Skype Journal: Microsoft will reshape the SkypeIn and SkypeOut business
October 3, 2005 10:34 AMHow would you like the freedom to buy In-And-Out services for your Skype client from another company? I think you’ll have that option. It will be good for Skype. And for you.
Let’s start with what you’re paying for when you buy SkypeIn or SkypeOut.
SkypeIn and SkypeOut bring Skype nearly $60 million a year.
These are “call termination” services that let callers talk between the Skype network and non-Skype numbers. SkypeIn gives you a phone number anyone can call, your Skype softphones ring, and you and your caller can talk. Two examples. I have SkypeIn numbers in London, Manhattan, and San Francisco, numbers that connect to my Skype phone. The Katrina.info hotline bought a SkypeIn number in the middle of a disaster zone to accept local phone calls from New Orleans. You rent the number from Skype by the month or year. SkypeOut lets you call a traditional phone number from your Skype software. You pay Skype by the minute, about one euro per hour in most places.
Skype retails the InOut Services
To a Skype user, Skype builds and operates all of this. But they don’t. Skype retails these services, buying them from termination service providers. They provide the logical and physical interconnection to traditional phone networks in various countries. Skype’s partners include Level 3, iBasis, and Teleglobe. Skype sets up billing, buys blocks of phone numbers to be used for SkypeIn, meters use of these services, and sells them to Skype users. When you pay for SkypeIn and SkypeOut, some of the money goes to those partners and Skype keeps the rest. Think of the partners as InOut wholesalers.
Skype locks in customers through bundling.
Skype users can only use SkypeIn or SkypeOut. They can’t use other termination services.
Lots of companies do this. In the United States, service is locked to mobile phones.[ Food analogy 1:
In-N-Out Burgers. Famous West Coast drive-through hamburger chain. High quality, limited menu, only available at their restaurants. If you want their special sauce, you have to buy their burger in their store. And you can’t bring your own sauce. ]
This will change. Customers will have choices. And you will be able to thank Microsoft.
Microsoft must unbundle termination services from Windows
Microsoft will include a VoIP platform and client in 
Vista, their next version of Windows. Vista rolls out in 2006 and 2007 and hundreds of millions of people will wake up with at least one softphone on their computer.
Seems like happy days for Microsoft, right? Not so fast. If you thought Microsoft was in trouble for not having competitor browsers on their desktop, what do you think will happen when it comes to telephony? Can Microsoft put together a termination service deal that everyone, in all countries will find acceptable? Without massive litigation and regulatory involvement? Not likely.
So Microsoft will pass the choice to customers. They will unbundle the softphone from termination services.
Unbundling creates a new type of business: the InOut Retailer
People will experience this like unbundling your local phone service from your long distance carrier. You get to choose your in+out provider, probably in your softphone preferences or a control panel.
How will this work? Retailers will combine termination services and offer them up in a simple package. And you’ll choose among the packages. Skype could offer SkypeIn and SkypeOut services to non-Skype users, for example. Or you may prefer to get your In service from someone else.
[
Food analogy 2: You manufacture frozen pizza.
Eight topping varieties. Then Microsoft comes out with bake-it-yourself pizza dough (a la Boboli). that lets you choose exactly the combinations and proportions of sauces and toppings. An abundance of personal choice and control. ]
Competition and shopping for InOut create opportunity.
So Microsoft unbundles, and Windows users around the world pick from a short list of early InOut services. We may even have a Windows wizard or a web catalog to help shoppers. Each InOut product will include geographies covered, voice networks covered (Skype, Yahoo!, et al), rates and tariffs, and links to account and billing pages. And branding, don’t forget the branding.
This data will be published via xml, RSS syndication style. This will make it very easy to keep millions of subscribers around the world updated. Side effects include very efficient competitive information, useful for those who compete strictly on price. It will also create options for those smart enough to game these markets the way airlines game ticket sales.
Service providers will compete on how well they serve specific markets. One gives great rates to the Philippines. Another provides customer service in Hindi. Enterprises will be able to map InOut service to their customer segments. Some services will be flat rate, others prepay, and yet others a hybrid.
Just as the syndicated product data informs the sell-side of the market, it may make it easier for customers to shop. Depending on the products, it may be as simple as buying a prepaid calling card or as complex as tiered long-distance plans. Expect third-party reviewers to compare services to help your choice.
Will there be switching costs? Aside from the customer attention burden, the biggest built-in switching costs will come from identity and credit verification.
What this means for Skype
Skype, and others like Skype, will respond to the new system. They will play in four ways.
