High-Technology MarketingHigh-Technology MarketingCase Study on Skype:

Prepared by,Ng Eng ChongHT093129M

1. Describe the environment in which Skype competes based on the threecharacteristics of high-tech markets (Chapter 1).2. Given the technological uncertainty present in the VoIP mobile market,would Skype be likely to emerge as the leader? Explain your reasoning.3. Would VoIP be considered a disruptive technology by wireless carriers?Explain.4. Collect current statistics regarding the number of VoIP users. At whatstage of the adoption-and-diffusion process is this technology?5. What would be an ideal beachhead for Skype to focus its efforts on?6. What are the elements of a whole product solution for VoIP? What are theimplications for Skype in terms of crossing the chasm?

Skype Case Discussion Questions:

implications for Skype in terms of crossing the chasm?7. What are the pros and cons of Skype’s selection of a proprietary Voiceover-Internet protocol?8. What are the characteristics of a business that can successfully implementan advertising-based business model? Does Skype possess thosecharacteristics?9. a. Analyze the pros/cons of the three alternatives discussed in the case forSkype to generate revenue.b. What other strategies are available to Skype to generate revenue?Assess their pros/cons as well.c. Make a recommendation for a viable business model for Skype tosucceed.10. Is Skype likely to become the money-making machine that eBayenvisioned?

Market Uncertainty:

Securities/Vulnerabilities:(1) Users are skittish about the security and potential vulnerabilities

exposed by the Skype system. This prohibited major enterprises from using the VOIP technology.

Platform dependency:(2) There exists different VOIP platforms. Skype users can only

make call to users who use the same Skype platform. It’s not convenient to reach users who are using different VOIP platform.

System reliability:(3) Users doubt reliability of the systems. It can’t be used in

emergency cases or highly important matters such as teleconference during surgery or calling for ambulance.

Users’ adoption pattern is fast changing: (4) Users move in herd behaviour. Increasing popularity of social

platform alike MSN messenger or facebook and integration of

Technological Uncertainty:

Potential of system breakdown:• Windows update caused potential glitch in the system;

causing blackout to millions of users. Hence it caused a lost of trust in the Skype system.

Users Privacy:(2) It’s doubted the peer-to-peer technology will intrude

privacy of users such as unknown strangers calling using Skype and claiming as someone they are not.

Risks due to unregulated membership:(3) Skype users can easily disguise themselves and falsify

their identities when registering to use the platform. People can misuse the technology for money extortion, cheating and illicit crimes which keep people away from using this technology.

(Q1) Skype is competing in the Internet telephony market, which provides voice-over-internet-protocol (VOIP) services to users, allowing them to install the software on their computers and make call through the Internet for free and Skype makes small charges for per-minute calls to landlines and mobile phones. The table below describes the environment Skype is competing based on the market uncertainty, technological uncertaintyand competitive volatility.

platform alike MSN messenger or facebook and integration offree voice-calling cause potential shift of users to more popular platform.

Competitive Volatility:

Increasing direct competition from large competitors:(1) The rise of social platform such as instant messenger by large players such as Yahoo, MSN, and Google in the social network

spaces has diverted Skype users as this free voice-communication over the net is integrated into each of the social platform. As the network becomes larger, some of these services might utilize revenue model of Skype by adding value-added service to call users by landlines and mobile phones and provide it for free.

New value-add integrated services in common platform:(2) Google is planning to roll out Gmail service to call Google’s contact (landlines or mobile) within its Gmail service using its Google

Voice technology. Google has disruptive business model where by providing this free calling service, they will be able to attract and increase their users base, therefore increasing their revenue from advertising. This is very dissimilar compared to Skype which is utilizing paid services for landlines and mobile call.Google’s strategy will disrupt Skype’s existing business model.

Additional service offering by traditional telecommunications companies:• Some of the broadband services are now offering VOIP free phone calls to landlines as a part of their package. Some users are

shifting away from Skype to the adopt the free broadband services.

