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Outsource Everything

Skype’s solution is dubbed Global Index. This bit of software tells computers in the peer-to-peer network how to communicate with hubs known as “supernodes” in order to find the locations of people being called. With Kazaa, similar supernodes-which are simply PCs randomly selected from among the most powerful computers that happen to be online at a given moment-play a crucial role in relaying file requests. But with the Skype technology, the supernodes can also talk to each other and collectively store a complete, up-to-date directory of every Skype user online. Calls move seamlessly from computer to computer even as supernodes go online and offline without notice. By clever use of software, Skype can outsource the entire business of running a telephone network to its own users.

Skype’s base of users is still tiny compared to the market for traditional phone service. So far, subscribers can use the network only to call each other. And the software doesn’t come with the kind of service and support guarantees that many users, especially in the business world, expect. But Skype may not need business customers in order to thrive. If average users get hooked on the free calls, they may not mind paying for the premium services-including voice mail and the ability to call conventional phones-that Zennstrm hopes to roll out later this year. And while those services may force Skype to adapt the way its system works, its costs will likely remain lower than those of its competitors.

Meanwhile, don’t expect traditional telephones to disappear. The shift toward Internet telephony will more likely resemble the transition from fax to e-mail as the preferred way to send text quickly, Zennstrm predicts. “You still have the fax machine, but you’re not using it as much as you used to,” he says. In fact, he sees a practical benefit in Skype for the existing telecom industry, if consumers interested in making calls over the Internet flock to high-bandwidth cable and DSL services. “There is a huge broadband market potential for telecoms to go after, which will work well with our offering.”

Free phone calls, high-flying startups, soaring demand for telecom capacity-the promises might sound a bit familiar. But Skype may be the company that finally delivers on the hype.

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