Every startup founder is getting this question from investors, and customers. This wasn’t true in 2009. The question speaks to two of Skype’s strengths as it approaches its 8th birthday: brand and network effects.
The first strength is brand awareness. Everyone knows Skype. Literally half of Internet users have tried Skype. So Skype is no longer the domain of specialists in telecom, instant messaging, or video conferencing. More people know about Skype than know about Cisco’s telepresence or that Vidyo powers Google+ Hangouts. More people understand you can make cheaper calls on Skype than know of the hundreds of other services that offer even lower rates.
The second strength is network effect. The chance that someone you know is in Skype are vastly better than with any other communication or collaboration service. A user’s social network switching costs are not trivial. You lose history, you lose touch with contacts. You are adopting a weaker dialtone with fewer people you care about available for calls right now.
To be considered, challengers must do what Skype does.
Skype is the new vanilla, the new baseline, the ante for this round. Once you can “skype,” then you must offer something different, something more, something better.
Bonush will try to be Skype voice chat in a browser after it launches. (open for early Beta right now.)
Ooma Mobile was Skype on an iPad, before Skype’s own iPad app.
Vonage’s Time to Call is the voice part of Skype while paying for international calls at Skype rates with pay as you go billing to your iTunes account. Convenient for some.
IsCoord’s is-phone conference for iPad is Skype with SIP without video on an iPad available for white-label OEMs.
Toktumi’s Line2 is Skype with better SMS and telephony features, without video, instant messaging or presence.
FriendCaller is Skype on many devices and in browsers, with a Facebook voice app.
ChatTime is SkypeOut international calling for less money, showing what time it is where you’re calling.
Voxer is Skype without PSTN, adding voice IM and location check-ins.
Apple’s FaceTime is Skype just for Apple and without PSTN service.
Skype still wins. Explicit or not, every time we discuss a product in this space, we invoke Skype.
Rivals (and even the term “rivals” invokes Skype) have four choices:
Do less. Cut features to increase focus, convenience and usability.
Do more. Add features to serve unmet needs.
Do different. Reconceive the problem, delivery, pricing, psychology.
Niche. Serve an underserved market, add insight into a specific context.
Two things complicate matters.
1. Skype is a moving target.
They left an opening for iPad apps for two years, letting others define themselves as Skype+iPad before entering the space. We will see Skype@Microsoft co-brand all sorts of products, from Sharepoint services to gameplay add-ons. This adds danger to filling in a gap in Skype’s product family.
2. Skype is become platform.
Microskype will offer real-time communication components to developers on nearly every Microsoft platform. Mobile, web, desktop, server, you’ll be able to build Skype into whatever you imagine over the next few years. APIs make “do less,” “do more” and “niche” easier for everyone, right down the long tail.
For example, blogs like Skype Journal will offer group video chat for readers of this very page, the site paying a tiny monthly subscription for the feature, free to visitors. It will be part of every “would you like to talk with a customer service agent” widget. Peer-support graphs like WeightWatchers, Quantified Self, and Twelve-Step programs will guide with whom you talk and when.
Platformers like Skype, Voxeo, Tokbox, Jajah and Twilio will power them, commodifying voice and video chat as hundreds of thousands of apps and web sites add realtime talk to their user experience palette.
So what works now? Less, more, different and niche are all viable. You just must be extremely persuasive on why the “better” you offer is worth the customer’s switching costs. Investors will want you to spend toward achieving network effect critical mass.
What works in the long term? Dominating a defined niche (there’s room for only one Grindr) or changing customer expectations, as Skype did to Plain Old Telephone Service.
Someone will change the paradigm, displacing Skype as the iconic reference. Until then, product managers, buyers, investors and the press will ask: how are you different from Skype? Your answer is…
This article appeared in abbreviated form on 28 February 2011 at Aaytch.com. Phil Wolff at Skype Journal teased me into writing a more complete account of my experience making the transition from a traditional Time Warner Cable landline to a Skype-supplied "landline." Some might be surprised at how easy and effective it is.
