High-Technology Marketing

Case Study on Skype:

Prepared by,
Ng Eng Chong
HT093129M
Skype Case Discussion Questions:

1. Describe the environment in which Skype competes based on the three

characteristics of high-tech markets (Chapter 1).
2. Given the technological uncertainty present in the VoIP mobile market,
would Skype be likely to emerge as the leader? Explain your reasoning.
3. Would VoIP be considered a disruptive technology by wireless carriers?
Explain.
4. Collect current statistics regarding the number of VoIP users. At what
stage of the adoption-and-diffusion process is this technology?
5. What would be an ideal beachhead for Skype to focus its efforts on?
6. What are the elements of a whole product solution for VoIP? What are the
implications for Skype in terms of crossing the chasm?
7. What are the pros and cons of Skype’s selection of a proprietary Voiceover-
Internet protocol?
8. What are the characteristics of a business that can successfully implement
an advertising-based business model? Does Skype possess those
characteristics?
9. a. Analyze the pros/cons of the three alternatives discussed in the case for
Skype to generate revenue.
b. What other strategies are available to Skype to generate revenue?
Assess their pros/cons as well.
c. Make a recommendation for a viable business model for Skype to
succeed.
10. Is Skype likely to become the money-making machine that eBay
envisioned?
(Q1) Skype is competing in the Internet telephony market, which provides voice-over-internet-protocol (VOIP) services to users, allowing them to
install the software on their computers and make call through the Internet for free and Skype makes small charges for per-minute calls to
landlines and mobile phones. The table below describes the environment Skype is competing based on the market uncertainty, technological uncertainty
and competitive volatility.

Market Uncertainty: Technological Uncertainty:

Securities/Vulnerabilities: Potential of system breakdown:

(1) Users are skittish about the security and potential vulnerabilities
exposed by the Skype system. This prohibited major enterprises
from using the VOIP technology.
Platform dependency:
(2) There exists different VOIP platforms. Skype users can only
make call to users who use the same Skype platform. It’s not
convenient to reach users who are using different VOIP platform.
System reliability:
(3) Users doubt reliability of the systems. It can’t be used in
emergency cases or highly important matters such as
teleconference during surgery or calling for ambulance.
Users’ adoption pattern is fast changing:
(4) Users move in herd behaviour. Increasing popularity of social
platform alike MSN messenger or facebook and integration of
free voice-calling cause potential shift of users to more
popular platform.
• Windows update caused potential glitch in the system;
causing blackout to millions of users. Hence it caused a
lost of trust in the Skype system.
Users Privacy:
(2) It’s doubted the peer-to-peer technology will intrude
privacy of users such as unknown strangers calling
using Skype and claiming as someone they are not.
Risks due to unregulated membership:
(3) Skype users can easily disguise themselves and falsify
their identities when registering to use the platform.
People can misuse the technology for money extortion,
cheating and illicit crimes which keep people away from
using this technology.

Skype’s Business Environment

Competitive Volatility:

Increasing direct competition from large competitors:

(1) The rise of social platform such as instant messenger by large players such as Yahoo, MSN, and Google in the social network
spaces has diverted Skype users as this free voice-communication over the net is integrated into each of the social platform. As
the network becomes larger, some of these services might utilize revenue model of Skype by adding value-added service to call
users by landlines and mobile phones and provide it for free.
New value-add integrated services in common platform:
(2) Google is planning to roll out Gmail service to call Google’s contact (landlines or mobile) within its Gmail service using its Google
Voice technology. Google has disruptive business model where by providing this free calling service, they will be able to attract
and increase their users base, therefore increasing their revenue from advertising. This is very dissimilar compared to Skype which
is utilizing paid services for landlines and mobile call.Google’s strategy will disrupt Skype’s existing business model.
Additional service offering by traditional telecommunications companies:
• Some of the broadband services are now offering VOIP free phone calls to landlines as a part of their package. Some users are
shifting away from Skype to the adopt the free broadband services.
(Q2) The likeliness of Skype to succeed in the VOIP mobile market will depend on the following factors:

(i) The ability of mobile VoIP technology to replace legacy cellular voice technologies for all calling:

Faster Network Speed:

The bottleneck of consumers in adopting the mobile VOIP technology mainly lies in the present speed of mobile broadband
which results in lower quality voice and video transmission. The acceleration of launch of new, 4G wireless networking
technologies such as LTE and WiMAX will speed up the faster and higher-capacity networks which will drive the adoption
of mobile VOIP.

Mobile devices with better computing capabilities:

The recent boom of emerging smartphone and tablet devices allows easy and hassle-free installation of VOIP software.
This allows adoption by a larger group of people as the devices are widely made available.

Free Marketing Model:

The free marketing model for basic Skype users is a very disruptive business model to win the market share from traditional
cellular voice carriers. Most of the Internet users like to have things for free, and if voice communication can be made free, it will
draw them to adopt the technology.

