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August 16, 2005

Yahoo readies new VoIP service

Yahoo Inc is readying to capture a larger piece of the VoIP market and one analyst said it would announce a new VoIP product during the next two weeks.

By CBR Staff Writer

The new service would be comparable to Skype Technologies SA’s, said Safa Rashtchy, senior research analyst at Wall Street researcher Piper Jaffray Co, which makes a market in Yahoo stock.

VoIP is fast becoming the new killer app of the Internet and this move should push Yahoo ahead of its competitors, Rashtchy said in a research note.

Yahoo is planning to become a full-service VoIP provider, but declined to give a timeline on new product announcements beyond coming months, said spokesperson Terrell Karlsten.

The impending move by Sunnyvale, California-based Yahoo into the VoIP arena would potentially be disruptive.

Skype currently leads the VoIP consumer market with more than 30 million users, according to the most recent market research.

Yahoo will have a big lead to chase, but its existing user base and household name may serve it well. Still, America Online and Microsoft both recently included voice capabilities into their messaging services, as well.

David Grabert, spokesperson for Cox Communications, which offers VoIP as part of its triple-play service (voice, TV/video and Internet), said Yahoo would likely find it difficult to compete against bundled VoIP services. Another major US VoIP provider, Vonage Holdings Corp, did not return calls requesting comment on Yahoo’s planned push into its market.

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Last week, Yahoo launched Messenger 7.0, which includes free PC-to-PC VoIP service and voicemail. Both parties must have the latest version of Messenger for it to work.

Karlsten stressed the new VoIP feature is SIP-based and is a significant upgrade to previous VoIP capabilities, which Yahoo has had since 1999 and did not enable two-way conversations and had rather poor sound quality.

She said the next VoIP enhancement for Yahoo has been prioritized within its Messenger service, but that the company is looking to expand its VoIP offerings beyond just a souped-up messaging software.

Rashtchy said the new VoIP would expand Yahoo’s content footprint and further establish its brand as comprehensive provider of content, search and communication services. He said Yahoo is likely to run the new service with an advertising-supported basic service and potentially a premium paid service.

Karlsten said Yahoo would in coming months leverage the technology it acquired when it bought six-year-old VoIP service provider Dialpad Communications for an undisclosed amount in June. Back then, she also said Yahoo would use Dialpad’s PSTN capabilities to add in-bound PC and PC-to-phone calling to Yahoo’s offerings in coming months.

Karlsten declined to say how many Yahoo Messenger users had tried its new PC-to-PC service, but noted that during beta trials in May, the company saw a two-thirds increase in voice usage among users.

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