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Stuart Henshall
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Competitors have new problems in Skype

September 15, 2005 03:37 PM

Topics: Ideas & Views

Is the Skype – eBay – PayPal strategy enough to win in a world of telecom and IM Portals? Can this emergent company topple these incumbents and revolutionize economics? Is there a glowing outlook for Skype? I wrote the rest of this piece before I heard about eBay. It points to hidden value and telecom and IM weaknesses that still exist. I’ve added a couple of updates as commentary in it below.

When Skype launched, it capitalized on the growth of broadband and demonstrated that voice is just another computer software application. A small cadre saw something more and began experimenting, exploring the “eBay of communications”, and the “online presence spiral” while working on ways to serve Skype presence data and apply it to call centers. In the last two years, Skype has changed the way we connect. It has been adopted by volunteers in global relief efforts (Katrina) and by language teachers. This flood of good will, community spirit, and innovation is emerging from one idea. “Communication wants to be free!" Tom Friedman wrote the world is flat. Skype has eliminated distance, created a new form of intimate conversation, and brokered new business opportunities. As a result, underpinning this revolution is a burgeoning desire to ensure the “Freedom to Connect”.

From this core value of “freedom” emerges a competitive challenge and a set of strategies both visible and hidden that is taking the revolution all the way to the mighty halls of telecom companies, Google, Microsoft and Yahoo. All of these businesses are trying to understand 1) Skype’s business model and 2) how to squash this upstart. None of them has an effective Skype strategy. After two years they are still unable to answer the question “What’s your Skype strategy?”.

Skype carries a footprint many times its tiny 200 employee base. It began bulking up early on smart business deals with impressive partners worldwide. This includes Asian portals, deals with major hardware suppliers and a growing software community. Despite some growth pangs in Skype offices, the fundamentals are already poised to accelerate its growth trajectory. Add to that a rapidly expanding base of users - millions and millions daily.

For each of these users, Skype is subtly redefining our idea of “the call”. Consider this. On a Skype call the beginning is different (picture, profile access, chat?), the middle (add a conference, share a file,) and the end (recorded? archives?). The stages of a Skype call are as easy as the telephone and yet now offer the complexity to adjust to a life of always on, different modes of communications and the need for additional nuances (presence, voice quality).

With Skype, you are more likely to find yourself in a living ongoing conversation. That is also one of the challenges. How does one define Skype when the words aren’t invented yet? What is Skype? Is it an IM – instant messaging client? Is it a soft phone – a computer application that acts like a phone, is it a telecom company, or a software firm? Is it a portal? What in fact is Skype and what business is it really in? Is it any wonder that Skype is used as a verb “to Skype”?

Skype confounds the experts whether at BT or MSN / Yahoo and Skype’s current visible strategies are encouraging threatened incumbents to make the wrong decisions.

Lessons for telecom landline and fixed

  • Audio quality – as if you were there
  • Multi-modal – interruptions, context, topics,
  • Free – Always on – intercom – push to talk
  • Presence – online status, real-time directories, “in-a-call”
  • Voice messaging not Voice mail (failure case – didn’t connect)
  • Social networking – share contacts, broker introductions
  • It’s not about SkypeOut and SkypeIn, it’s about connecting anywhere, anytime.
  • Piggybacks on the network – P2P no infrastructure.

    Lessons for IM clients
  • Ring centric… Voice centric – stickiness – escalation of intimacy
  • UI – particularly round the call… will translate to the phone format more effectively.
  • Easy to set up, no firewall issues
  • Ad hoc conferencing,
  • Multi-chats – Topic
  • Skype’s distribution strategy (devices is different)
  • Skype API - Hardware, software, and web enabled solutions
  • New decentralized economics

    Recently, companies have been launching products that on first glance appear to be useful knockoffs. GizmoProject is one of them. However, these copycats miss too much by being incomplete. Launching a new IM system like Google Talk without multi-chat and conference calls seems like an easy piece to catch up on. However even a simple roadmap suggests they are still months behind Skype. From a Skyper’s perspective, Google Talk is very yesterday. It misses out on too many features from user profiles, upcoming video features and file transfer, to photo sharing, SkypeWeb and SkypeNet. It’s unattractive, while MSN and Yahoo remain locked in earlier thinking.

    So where are Skype’s hidden plays to take over the world? Where will it challenge next?

    1. Devices: Devices are a strategy that the IM Portals don’t yet understand and threatens the financial future for mobile operators. Skype’s early strategy fuelled by independent developers to create an API is enabling the PC to converge with the telephone first on the desktop, and soon throughout the home. Phones like the Du@lphone and the USB device Uconnect are seamlessly connecting Skype with the PSTN experience already. Concurrently, headsets, embedded Skype solutions and standalone WiFi devices with onboard web cams are nearing launch. Summary: Skype on billions of devices. It is not a PC centric play.

    2. Social Revolutionaries: Social communications emerge when Skype connects to emerging API’s for social networking services (flickr, blog platforms – soon, and all the social networking services – from dating services like Match to business services like Linked In). This is Skype’s potential second strategic win. Unlike portals, SkypeWeb solutions will enable all the networking and directory sites to become part of real-time conversational exchanges. Fleet of foot, the experimentation will trace to the small emerging networks rather than Yahoo 360 and MSN spaces. Like Skype the networks you choose to involve yourself in will live at the fringe. Summary: This federation of independent cooperative and collaborative networks will emerge as enhanced caller ID and reputation systems. (Update: eBay presents an opportunity and concurrently a challenge. Skype may not capture the independents as easily now. Docking with Skype is more complex now.)

