Skype-Hype or Marketer’s Delight?
By Taaffe, Ouida
Can the Skype model make money?
If media frenzy and column inches are indications of commercial success, Skype is a hit. But is the software company that enables free calls over the Internet really as successful as its PR presence suggests -or is it all hype?
As the dot.com bust demonstrated, an idea that wants to grow into a successful business needs to make its presence felt and make money.
How many people actually use Skype software? “More than 10 billion minutes of superior quality talk-time worldwide has been enabled by Skype,” says Niklas Zennstroem, CEO, adding that Skype’s software has “more than 46 million users.”
These are big numbers. Even allowing for the fact that there may be, as Zennstroem concedes, more downloaders than actual end users (people often download the software onto more than one device), they point to impressive, if unsurprising, demand for free calls.
Financial Fitness?
Given that Skype does not charge for its plain vanilla software (nor disclose revenues or indicate if it is free cash flow positive), it is not clear to what extent lhc company directly benefits from such take-up figures.
On the upside, this does not mean necessarily that Skype is reliving the late ’90s by burning through quantities of cash. Zennstroem points out that the company does not lavish money on marketing or distribution.
“Our software is spread virally,” he says. “And when we have a new user, we have zero cost for serving that user, because they’re using peer-to-peer software and their own bandwidth. So we have zero costs of getting new users and zero costs of running traffic. This is why we are able to provide such a superior service for free to the world.”
The notion of providing a service for free, of course, is slightly disingenuous and still represents a bit of a hole where revenues might be. Skype software allows users to treat voice as another IP application that runs over their broadband connections. Skype does not actually provide a managed voice service in the way that, say, British Telecom or France Telecom do.
Premium Services
That said, Skype has recently moved toward revenue-generating premium services. Skypeln, which is in beta test, allows Skype users to buy a personal number that non-Skype users can ring. SkypeOut facilitates calls to non-Skype devices. With Skype Voicemail, users can take messages from any device, though they can only send messages to other Skype users.
These services are all prepaid, “which eliminates billing surprises for our customers,” says Zennstroem. However, it is not clear whether it would be economically feasible for Skype to set up the sort of billing system that could cope with charging per call.
Zennstroem did not elaborate on what billing issues Skype might have to negotiate to do this, saying only that the company elected not to charge for its Skype-to-Skype software.
The Skype CEO is confident that there will be strong demand for the premium services. “The combination of these services drastically brings down the cost of global traveling by eliminating expensive roaming charges,” he says.
The key questions for many business travelers, however, at least when they are making business calls, is whether the call is of sufficiently good quality-the use of unmanaged IP can lend a submarine-type effect to some conversations-and whether they can be reached easily and have links to their contact book.
This is why many vendors and operators are stressing the use of so-called “presence” services that are tied into corporate address books, track customers across devices, and run over managed and secure VPNs.
A Brawny Browser
Does Skype intend to move toward providing a browser with a full set of presence features that tie in to, say, Outlook? “The Skype toolbars for Outlook and Internet Explorer have just been released in beta,” Zennstroem says.
“The Skype for Windows vl.3, which launched June 13, allows users to populate their Skype contact lists from a growing number of desktop applications, including MSN, and auto-populate exact matches from Microsoft Outlook,” he adds. Extended integration with other desktop applications is also planned.
A Closed Solution?
However, as the restrictions on calls beyond the Skype user base suggest, using Skype is not as simple as just picking up a phone. Skype users must add Skypeln and/or Skype Out because Skype is not SIP-based. Some argue that this is a failing, that Skype is essentially a closed solution and could be sidelined by VoIP software that does support SIP.
Zennstroem counters that Skype is quite open to working with others. “We have made the Skype API available for free for non- commercial applications to inspire great developers worldwide and are pursuing partnerships with hardware and software makers around the world,” he says.
He also argues that the Skype approach is easier for non- technical users to deal with and that the company can innovate, in response to end-user demand, more quickly than companies offering a solution designed by committee.
Given that Skype-to-Skype calls are free, it might be expected that usage would be heaviest in countries where there is broadband connectivity but no real deregulated market in international calls. Russia, for example, has yet to privatize Rostelecom, its long- distance provider, which means that it still has relatively high international charges.
“Skype is being used worldwide and having a dramatic effect in developed and developing countries, rural and urban settings alike,” Zennstroem says. “While we do see heavy usage in countries where the PSTN system is unreliable or extremely expensive, Skype is available to anyone with access to Internet connection and computer, wherever they live in the world, who are looking for an easy and cost- effective way to stay in touch.”
Of course, people who have Internet connections increasingly have access to bundled services that include very low-cost, managed calls, a trend that is expected to continue. Many telcos are setting up triple play offers with call charges covered by line rental.
Skype’s VoIP Vision
How does Skype expect the use of last mile VoIP to develop? “We don’t look at what other companies are doing,” Zennstroem says. “Our core DNA is listening to our user base and innovating according to their demands.”
As this suggests, Zennstroem is confident Skype will stay around, though he refused to be drawn on whether the company is looking at an IPO.
“Skype is changing the way people communicate on a global basis and spurring the adoption of new technologies as well as driving broadband usage,” he says.
If this sounds robustly assured, it should not suggest that Zennstroem expects Skype to take over the world. .”Just as e-mail is free but people still pay for (and use) the fax, we believe that voice calls using Skype’s peer-to-peer software is an enhanced complement to other ordinary telephones,” he says.
“When we have a new user, we have zero cost for serving that user, because they’re using peer-to-peer software and their own bandwidth. So we have zero costs of getting new users and zero costs of running traffic.”
Niklas Zennstroem, Skype CEO
Ouida Taaffe is features editor at Telecommunications (International). (otaaffe@telecommagazine.com)
Copyright Horizon House Publications, Inc. Mid-Sep 2005