August 26, 2010 12:00 am

Google to compete with Skype

Google on Wednesday moved into direct competition with Skype, the internet telephony service, as it unveiled a feature that will enable its Gmail users to call landlines and mobile phones from their e-mail inbox.

The new feature broadens Google’s growing array of communication products and creates a potent rival to Skype, which is preparing for an initial public offering.

“It might cloud the impending IPO a bit,” said Ray Valdes, web analyst at Gartner. Earlier this month, Skype said it planned to raise at least $100m with an offering on Nasdaq by the end of the year.

Google faces an entrenched adversary. Last year, Skype became the leading carrier of international voice calls. In the year to June 30, Skype’s registered users rose from 397m to 560m. Gmail has just over 200m users.

But just 8.1m of Skype’s users pay for the service, and the company relies on these direct payments from these users for most of its revenues.

Google plans to undercut Skype’s prices. In a price comparison chart that showed rates from Google and the “leading internet telephony provider”, Google offered cheaper calls to landlines and mobile phones in the UK, Mexico and France.

In a promotion designed to attract new users, calls to the US and Canada will be free for at least the rest of the year. Calls to other countries will be as low as 2 cents per minute, and will not include a connection fee. The service will become available to US Gmail users in the coming days.

Google already offered Gmail users free voice and video calls to other Gmail users, and the company rolled out Google Voice, a call management programme, earlier this year.

“It was only a matter of time before Google moved to Skype-like features,” said Mr Valdes.

In unveiling the feature, Google emphasised the ongoing convergence of traditional telecommunications and the web. “Given that most of us don’t spend all day in front of our computers, we thought, ‘wouldn’t it be nice if you could call people directly on their phones,’” the company said in a blog post.

Analysts said it was too early to tell if low prices and the convenience of the inbox would allow Google to lure users away from Skype.

“Google has huge resources, both technical and financial,” said Mr Valdes. “At the same time it’s very, very early for this to be a significant threat. Skype users are tremendously loyal.”

Skype declined to comment.

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