) --


massive pre-Christmas service outage isn't exactly what you'd want if you were an Internet phone shop on the way to an IPO.

Skype's services crashed Wednesday due to what the company called "a software issue," according to a

Skype blog

posting. In a more recent

Twitter update

Thursday, the company says full service has not yet been restored and that "We're 100% focused on getting Skype back in action."

The timing of the outage is particularly tough coming during one of the busiest calling seasons of the year. It also comes as Skype prepares to sell as much as $1 billion worth of its

shares in a public offering


The Luxembourg-based Internet calling and video conferencing company split from


(EBAY) - Get Report

last year when its founders and private equity investors bought the unit. In August, Skype filed an S-1 with the Securities and Exchange Commission detailing the company's performance and its intent to offer stock to the public.

Among the strong points the company pointed to in the filing was how reliable its network architecture was compared to the central infrastructure of conventional phone companies.

"Unlike server-based architecture, which is reliant on the continuing operation of its servers, the peer-to-peer architecture will typically continue to function even if there is a single or several points of failure," the company wrote in its filing.

But as Skype and its users discovered, it was the company's system of nodes and "supernodes" that were at the center of the network failure.

In one of its latest updates Thursday, Skype says it has about 5 million of its 124 million average monthly users using the service today. Skype says that is about 30% of the normal user volume it would expect. Skype chief Tony Bates said in a video post on the company's blog, that he's considering a credit to be issued to paying customers.

Here's the thing, Skype's pitch to investors is the promise that it will try to add more services and features to attract users, particularly paying customers and businesses. According to the filing, 8.1 million or 6.5% of Skype's users pay for the service. Skype did swing to a profit in the first six months of this year, posting a net income of $13 million on $406 million in sales.

Unfortunately for Skype, the outage was a demonstration that it too was vulnerable to critical communications failures.

Given the size of the company's user base across the world, Skype has had a reasonably strong service record. The last major outage was a two-day shut down in 2007.

But the Christmas outage of 2010 might be even more memorable when the IPO comes along.

--Written by Scott Moritz in New York.>To contact this writer, click here: Scott Moritz, or email: follow Scott on Twitter, go to>To send a tip, email: