Skype's Back But For How Long?

UPDATED: Just when eBay thought it could finally trust Skype for a little growth and profit.

 By Nicholas Carlson
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UPDATED: EBay's Voice over IP (VoIP) company Skype is blaming last week's two-day outage on "massive restart" of user computers across the globe.

Users worldwide re-booted their computers within a "very short timeframe" after receiving a routine set of patches through Windows Update, Skype said in a blog post today.

On Thursday the system crashed after a flood of log-in requests combined with a lack of peer-to-peer resources revealed a bug within Skype's network resource allocation algorithm.

That was a problem, because the resource allocation algorithm is supposed to help Skype "self-heal" by dictating which computers within the peer-to-peer network to lean on for capacity.

Skype said it can "confirm categorically" that no malicious activity was involved in the the outage.

"Users' security was not, at any point, at risk," the post reads. Skype did not respond to requests for comment.

Skype's long-term viability, however, might be a different story.

It's not like Skype has ever been eBay's most stable division. EBay acquired Skype in late 2005 for $2.6 billion. For a long time, industry-watchers and company investors wondered why.

Within a year, eBay customers joined in the griping, wondering why the auction house's services hadn't yet been more integrated with VoIP.

By the beginning of 2007, even eBay CEO Meg Whitman described the integration of Skype as one of its top challenges.

"Skype monetization efforts are not developing as fast as we hoped," Whitman said on a call to announce 2006 Q4 results.

Finally, all that trouble seemed to be fading by the time eBay announced its second-quarter earnings in July. For the second quarter in a row, the Skype acquisition showed signs of paying off, as communications net revenues totaled a record $90 million, a growth rate of 103 percent over the $44 million reported in the same quarter the previous year.

But now, after what Skype described in its post as an outage "unprecedented in terms of its impact and scope," eBay's communications division can only plead with users to keep faith in its services.

"Skype has now identified and already introduced a number of improvements to its software to ensure that our users will not be similarly affected in the unlikely possibility of this combination of events recurring," today's post reads.

"We would like to point out that very few technologies or communications networks today are guaranteed to operate without interruptions."

JupiterResearch analyst Doug Williams told internetnews.com the begging will go for naught.

"I'm not going to say [the outage] was a death sentence for Skype, but it's going to make business owners wary," Williams told internetnews.com.

Forrester Research analyst Sally Cohen shared the skepticism about Skype's future in the enterprise as well as its profitability for eBay.

"The outage reinforces that Skype is not a landline replacement," Cohen told internetnews.com. "Skype is now a very low option on the totem pole."

This article was originally published on Aug 20, 2007
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