Phil Wolff asked me via IM what I thought about this Booz Allen Strategy + Business article on ‘Format Invasions’, as it relates to Skype. I’ll post my thoughts here in public, though.

To save you the effort of actually reading the article, the essence is that industries are susceptiple to invasion by new entrants wielding a “new format” or value network that has lower intrinsic cost. Many examples are given, such as Southwest Airlines vs incumbents; Toyota and lean production vs incumbents; and so on. It parallels Clayton Christensen’s Innovator’s Dilemma, but has different dynamics as the innovation is not a technology one and isn’t protected by intellectual property. It is largely a matter of values and “delivery technology” — the art of executing a particular way of getting the same customer outcome with fewer resources.

Superficially Skype would appear to fit the pattern of the article, and telcos would be wise to follow the advice. The problem is this. Skype doesn’t have any new format revenue. So far, all the revenue comes from PSTN interconnect services, and services like voicemail which have been constructed with legacy centralised PSTN-alike cost functions. It’s a bit like Southwest Airlines running a network where they give all flights away for free — unless they happen to compete on a route where American or United have a service, in which case they charge.

So until there’s a “real Voice 2.0 company” with revenues from presence, transaction integration, social networking, or some other such innovation, the business gurus’ advice is somewhat hard to interpret in the context of Skype. Furthermore, we have a more complex situation. Traditional telephony bundles connectivity rental with voice service. In the new model people tend to buy all-you-can-eat connectivity and then run “free” voice service. So there isn’t an apples-to-oranges fit. You’re also seeing a split of a once unified industry into two at the same time.

All I can say really is you need to hire a really good consultant to navigate you through the strategic maze ;)

Martin navigates through the turbulence from his Telepocalypse weblog.