Background
Here in rural North Carolina, my family is a customer of Time Warner Cable. We might have chosen to purchase some of our services from the local phone company but we found TW to offer somewhat better quality and service. Through TW, we have plain cable service at about $30 per month, plain internet service (3MB down/.5MB up) for another $30 per month, and two phone lines at $30 each per month with unlimited calling in the United States and Canada. Our household is an extended family and we decided we needed a third line. So I called TW and they informed me their "modem" would only support two lines. I considered alternatives:
Vonage. It would have worked, but I was looking for something simple and significantly cheaper than Time Warner. Vonage isn’t.
MagicJack. Absurdly cheap; just $20 per year. I rejected this option for the simple reason that the phone service would cease to exist when I turn off the computer. It also appears now that the company, Magic Jack will not be able to sustain its low prices.
Line2 from Toktumi. It operates more or less as the Skype "home line" does in my description below. I did a trial of Line2 a few months ago and found it to be quite excellent. It’s cheap compared to other alternatives, and its feature set is in some ways more complete than Skype as you can see in this comparison chart or product video. However, in the end I turned it down because I didn’t need its extra features, and its pricing is about twice Skype’s.
Wait for future developments. There are new devices, technologies and services coming along all the time. I am aware of some of them, and they sound intriguing, but they are not here yet.
Skype. It is not immediately apparent that Skype can be set up for regular "phone" service. However, my wife and I each have iPhones, and I had come to appreciate the very high quality calling experience that Skype gave me with iSkype; actually better and more reliable than Skype on Macintosh (but that is another story). I had also noticed that over the past year, SkypeIn numbers, now called an "online number" by Skype, had become available in my local area whereas they had formerly been available only in Charlotte, the nearest city. Online numbers are not available at all in Canada. Finally, I observed that the combined cost of a SkypeIn number and a US+Canada calling plan was just $60 per year, versus $360 from Time Warner. For all these reasons, I decided to give Skype a try as my wife’s and my regular home landline, and not just for beta-testing purposes. This had to work flawlessly.
Setup with Skype
Step one: sign up for a new Skype account. That took about 30 seconds.
Then I gave that ID a $30 per year US+Canada calling plan and a local SkypeIn number. The online number would have cost $60 per year but there is a 50% discount when combined with a calling plan, so it was an additional $30. Total: $60 per year or $5 monthly.
These purchases took about five minutes, made pleasant by the knowledge that I would be saving more than $300 per year.
Skype Configuration
For incoming calls to our new home number, my goal was to forward them automatically and immediately to our cell phones, thereby allowing them to function as extensions. When someone wants to contact me or my wife individually they call our cell numbers. When they want to call our home they call our "home number." It rings on our iPhones and the first person to answer is the one connected. That’s no problem because we can always use iPhone’s three-way calling if needed.
Note that I do NOT use Skype for voicemail here but rather let the cell phone handle that.
Some people may be disappointed that Skype’s online numbers are not listed in the directory or "phone book;" an anachronism and invitation to spammers. We are happy to not have the feature. Now, when we post contact information to family and to friends we share, it’s the "home number" we give them.
Skype does not simultaneously ring on multiple lines, and I was a little concerned incoming calls would not be re-routed quickly enough. That proved to be a needless worry because Skype’s settings permit calls to be forwarded more or less instantly. Set the preference to forward after 1 second.
Note the forwarding numbers in the screenshot are my cell phone and my wife’s cell phone. Skype allows forwarding to up to three endpoints, or "extensions." It would be nice if Skype would allow more than three to accommodate a larger family. If I wanted to, I could forward to my regular Skype name to answer calls in Skype. However I decided not to because when I’m sitting at my desk, I don’t want multiple devices ringing at the same time; more chaos than I can tolerate.
Outbound Calling
Considering our use of the "home" Skype ID for outbound calling, let it first be said that the primary use of the Skype "home line" is receiving inbound calls. Because of the 50% discount on the SkypeIn number, the US+Canada calling plan is essentially free.
This is how to configure caller ID for outbound calling. The following screenshot is from Skype for Mac 5.x whose user interface is infamously and unbearably horrible. You actually go into the "messaging" preference panel and enter your cell phone number for SMS. Ironically, the design flaw is inherited from the Windows version; it made it into the "gold" release on both platforms. Oh well, at least it works.
When deciding whether to make calls with your regular cell line or the Skype "home" line, consider:
Cost. Depending on the time of day and whom we are calling, your cell carrier (AT&T Wireless in my situation) may or may not charge extra. Skype will never charge extra thanks to the flat rate Canada+US calling plan.