• The ability to differentiate itself from its emerging competitors in the mobile VOIP market:

About $605.8 million in mobile voice-over-IP revenues were generated in 2008 in North America, Europe, Asia Pacific and Latin
America, while estimating that number will rise to $29.57 billion by 2015. The high profitability of VOIP mobile market has
drawn large, cash-intensive competitors such as Yahoo, Google, well-finance Jajah and Lycos.

For now, as Skype has the largest user base in VOIP, and its competitors have not enough voice base installed particularly
outside of US, Skype stands the opportunity to be market leader in mobile VOIP by utilizing its existing users base in PC by
providing free software to smartphones and tablets users.

Skype is also differentiating itself by providing reliable communication services to businesses and enterprises, licensing its
technology to hardware makers and integrate its Skype software solutions in other consumer electronics such as TV,
car dashboards and public terminals.

With the differentiation strategy in place, Skype vision in “any” mode, “any” platform, “any” where and in “any” products
will separate it from its competitors.
(Q3) Firstly, the wireless technology by the traditional providers provides high quality in long distance call. VOIP calls are
generally lower in quality and its business model by providing free calls from PC-to-PC and from PC to landlines and mobile
phones in long distance has been perceived not as profitable as the current lucrative wireless circuit switching business by
existing wireless carriers. VOIP was initially considered as toys due to its poor performance. However, by giving VOIP as free,
Skype is able to attract a large number of users. Some of the users are willing to pay for premium services such as calling
landlines and mobile phones. As the Internet technology improves and exceeds user acceptance level of the quality of long
distance call, more users switched from the traditional carriers to VOIP technology and eventually the VOIP technology users
exceeds the users of wireless technology. Therefore VOIP is a disruptive technology to the traditional wireless technology.

*Incumbent pursue wireless VOIP technology

tech with higher profit margin
Number of users

Sustaining wireless technology

by traditional carriers.

User acceptance level of

the quality of long distance
Call.

*initially VOIP is lower in quality

Time
(Q4)

Adoption-and-Diffusion Process.

Skype is the largest VOIP player in the market.

The figure shows the market share of Skype which has
reached 11.7% of all traffic. VOIP technology in 2009,
has total of 23.6% of all traffic. From the adoption-and-
diffusion curve, VOIP technology is positioned at the
early majority stage. These groups are deliberate and
have many informal contacts. They have the herd
behavior and move in together. This explains the rapid
adoption of the VOIP technology by Skype at the present
stage and Skype should drive more users by building
more communities and leveraging social networks.
(Q5)

Generally the success of Skype depends on the number of users who adopt it. Its free PC to PC communication has
attracted more than 280 millions registered users in 2009 and the number is growing rapidly due to word-of-mouth and
peer effect. Today, Skype continue to add 350,000 of new registered accounts. Such a large number of users serves as
the ideal beachhead for Skype.

Skype is able to monetize the free users by providing the following services:
(i) Paid Subscriptions (unlimited calling), Premium services such as SkypeOut (pay-as-you-go), Online Numbers,
Voicemail, and SMS
(ii) Sell the free users to advertisers
(iii) Hardware licensing from the complementary product created to cater for the users such as Skype phone
 (Q6) Internet
Broadband

VOIP software
Landlines
Computing device Network
Microphone Such as PC, Switches Mobile
Laptop, Mobile

Speaker
Phones, TV box, Phones
VOIP handsets
P2P
Connection
The following figures show the working elements of Skype’s VOIP
Technology. The chasm of VOIP technology is the gulf in between the
visionaries and pragmatists users. Pragmatist users require ease
of use, reliability and standardization of the VOIP technology.
As Internet broadband speed increased significantly, as more people becoming
VOIP software
Internet savvy, as computer is becoming a regular commodity, and as VOIP is
getting easier to be installed in any computing system, VOIP
Computing device
is crossing the chasm to the PC users. However the next phase seems
Such as PC,
to be in the mobile devices such as smartphones which is a booming market.
Laptop, Mobile
As VOIP is preparing to crossing the chasm to mass majority in mobile phones
Phones, TV box,
market, it has a large implications on Skype in terms of increasing users adoption
VOIP handsets
of its services. Skype needs to redesign its product to cater for users in
smartphones and rethink its strategy to monetize its users.
(Q7)
Skype’s VOIP technology is different from the standard VOIP clients as its technology operates on peer-to-peer model
rather than usual client-server model. This has led to the following pros and cons:
Pros:

Negligible capital expenditures and network maintenance costs:

As Skype’s technology is peer to peer, it’s the Skype users who need to invest in items such as PC, routers, Skype
hardware or bandwidth subscription from the broadband providers.

Free calls and no monthly subscription:

As Skype operational costs are almost zero, there is no need for Skype to charge users any monthly subscription
cost unlike other VOIP service providers which need to maintain their server.

Able to cater for unlimited users and number of calls at any time:
The peer-to-peer technology prevents data traffic from crowding a particular voice server hence causing
poor connection. It allows unlimited number of calls without needing to worry about server capability.
The speed of network increases with increasing number of users as each nodes added into the network
increases the processing power and bandwidth of the system.

