans to provide customers with internet connections in the first place.

Bloggers and techno-nerds are earnestly debating the issues that arise from this clash. Should network providers give internet voice traffic the priority it needs over data traffic if VoIP is to be totally reliable? Should VoIP be regulated to ensure fair play? Is Skype ‘a good corporate citizen’ or a new form of parasite, sucking the blood out of other people’s networks in the same way that KaZaA and its kind stood accused of ripping off the music industry?

But all you really need to know is that another radical change is taking place in the relative value of everyday things. Once we thought nothing of driving to the shops but hesitated to make long-distance phone calls before six in the evening. Now we can console ourselves with the thought that as oil prices climb call charges are shrinking to nothing. So picture yourself in 2010, carless and huddled beside a log-burning stove, but simultaneously chatting to your cousins in Aberdeen and Auckland while selling your sought-after Spectator back issues on eBay.

The non-conformists’ party

I had the good fortune, 30 years ago, to attend one of the ‘parties for non-conformists’ given by Arthur Seldon, the amiable founder-president of the Institute of Economic Affairs who died last week aged 89. I was invited by his son Anthony — now a distinguished biographer and headmaster — with whom I was sharing Oxford tutorials at the time. A gang of us went down to Kent for the evening, and (since such subversive stuff was barely shown to undergraduates in those days) I’m pretty sure it was the first time any of us were exposed to the body of ideas, inspired by Friedman and Hayek, that would later be repackaged as Thatcherism.

Among these novelties was the concept of education vouchers — strongly favoured by Arthur’s wife Marjorie, who was trying to persuade Kent to adopt them at the time, and still the hottest potato of education policy argument today. The other issue of the moment (then in the hands of the Bullock committee) was whether the solution to the industrial strife that was wrecking Britain was to force companies to invite union-sponsored worker-directors on to their boards — a folly which even the Callaghan government managed to resist. It was on this topic that I found myself cornered by the young but already formidable Arianna Stassinopoulos, now Huffington. ‘Vot do you sink of industrial democracy?’ she purred. Unenlightened as I was, I must have offered a pretty muddled answer. And she must have been at least seven feet tall, because my eyes seem to have been exactly level with her memorable cleavage.

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