Quality. When at home or in range of a good Wi-Fi connection, a Skype call is ALWAYS going to be of higher quality than a cellular call. I have a slight hearing loss, so this is sometimes a crucial decision, especially if the person I am calling can be reached on Skype.
Emergency Calling. Until Skype has emergency 911 calling, it should not be your regular phone for outbound calling. However, the default mode on my cell phone is not Skype, and even when I am using Skype I have local emergency numbers in my Skype address book, like "911 – Police." It’s hard for me to imagine that the FCC is not going to force Skype into implementing 911 services soon.
Convenience. To be frank, it’s easier to call out with the cellular line than to boot up Skype, even if my iPhone is connected to a power source. This convenience factor restricts my outbound calling with Skype to only those calls that will otherwise be charged as "anytime" cellular minutes.
Summary
Having completed the setup of the Skype "home line" with far less hassle than it would have taken with Time Warner, I logged out of the new Skype ID. Call forwarding doesn’t work if you are logged in and I haven’t logged back in since. It has worked flawlessly now for months.
So there you have it. A home phone line with a local number and unlimited outbound calling that rings on multiple "extensions" both in your house and when you are on the road, all for a cost of $60 per year. Can’t beat it.
Qik for iOS is now out in free and $2.99 versions. The three bucks buys you video editing, real-time effects, “HD quality” video, file sync to your camera roll. Both let you point and shoot live video, streaming to friends or the web, and live video calling. Jim Courtney and I tested Qik Video Connect’s presence this morning and neither of us could see if the other was online. If that’s the worst of things, this is a fabulous product. More testing to come. Product tour, Skypenews release, Qik blog post from last week updated with a link to the free version.
DownloadSkype for iPhone 3.0.1. “You can now make video calls to a wider selection of Skype clients and devices, such as Skype for TV.”
UPDATE: Skype’s blog post reveals iSkype now supports H.264 video. Dan York explains “Skype has added the higher quality H.264 video codec to the app. As noted, this will let you do a video call with a Skype-equipped TV. (Which you bizarrely could not do from an iPhone before.)”
I’m not holding my breath for Panasonic or Samsung to send me a Skype-ready TV and webcam for testing.
Jim Courtney calls. His video looks funny. He usually calls in hi-def.
And his head is extraordinarily big.
That’s what your head looks like at arm’s length.
Turns out he’s calling from his iPhone 4 at almost one in the morning.
He didn’t sound that great; nothing bad but not that SILK quality we usually get.
So I pulled up our stats.
Resolution was low: Jim sent 160×120 @ 30fps. Tiny size compared to 640×480 High Quality, and not nearly as nice as Apple’s FaceTime.
Codec: SILK_WB_3. Sample rates: e-16000, d-16000. So maybe we’re getting SILK processing but without any wideband audio. The audio is definitely going out over the data channel, like earlier Skype for iPhone apps.
Latency was great, about one tenth of a second for a round trip from greater Toronto where Jim lives to greater San Francisco where I do. You start noticing you’re not in the same room above that.
Then I spent an hour in bed with James Body. Starting about midnight my time, 8 in the morning in the UK. James is one of the driving forces behind Truphone.
I’d tried to use the new Skype on my iPhone 3GS but it crashed. First iSkype, then after retrying, my phone. Restarted the phone and everything works well but we’d moved on to me on Windows and James on his iPhone 4.
We caught up for an hour or so before his family got up, talking SMS arcana, Skype video quality, how Three benefits when kids use Skype feature phones while their parents don’t, and keeping an eye on his iPhone’s power dial. An hour of video calling used 40% of James’ phone’s full charge. That puts a crimp in using Skype for video calls while away from an outlet.
Now might be a great time to drop in to the Skype for iPhone forum on Skype.com. After you download the new Skype for iPhone 3.0. The video commercial, then the highlights, first look, screenshots and walkthroughs to follow.
From the iTunes site:
Improvements:
Make Skype to Skype video calls on Wi-Fi and 3G* (*Additional Data charges may apply)
Call Skype desktop users (Mac OS X or Windows) and other iPhone users.