High calls completion rate and good quality calls:

Companies operating on centralization typically allocates small resources for their servers, hence the completion
rate and quality of calls drop. The decentralization technology by Skype overcomes this issue.

Cons:

Security and potential vulnerabilities:

The P2P technology exposes the end PC users to potential vulnerabilities of being hacked by virus and worms.

Hard to troubleshoot and poor customer service:

System failure due to changes in the operating system is difficult to troubleshoot due to the P2P nature.
For example, Skype faced a setback in system wide failure in 2007 due to Microsoft upgrades.
(Q8)

These are the characteristics of a successful business which implements advertising-based business model:

(1) The business has a large number of active audiences who will happen to browse the advertisement.
(2) The business is able to deliver the advertisement at low cost.
(3) There is efficient interactivity between the audiences and the advertisement such that it’s easier for the
audience to find out more about advertisement.
(4) The business has analytics information regarding its audiences such that the advertisement can be focused on the right
consumers.

Yes, Skype has the common characteristics of a business to implement the advertising-based business model. It has a
large number of audiences, mainly the free users who are using the Skype system. To successfully implements the
advertising strategy, it can add advertisement or moving letters at the bottom of its user interface so as not to interrupt or
cause disturbance to the users. The advertisements can be clickable so that it can bring the users to the content of the
advertisement.
(Q9)

(a) 3 alternatives, mainly:

(i) A new business model to focus on the advertising rather then user fees.

Pros: Skype is able to derive advertising income which could be more profitable than charging for fees as the free users
grow rapidly.
Cons: Skype’s active users might be small compared to the registered account.

(ii) A mobile model for Skype.

Pros: By making Skype easier to access from mobile phones, more users will use the system and spur growth in
revenue for its premium services.
Cons: Wireless carriers might not allow VOIP in their network as it will reduce wireless carriers revenue stream.
As more users use Skype in mobile, the users will opt for free services like Skype-to-Skype which will slash its revenue
making business in selling minutes to calls to landlines and different mobile network.

(iii) A new pricing for Skype PC to PC.

Pros: Customers might be loyal and stay on subscribing to Skype as they see a great value in Skype products.
Cons: Most users like things to be free on Internet. They will switch to use other VOIP system which gives them free
services such as Instant Messenger by Yahoo and Google.

(b) Other strategies:

(iv) Target small and large businesses to use Skype solutions for B2B and B2C services.

Pros: Increase revenue streams by charging businesses for using secure solutions at minimal costs.
Cons: Companies are skittish about the vulnerabilities the Skype system will expose them to.

(v) Pre-install Skype software into mobile phone. Skype collaborated with hardware manufacturers to pre-install Skype in
their handsets.

Pros: More people will get to know Skype and use its system. Skype can monetize on the users in advertising and
premium services which a portion of users will be willing to pay.
Cons: Paid services might suffer and handset makers might not be interested to embed Skype due to potential security
issues.
(vi) Increase means of payment besides using PayPal such as pre-paid cards sold at convenience stores to cater for
consumers without access to Internet banking.

Pros: Able to increase revenue stream for its paid services.

Cons: Extra costs in the distribution of pre-paid cards and we do not know how successful it will be.

(v) Promote customized Skype solutions for niche market such as for education to enhance communication between
lecturer and student in large lecture hall.

Pros: Able to attract mass users to adopt Skype and it builds up the Skype branding in VOIP services. Able to build
the communication link without high spending in the communication infrastructure. Skype can also promote an
efficient sharing of information/files with peers in school.
Cons: All students need to have mobile phones with installed Skype. Not all students will have the right devices
hence disallowing them to participate. Piracy and copyright issues with file sharing among students.

(vi) License out Skype VOIP technology where other companies can customize the core engine for their applications.

Pros: Able to make money from the licensing fees.

Cons: Increase the intensity of competition in the VOIP market, hence reducing its own profitable core business.

(c ) Recommendation:

Skype can go for multi-sided business model to increase its revenue stream besides its main revenue making paid call
services with
(i) Innovative advertising by yellow pages where businesses listed their companies and contacts and users can contact
this businesses using Skype.
(ii) Increase revenue stream in paid services by exploring innovative up-front payment for different types of users.
(iii) Promote innovative Skype services to the public in niche market such as customized solution for education to build
mind share among the young generations.
(Q10)

No. Skype does not integrate well into Ebay’s business as it has imagined.
Ebay envisioned Skype as a ideal solution for businesses such as car sellers in which the nature of business
requires real time effective communication to close the deal. However, most of E-Bay majority
businesses participating in Ebay are small and medium sized. These businesses normally operates in low cost
environment, and they do not have many employees. Integrating Skype into Ebay causes the small businesses
short of manpower to serve the users. So Skype is not attractive to the Ebay merchants and most of them are not
willing to adopt the technology. Therefore Skype is not giving similar return as Ebay could have imagined with
their acquisition of Pay-Pal.