    3. Voice part of the online presence factor
    Skype’s weapon is the presence or buddylist. Add to it a few more features (eg voice dialing tags) and Skype’s contact list (which now also synchs with Plaxo) will obsolete the fragmentation of your contact lists. Simply click or “voice” to Skype. More importantly, better presence information leads to more connections. Ad hoc conference calls are impossible when presence isn’t effective. So look to mobile operators to increase their experimentation with Skype (German example) and concurrently introduce more of their own brand handsets. Concurrently, Skype will move into voice-activated applications and exchanges. With every website Skype-enabled, the opportunity for voice navigation, and new exchanges grows exponentially. Summary: the beginning of star trek communications. (Update: Today the need to win in mobility appears less urgent, however eBay needs to extend to business on the run.)

    4. Money & Commerce. When Skype is free everyone wants to know how to make money. The money is in the services. From “before” the call screening, to “after” the call archiving and “in-the-call”. However the real money is made when Skype starts acting like Visa or eBay enabling developers to create programs around which users can make money. It may begin with selling time and access while billing in Skype dollars. This will threaten 0900 services and online solutions like Keen.com. It reduces friction and enables potentially millions of personal agents to bloom into being. As Skypebots bid on behalf of augmented personal profiles, information exchanges will take on new meaning. The idea of searching a desktop may become as obsolete as centralized search. Summary: Empower the user base. (Update: Ebay is going to make that a lot easier.)

    In the end, whether Skype wins or loses may not matter. It has already changed the face of communications and conversation forever. (Update: it shows the way for a transactional business based on people to become a conversational real-time one.)

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    Comments

    Posted by: Steve at September 16, 2005 8:09 AM

    Stuart,

    I think you're right on with your analysis.

    I think you may be underestimating the video component of Skype in your writings / analysis. I know you're keenly aware of the potential of Skype video. I get a sense that general Skype users will adopt Skype video with the same ferver as with Skype audio. I think this will really give Skype a boost.

    I would think that you might want to add it as number five in your list of new areas.

    I think the video conferencing businesses of the world should be watching this activity closely and they should be asking themselves -- "What is my skype strategy?"

    Cheers,
    Steve

    Posted by: john at September 16, 2005 11:28 AM

    Is skypejournal just a PR puff website gushing over everything Skype or does it criticise it for ripping off all these developers for feeding it knowledge without reward?
    Did they get a share of the e-bay deal?
    Methinks not.
    ps.what is their telephone number (skype):)

    Posted by: Stuart Henshall at September 16, 2005 12:50 PM

    Steve,
    I think the video component is interesting when "video messaging" and "video blasts" are activated. I guess I didn't feel it was hidden, it's coming, and will be innovative if they enable us to push video content. Similarly if they enable a payment - wallet to go with video it will create many new opportunities. Thanks for the comment and reminder.

    Posted by: Stuart Henshall at September 16, 2005 1:09 PM

    John,
    I'm very concerned about returns for developers and was in Tallinn last week. The eBay deal hasn't helped the "roadmap" clarity. The current API doesn't go far enough to create real businesses. Concurrently the presence solutions -- SkypeWeb are still being developed etc. Like many this deal means it is a good time to reassess where we go from here.

    Posted by: chuck at September 17, 2005 4:45 AM

    how you don't see that google talk spells "death" to skype is beyound me. what is with you - since the aquisition you're no longer that balanced commentator i enjoyed reading, now it's all crappy propaganda. once google talk overcomes it's initial limitations (groups, multi-chat, SIP inter-connectivity) it's a clear winner.

    Posted by: Stuart Henshall at September 17, 2005 4:01 PM

    Chuck,
    I will await the next edition of Google Talk, in the meantime it is no substitute. You may want to try out Gizmo again as they have just added a chat feature. Not sure that I've lost my balance, however, I'll reflect on it. Frankly I don't think either Google or Skype are the "people's" communicator. Let's see what evolves.

    Posted by: Steve Parkinson at March 29, 2006 7:47 AM

    I thought you might be interested to know about the many on going problems I
    am having with SKYPE.

    I think the company is completely disfunctional, dishonest, incompetant etc etc
    (you get the picture)!


    In a nut shell, after I purchased SkypeIn and SkypeOut credit they switched off
    my username!!! This was before Christmas 2005. I have physically lost about 50
    euros and they show no interest or capability in resolving the problem. With the
    loss of the SkypeIn number, which I had publised as a business number, I do not
    know what potential business sales I have lost... It could be thousands of
    euros!!!

    Shortly after buying the additional services I went to log in to my username
    only to find that SKYPE had changed my password. As I did not register and email
    address at the time of registering the account they have so far been unable to
    sort out the problem OR refund me for the services I no longer have access to,
    even though I have copied them twice with the paypal emails which proves that I
    bought the services....

    I know that my loss individually is no great loss, but you multiply that by a
    couple of hundred thousand users and they become daylight robbers!!!

    Todate with my many many emails they seem unable or unwilling to help me... I
    would be very interested to know if anyone else has lost money with Skype. You
    can email me at skype@bar-telly.com

    My advice.... don't buy anything on Skype, use the FREE service and leave it at
    that.

    Oh and finally, my Skype Dual phone stopped working after 3months also, so thats
    going to be another pain to sort out...

    Posted by: Bert at April 27, 2006 3:44 PM

    I am one of those that have abandoned Skype and not treat them with discust and I detest their practices.

    Skypeout does not work well.

    At the same time Skype just notified me that they had "confiscated", read stolen, my Skypeout deposit as I have not used it in time.

    At the same time I can not even contact them.

    Get rid of Skype,

    Bert

    Posted by: Ben at June 6, 2006 8:18 AM

    I have the full skype package too--in and out. Skypeout just doesn't replace a phone. Most times the other end doesn't hear me until 5 seconds into the call--if they are still there.

    Have you ever used skypeout? Your analysis makes me question your objectivity.

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