Cheap VoIP Options: Skype

There is a lot of buzz flying around this week about cheap VoIP options.  Three of us bloggers covered Magic Jack on Monday (Jon Arnold, Doug Mohney, and me), and with the launch of the new iPhone on Monday, I covered a new iPhone VoIP-over-WiFi application, iCall, on Tuesday. 

iCall is by no means the only app that allows a mobile device to make calls over a wireless network.  Darren Loher commented on this blog that Skype works pretty well on a 3G network on a Windows mobile handset, and that iSkoot works well on his Blackberry. 

For today, let's take a closer look at how Skype stacks up against Magic Jack and against iCall.  Skype made its early splash as a software client that runs on your PC, allowing VoIP calls to other PCs with remarkably good voice quality, considering the calls were happening over an unmanaged IP network.  From there, Skype extended their service into the traditional phone network, allowing calls to be placed to regular phones and calls to be received from regular phones.  Skype also sells devices similar to the Magic Jack, allowing you to use a regular phone for Skype calling.  So, basically, Skype has just about everything you get from Magic Jack, and more. 

How much does Skype cost, though?  Here in North America, unlimited outbound Skype calling is $2.95 a month, and receiving an unlimited number of inbound calls on your own phone number is $2.50 a month (with a 12-month subscription).  Add these together for a cost of $5.45 a month for Skype service, which is quite a bit higher than Magic Jack (see the table below):

	Unlimited Domestic Calling, Monthly Recurring Charge, First Year	Unlimited Domestic Calling, Monthly Recurring Charge, Second Year	Inbound Calling Phone Number and Usage	Total Annual Cost, Year 1	Total Annual Cost, Year 2
Magic Jack	$ 3.33	$ 1.67	$  -	$ 40.00	$ 20.00
Skype	$ 2.95	$ 2.95	$ 2.50	$ 65.40	$ 65.40
Vonage	$ 22.91	$ 24.99	$  -	$ 274.89	$ 299.88

So, Magic Jack is a better deal than Skype, right?  As with most things, the answer is "it depends," because it is not exactly an apples-to-apples comparison.

First, Magic Jack reserves the right to show you advertising based upon the phone numbers you are calling.  Jon Arnold likens this to Google showing you advertising based on the content of your search terms.  It remains to be seen if people will want to put up with that kind of intrusion into their privacy.  Basically, when you are buying a Magic Jack service, you are selling your privacy for $25 in year one, and for $45 in year two and every year thereafter.  Me, my privacy is worth more than that.

Another disadvantage for Magic Jack: so far, it is just a VoIP phone service with a few standard residential features, and nothing more.  Skype, on the other hand, is comparatively feature-rich, with a bunch of other integrated features, like instant messaging, video, and the ability to run a Skype client on a number of different cellular handsets, so your Skype service is not tethered to your PC.

That brings us to the comparison with iCall, where Skype also wins in a head-to-head competition.  iCall is an app that only runs on the iPhone (so far), and only really allows you to siphon off some of your cell phone minutes to a WiFi network.  Skype's cellphone clients run on a wider variety of cell phones and the Skype application is again more feature-rich than iCall's.  iCall is free, hence its appeal, but like Magic Jack, iCall hopes to make money on you by charging advertisers for a priority listing on the iCall directory service.  So, there is no free lunch.

And to think that Vonage was once considered the low-cost VoIP provider!  Vonage is now over 4 times more costly than Skype, and over 6 times more costly than the first-year Magic Jack service.

In the end, Skype still gets my vote for the best value in this cheap VoIP space, because it doesn't compromise my privacy and has a better feature set.