Two-way video calls supported on iPhone 4, iPhone 3GS and iPod touch 4th gen.
Receive only video supported on iPad and iPod touch 3rd gen, with no camera.
P.S. Marketing thought leader and swing dancer B.L. Ochman must be picking up some extra traffic for her @whatsnext twitter feed and WhatsNextBlog.com.
Download. From the iTunes app store: "Run Skype in the background with multitasking in iOS4. Receive Skype calls and IM while other apps are running or when your iPhone is locked. You can also continue your call while you switch to another application. Multitasking is available only with iPhone 4 and iPhone 3GS." Peter Parkes adds "We’ve also updated the app’s graphics to support iPhone 4’s Retina Display."
Peter also announced a change in pricing policy: "We no longer have plans to charge a supplement to make calls over 3G."
UPDATE: More details about the update from Skype. Release notes with improvements, known issues, and fixed issues are below the fold. Notable changes:
The only way to close Skype now is to delete it from the task bar.
Skype doesn’t turn off other audio for a call.
IM chat continues in the background.
Most graphics upgraded for iPhone 4 Retina Display.
Skype CEO Josh Silverman shared these with the audience at #CommunicAsia2010.
12% of the world’s international calling minutes are on Skype. That’s billions of dollars of hard currency going through Skype instead of telephone companies. Skype gives away seven to eight minutes for each minute someone buys.
34% of Skype-to-Skype calls involve video. About one in three calls are video calls. That’s a lot of webcams.
4% of international calling minutes are Skype video calls. 34% times 12% equals… 1 in 25 minutes.
200k hours of Skype calls per hour. That’s 1.7 billion hours of Skypers talking this year.
Skype expects 80% of new PCs to preload Skype in 2011. 306 million PCs were sold in 2009, so that puts Skype on 240-260 million new PCs this year (assuming 5% market growth). Sorry, Mac users; no sign Apple will preload Skype in addition to iChat or a Facetime client.
About 15% of iPhones and iPod Touch devices have Skype installed. 12 million.
Skype signs up 300K new accounts daily. About 110 million new accounts yearly.
Revenues grew 30% yearly to US$716M in 2009. Assuming a straight line (like that ever happens) that would put Skype’s 2010 revenue at $930 million.
50 million people use Skype toolbars daily. This from an Jonathan Rosenberg’s presentation at eComm 2010 America.
Number of internet users in India and China more than doubled from 2005 to 2008. Which explains the rapid growth of Tencent’s QQ.
Fewer than half of all Skype users use Skype in English.这是一个小世界毕竟
Skype promised Skype-to-Skype calls will be free forever.
Forever comes September 2010 for Skype for iPhone users. Skype is defining mobile apps as a new class of service requiring a separate “mobile subscription.”
You can now make and receive Skype-to-Skype calls and call phones over 3G from your iPhone.
To get you started, we’re offering you free Skype-to-Skype calls over 3G until at least the end of August 2010. After that there’ll be a small monthly fee.
Remember, you can always make free Skype-to-Skype calls from a Wi-Fi hotspot.
Skype now says its app for iPhone and iPod touch comes with “Free Skype-to-Skype calls from any WiFi zone.” [My emphasis.] A new limit emerges.
This breaks Skype’s promise that Skype-to-Skype calls will always be free. The pledge is fundamental to Skype’s brand, to Skype’s freemium model, to the simplicity of trying Skype before buying premium services. No longer can you say “Skype-to-Skype is free.” Now add “except when…” and hope you get it right.
I appreciate Skype’s need to drive new subscriptions.
Breaking faith with your core brand promise is not the way.
Several features announced at the OS4 preview event affect Skype. Multitasking, location services, data encryption service, and a user alerting service. David answered a few questions by email.
Skype Journal: Now that two apps can be running at the same time, will OS4 let Skype expose its own APIs to third party Apple developers to build iPhone or iPad plug-ins? Are apps now allowed to talk with each other?
David Ponsford: Co-operation between 3rd party apps was not something that was discussed at the iPhone OS 4.0 preview by Apple.
Skype in the iPhone’s background, shown on a second status bar, at the top.
SJ: What does Apple’s encryption service add beyond what Skype for iPhone does now? Could there be efficiencies? Will OS4′s encryption protocols be compatible with Skype’s? Aside from encrypting Skype-to-Skype and Skype-to-Server communication, might they be used to increase the privacy of Skype data stored locally on an Apple mobile device?
