Tom has a good post on Skype’s acquisition value. The golden nugget is Tom’s historical re-telling of communication networks industry history (mainly e-mail) which can be applied to any type of network effects or platform effects driven businesses. Anyone who has taken an micro-economics class knows that in a perfectively competitive market, Price=Marginal Cost, and that if MC = 0 (in this case), Price will become 0 too. . . This also means that open network inter-operativity potentially creates perfect competition, and thus price will eventually drives down to 0. Openness might be good for customers but not so good for companies . . . (see Microsoft and its desktop monopoly) . . . In the world of open source, this is probably not such a “pc” statement but its exceedingly true. . .

If you want to know the future of voice communication, look at the history of email. Once upon a time email was offered on closed networks. MCI Mail even charged by the “MCI ounce” – a thousand characters. AT&T bought Western Union EasyLink so that Ma Bell could become the post office of commercial email. Trouble is that email doesn’t require a post office. It travels over the Internet between sending and receiving server directly. Enterprises own their own sending and receiving servers. Individuals share the sending and receiving servers of their ISPs or of Yahoo, MSN, or Google (you can usually tell whose server someone is using by their email address, of course). We think of email as being free because there is no incremental cost per message.

Another good analogy and perhaps more recent is what the Internet did to EDI. Per 1,000 character prices when from over $1.00 to $.07 or lower in a matter of 5 years. It used to be that connectivity and cross network integration were the main reasons for getting EDI. (ie, you are on GE but your supplier is on Sterling) But since the Internet commoditized those “functionalities” (no need for dial up or ISDN VPN connection to an EDI network, an ubiquitous IP address will do) EDI networks has been struggling to provide “value added” services to their network such as in-network translation/XML mapping. The pricing pressure has been so bad that the new age web services networks (see grand central) are having a hard time justifying their price points as well (lets not forget XML=ASCII=EDI). So what does this say to me? That connectivity is overwhelmingly the main value proposition of any communication platform, once that is commoditized/(compromised?), the value of the network is reduced by an magnitude. . . and there is very little that an network operator can do to regain that value through providing incremental none network effects services.