April 18, 2007

the plan to save Paypal: Skype revealed...

Dani spots:

From within the Skype client, there's a new choice among the forms of communication that a Skype user can initiate with a contact. In addition to being able to chat, make a VoIP call, send files and other contacting information, Skype users can now elect to send another Skype user money via PayPal. Skype and PayPal are both subsidiaries of eBay. So, now, we're beginning to see the bigger picture come together at eBay.

Basically, the mystery of why eBay thought Skype was valuable is now revealed. There was no apparent synergy between chat and auctions, and in fact Skype could be a danger to the centralised auctions model.

The answer was elsewhere, in financial cryptography: Paypal, also owned by eBay, was hurting for fraud. To do real hard payments, we've known for ever that we need a real hard client. As fraud was already hard-baked into Paypal due to early, convenient but bad decisions, improving the Paypal fraud problem required drastic steps.

The first drastic step is to move to a hard client. Skype is the best choice in the world today, as it has a lot of security built in through its crypto, it protects itself from attacks on the local client machine, and it has an already well-grown user base across major platforms. Putting money into Skype is something that any FCer could do; whereas fixing Paypal is a real challenge.

So the plan is to migrate Paypal into Skype. (What took them so long?) This has other ramifications as it means that in time, Skype will become an identity platform. Paypal money is far too identity-driven at this stage to wind back its exposure to the classical regulatory money system, so Skype has to mold to suit.

The good days of Skype privacy might be then over, as identity nexus will be demanded and stored in a US datawarehouse, available at a price. The good news is that now that the model is proven, others can come along and build it. The bad news is that those of us who did build it (Ricardo for example does chat/IM and hard payments in the same infrastructure) will never be able to catch up with the user base.

Posted by iang at April 18, 2007 09:53 AM | TrackBack

Well, you called it!

As an occasional eBay seller I was pleased when Ebay sent a notice that we could link a Skype ID to our eBay ID for communicating between buyer and seller. I generally sell collectible books, first editions, etc. and there is a real opportunity, if you can show the condition of the book visually to a buyer, to close a sale. That notice came about a year ago and I immediately created a separate Skype ID to match my eBay ID. Dutifully I set the appropriate preferences. eBay said that a Skype button would appear in my ad for communications with prospects. It has not yet ever worked. I'm about to put a few more things on eBay and I'll let you know if that Skype button ever appears and does something.

I hope you don't give up on Ricardo. There is room for more than one player.

Posted by: Poetess at April 19, 2007 07:12 AM

I commend Ian on this article. Five stars.

If you were going to write one more paragraph at the end, would you write further, about the ever tightening capture of money exchange, the ever-improving software and telecom systems? The likelihood that banksters and national currencies continue forever?

Would you write about the need for open standards, for example so that independent software and hardware could use the skype protocols?

I don't think so. I would go in the direction that we need to get away from not only the fiat currencies, but money itself. Economic reform so profound that it leaves money behind. I think we need multiparty contracts denominated in the native resources without denomination in money. If humanity invested the mental time, effort and sophistication into non monetized multiparty barter as we presently invest in our endless games around money, derivatives, financial investment, tax laws and regulations etc., the multiparty barter is certainly feasible and in my opinion better.

Posted by: TOdd at April 19, 2007 07:15 AM
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