DP: We are still evaluating Apple’s new enterprise features. All Skype-to-Skype communications are encrypted, as a matter of course. Our users’ privacy is of paramount importance to us.
SJ: Which of Skype’s features will be turned off when running in the background? Will Skype’s SILK codec be available during background calls?
DP: We are still evaluating all the new features available to us as part of the iPhone OS 4.0 developer preview that was released on Thursday. Early indications are that that Skype-to-Skype calls will still use the full capabilities of the SILK codec, even when they are in the background.
SJ: I haven’t seen any Skype alerts on the iPhone so far. Does Skype use the existing alert service? For which notifications? Will you change the types of alerts Skype uses to communicate with a user? The frequency?
DP: Thursday’s technology demo of iPhone OS 4.0, in which Skype participated, used the new local notification system to show that an incoming Skype call was happening.
SJ: Apple is creating stronger technical and experience design differences between the 3GS and earlier iPhones, the iPod Touch family, and the iPad. Will Skype need to offer different software for the platforms or will you be able to offer one OS4 app that adjusts to each device?
DP: It is too early for Skype to give a definitive answer on this specific point; however, it will be our goal to make a single download available to all iPhone users that want Skype, making it super simple to get Skype for your iPhone, with all the features available for it.
SJ: Now that location services are available to Skype through APIs, what will you consider before making it easy or automatic for users to pipe their location into their Skype’s presence?
DP: If Skype believes there is a significant benefit to our customers to offer location-based services, we will look at how these can be offered, while making sure that privacy and other customer experience issues are taken into account at the same time.
SJ: Skype on Verizon Android and Blackberry phones is promising betting integration with native address books. Do the OS4 APIs make it easier to offer similar sync, data population, and dialing features in Skype?
DP: Skype will be evaluating the new APIs available to all developers in order to understand what new features they offer us in order to create the best user experience possible for our users.
SJ: How did you wind up on stage in Cupertino?
DP: My dashing good looks, confusing accent and need to get Gold status on Virgin Atlantic…
Google’s playing nice. They can, because they have the power in this relationship.
Yahoo! will kill Geocities later this month (26 October 2009). Millions of web sites, stores, online communities, blogs will vanish, along with their google juice. Geocities is a chunk of history for some, an online home for others. Yahoo! gave six months warning in its eviction notice. Yahoo! will move you to their paid hosting service.
Yahoo! holds the power over Geocitizens in this landlord-tenant relationship. [Kudos to The Archive Team and the Internet Archive for trying to back up Geocities.]
Renters get power over landlords from their contract and from their government’s landlord-tenant laws. Those laws rebalance power, create some process for notice and appeal, and define penalties for abusing process or power.
Skype is in the middle of a network of alliances, partnerships, antagonists, and dependencies. While some relationships are defined by market forces, many are driven by the struggle for industry and government power. Skype steps lightly. For every Skype government affairs person, the telecom industry has thousands. For every euro Skype spends on publicity and advertising to influence the public and regulators, the telecoms spend thousands. Skype is deft and agile, a guerilla going up against vested interests, avoiding brute force confrontations they could lose.
Meanwhile Skype earned its own power. Skype spent six years defining a global brand people love and trust. Skype quietly framed regulatory issues in Brussels and Washington placing Skype on the side of democracy and freedom. Skype proved its legitimacy as a profitable business (although still a rounding error in AT&T’s 2009q2 Net Operating Cash Flow of $15.8 billion) and a competitor (8% of international minutes).
Skype is investing in its power. Geek cred will come if its Skype as a Platform service is successful. Skype is spreading its political attention to smaller governments. Skype has new PR, advertising, marketing partners to reinvigorate Skype’s brand for what the company will become. Skype is building products to diversify its business model and create new sources of income.
Skype is approaching a half-billion users. Skype will no doubt be a US$2 billion a year company by 2013. Skype will sit at the table with Internet and telecom giants.
So I’m left with an incomplete thought.
Will Skype be as tender with its power as Google? Will Skype be as courteous as Yahoo! with trusting customers? Will Skype abuse market power through partnerships as AT&T?