High-tech bigwigs trawling for new clients in a tight market are forecasting more free wares based on an emerging Internet-based model used by the search engine Google Inc and telecoms phenomenon Skype.
The question was thrashed out by a star-studded panel at the World Economic Forum in Davos including Microsoft Corp founder Bill Gates, Google chief executive Eric Schmidt and Niklas Zennstrom, the "wunderkind" co-founder of Skype, which offers either free or low-cost phone services.
"That's absolutely an important model because scale is important," said Gates, whose company also includes free elements with its widely-used Windows software.
"Having a free offering at the base allows people to get in, to get used to your product. You're seeing it with virtually every [IT] product nowadays," he said.
Google and Skype have skyrocketed to major player status by amassing huge numbers of users that allow the companies to then either sell advertising space or charge small fees for services, if for example a Skype user calls a fixed or mobile telephone rather than another user.
Zennstrom told the audience that in three-and-a-half years of existence his group had registered 75 million users.
They can either call each other for free, pay a few US cents to call non-Skype users, or US$36 per year for a "SkypeIn" phone number in one of several countries.
Someone in Paris, for example, could be called at a number in Chicago by friends in the US city who would only pay for a local connection.
Zennstrom admitted that the percentage of those who currently pay for calls was "in the single digits," but his group was nonetheless bought last October by Internet auction giant eBay for up to US$1.4 billion in cash or stock, depending on Skype's future performance.
Telecommunications operators generally calculate in terms of average revenue per user, but Zennstrom said: "We don't think about that. We think about how many active users we have and how we can convert those to paying customers."
Gates, for his part, said that IT entrepreneurs "want a user base basically of 300 to 400 million."
Like the others, Schmidt hailed a convergence of computer technologies that allow companies to rapidly reach huge numbers of users -- if not customers -- with a minimum of investment.
"We've talked for a long time about e-commerce and the Internet," Schmidt said.
"Now the difference is, not only is it mission critical but it's in fact a set of tools that will allow you to build million-person businesses very quickly. The Internet allows for models where the majority of the use is in fact free, you're subsidized by others in some interesting way," he said.
Companies can then create a specialized service, which, "even in small percentages is so large that it produces enough money to subsidize, if you will, the overall operation," Schmidt said.
It was pointed out to Gates, who has faced major copyright issues in China where millions use Windows, that he might also have benefited by unwillingly amassing a large client base that could potentially generate profits.
"Absolutely. The terminology is very important in that case," he said.
RSS