M5-S8 - Case - Disruptive technology - Skype
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Questions to consider:
- What is the customer experience of Skype?
- Do you think Skype is a threat to land-line (fixed-line) telephone companies?
Summary VOIP is a great new technology with the following disadvantagesL
- Quality of service:
- Interoperability
- For VoIP to become common among the users, products from different vendors needed to operate with each others.
- Security:
- Integration with the PSTN
- Scalability
Development:
- Research and development (R&D) activities were based in Tallinn in Estonia with 150 engineers
The Business Model:
- Free calls PC to PC
- Skypein (phone to PC calls)
- Skypeout (PC to phone)
- Rates were much lower than the telecom operators’ fares
- Skype sold accessories that could be used with the software
- Such as cyber phones and PC headsets.
- However, this business provided only a minor contribution to Skype’s revenues, which mainly came from SkypeOut and SkypeIn.
- The main strength of Skype’s business model was that its costs were very low.
- There were no distribution costs, as the product could be downloaded via the web.
- There were no marketing expenses, as its success was based on viral marketing.
- Furthermore, there was no need to build an infrastructure as it used an already established communication network, the internet.
- The main costs came from the R&D department
Competition:
- Software-Based Players
- Vonage and Stanaphone
- Vonage was a company which, similarly to Skype, provided telephone services through an existing broadband internet connection\
- Stanaphone was Skype’s other major important competitor. It inspired itself strongly on Skype with its very similar features, such as Stana-In and Stana-Out
- Hardware-Based Players
- Swisscom and Cablecom (Swiss cable operator) were introducing VoIP services.
Strategies and Partnerships
- The Chinese government to contain Skype’s penetration in the Chinese market. In order to protect its revenues, China Telecom blocked the access to skype.com and added its users’ names on a black list
- German service provider E-Plus decided to open up to Skype and make a partnership with it, seeing them as a strategic partner
