Google Voice: Trouble Calling for Skype?

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Skype Is Broadly Entrenched

Startups in the Web phone-calling market could also feel pressure. Tom Carter, president of Truphone Americas, put a brave face on Google's move. "The interest of a large Google is a sign of validation that the market has arrived," he says. But competition with Truphone and such other startups as Fring and Jajah may only mount as Google prepares enhancements for Voice, including an app for Apple's (AAPL) iPhone that product manager Walker says is in the works.

To be sure, Skype's VoIP software is widely available, while Google still offers Voice only to customers who have signed up for one of a limited number of invitations. Skype already sells applications for iPhones, BlackBerrys, and Android phones, and has distribution with European telco 3.

But Google hopes to leapfrog Skype by leveraging other popular products and cozying up to carriers. Google could encourage its millions of Gmail users to try Voice, for example.

Google is also trying to position Voice as a service that works in tandem with a carrier's calling plans. Voice customers "are still using their mobile service provider's minutes," Walker says. The company may also consider sharing revenues with wireless carriers, he says.

Google Courts the Mobile Carriers

To win telcos over, Google decided not to let Google Voice's mobile application work via Wi-Fi connections, which circumvent carriers' networks. "We have no plans to add Wi-Fi at this point," Walker says.

Partnerships with mobile carriers could be the quickest way to recruit millions of users. Today only about 13.4 million people worldwide—mostly tech-savvy early adopters—use Web calling on their cell phones, according to market researcher IDC. But the number of VoIP users is growing by 20% a year. And Google already has strong relationships with several carriers, including T-Mobile USA, with which it co-brands the T-Mobile G1 phone. Google also invests in Clearwire (CLWR), which is building a nationwide broadband service.

Prime Google targets could be to serve its bread-and-butter Web advertisements to Google Voice users and to apply its search engine to transcripts of voice mails to make the service more compelling, according to Rich Greenfield, an analyst with Pali Research.

Says consultant Arnold: "I don't think Google is in the game to be a phone company." Perhaps not, but those that are have reason to look askance at Google's expansion into their market.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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