As an InOut service provider. Skype will continue to offer simple, vanilla, global services. As they learn more about their user segments, they will create products optimized for types of use and markets. Perhaps spun off as a sister company, Skype could offer InOut services to people who use competing softphones.
As a softphone network operator. Skype will become a channel for other InOut providers. They will compete against Yahoo!, MSN, AOL, Google, QQ, telcos and others by:
- making it ridiculously easy to buy the right InOut service,
- adding trust to the InOut relationship by screening, rating, and certifying InOut services,
- easily managing my service (Am I really getting what I should out of it? Is the quality high?), and
- easily participating in referral sales through my social network.
As a complementor. Skype is in a great position to lower the costs for InOut retailers. They need back office systems for billing, profile management, credit checking and profiling, usage analysis, and selling to users. Those systems are expensive, a barrier to entry. By polishing up their own back office software, Skype can offer these services to InOut retailers for a fee or a piece of the action.
Non-PSTN Peering. Skype may offer InOut services that peer with selected IM and softphone makers. There’s no technical reason that lowest common denominator chat and telephony shouldn’t work across vendors.
Net: new sources of revenue and new brand touch points.
Skype is adept at hiding the plumbing so users focus on what works. That's their brand, to date. Those skills and brands should do well for them in this new space.
TrackBack (0)
Comments (7)
There is a product offering by Damaka (www.damaka.com) which is truly sip peer to peer where you don't have to depend on a multihop technology like Skype. Damaka (www.damaka.com) offers a single hop technology that's SIP based so, there is less chance for virus traversals.
It can do instant message, chat, voice calls, audio conference up to four users, voice mail, send SMS etc.
Have you heard of SIP P2P company called Damaka (www.damaka.com)
Posted by: Dennis at October 3, 2005 2:58 PM
You guys have been playing with them Skype gateways for too long now! :-))
Isn't there already a market for these wholesale carriers in Net2Phone, DeltaThree, etc.?
Posted by: Rick at October 3, 2005 3:29 PM
I think most likely, Phil, is that Microsoft will look for a bounty from the carriers providing the gateway. There may be several choices, but it's likely to be limited. The cost to administer a program with many carriers would be too high, and the resulting support requirements a nightmare.
Posted by: Alec Saunders at October 3, 2005 6:35 PM
Skype has grown because it values the customer's privacy, and REPLACES the tangle of competing middlemen you seem to want back. It is the only VoIP using encryption, the only one that offers free-simple IP2IP usage, the only one that offers any improvement over the Bell System's 3.2kHz voice-minute metered monopoly-legacy network. I pay for InOut services only because I have to. Sure there's room for services, but Skype's popularity is mainly due to people running away from these ideas, not towards them, IMHO.
Posted by: Drakester at October 4, 2005 4:37 AM
Back in the day with MSN v4.7 and (I think) MSN 6 they used to do this. They had a generic SIP client in 4.7 and a captive client with v6 that only worked with selected partners. Yahoo have something very similar with their partnership with BT. All of these were (and are) pretty poor and not exactly seamless.
I'm not sure what you're suggesting is really much different from this. What's really puzzling in all this is why MS seem incapable of actually doing anything with MSN. Each new release actually seems to have less real function in it than the last but with more glitz round the edges.
And I had to laugh to see that YM! is now promoted as "YM! with Voice".
One critical issue here is a scaling one. The Voice bolt-ons on all the other IM clients seem to use a central reflector to do NAT busting. Even things like FWD communicator are doing the same thing. Skype still has a big advantage here with it's supernode approach. And even if they start to run out of customer run Supernodes they can scatter their own round the world to provide fall back.
Posted by: Julian Bond at October 4, 2005 10:34 AM
Microsoft already created a call termination marketplace in Messenger. If you recall, Messenger had an embedded soft phone and allowed you to select from a few VoIP termination partners for call termination services.
The call termination services had to conform to a set of Microsoft interoperability specs (for VoIP call setup, this was slightly customized SIP, for media it was basic RTP, for account management there was a web backend and pseudo web service). Users could select a termination partner, buy an (often) prepaid account, and place calls.
Microsoft probably sold the "shelf-space" - taking a slotting fee and transaction fees.
The major problem with this plan was that the service - a slightly post Windows XP rollout - came out at about the same time that the Internet bubble and telecom collapse took place. Suddenly little VoIP ITSPs were no longer so prevalent and so flush with cash to participate.
Posted by: Jake at October 4, 2005 10:49 AM
How can I buy SkypeOut credit except through the Skype website? The website is not functioning properly. When I try to visit the store, the next page says "Page can't be found".
Posted by: David Berry at October 10, 2005 2:39 AM