Skype’s Business Environment

(Q2) The likeliness of Skype to succeed in the VOIP mobile market will depend on the following factors:

(i) The ability of mobile VoIP technology to replace legacy cellular voice technologies for all calling:

Faster Network Speed:The bottleneck of consumers in adopting the mobile VOIP technology mainly lies in the present speed of mobile broadband which results in lower quality voice and video transmission. The acceleration of launch of new, 4G wireless networking technologies such as LTE and WiMAX will speed up the faster and higher-capacity networks which will drive the adoption of mobile VOIP.

Mobile devices with better computing capabilities:The recent boom of emerging smartphone and tablet devices allows easy and hassle-free installation of VOIP software. This allows adoption by a larger group of people as the devices are widely made available.

Free Marketing Model:The free marketing model for basic Skype users is a very disruptive business model to win the market share from traditional cellular voice carriers. Most of the Internet users like to have things for free, and if voice communication can be made free, it willdraw them to adopt the technology. draw them to adopt the technology.

• The ability to differentiate itself from its emerging competitors in the mobile VOIP market:

About $605.8 million in mobile voice-over-IP revenues were generated in 2008 in North America, Europe, Asia Pacific and Latin America, while estimating that number will rise to $29.57 billion by 2015. The high profitability of VOIP mobile market has drawn large, cash-intensive competitors such as Yahoo, Google, well-finance Jajah and Lycos.

For now, as Skype has the largest user base in VOIP, and its competitors have not enough voice base installed particularly outside of US, Skype stands the opportunity to be market leader in mobile VOIP by utilizing its existing users base in PC by providing free software to smartphones and tablets users.

Skype is also differentiating itself by providing reliable communication services to businesses and enterprises, licensing its technology to hardware makers and integrate its Skype software solutions in other consumer electronics such as TV, car dashboards and public terminals.

With the differentiation strategy in place, Skype vision in “any” mode, “any” platform, “any” where and in “any” products will separate it from its competitors.

(Q3) Firstly, the wireless technology by the traditional providers provides high quality in long distance call. VOIP calls are generally lower in quality and its business model by providing free calls from PC-to-PC and from PC to landlines and mobile phones in long distance has been perceived not as profitable as the current lucrative wireless circuit switching business by existing wireless carriers. VOIP was initially considered as toys due to its poor performance. However, by giving VOIP as free, Skype is able to attract a large number of users. Some of the users are willing to pay for premium services such as calling landlines and mobile phones. As the Internet technology improves and exceeds user acceptance level of the quality of long distance call, more users switched from the traditional carriers to VOIP technology and eventually the VOIP technology users exceeds the users of wireless technology. Therefore VOIP is a disruptive technology to the traditional wireless technology.

Sustaining wireless technology

VOIP technology

Num

ber of users

*Incumbent pursue wireless tech with higher profit margin

User acceptance level ofthe quality of long distance Call.

Sustaining wireless technologyby traditional carriers.

Time

Num

ber of users

*initially VOIP is lower in quality

(Q4)

Adoption-and-Diffusion Process.

Skype is the largest VOIP player in the market.The figure shows the market share of Skype which has reached 11.7% of all traffic. VOIP technology in 2009, has total of 23.6% of all traffic. From the adoption-and-diffusion curve, VOIP technology is positioned at the early majority stage. These groups are deliberate and have many informal contacts. They have the herd behavior and move in together. This explains the rapid adoption of the VOIP technology by Skype at the presentstage and Skype should drive more users by building more communities and leveraging social networks.

(Q5)

Generally the success of Skype depends on the number of users who adopt it. Its free PC to PC communication has attracted more than 280 millions registered users in 2009 and the number is growing rapidly due to word-of-mouth and peer effect. Today, Skype continue to add 350,000 of new registered accounts. Such a large number of users serves as the ideal beachhead for Skype.

Skype is able to monetize the free users by providing the following services: (i) Paid Subscriptions (unlimited calling), Premium services such as SkypeOut (pay-as-you-go), Online Numbers, Voicemail, and SMS(ii) Sell the free users to advertisers(iii) Hardware licensing from the complementary product created to cater for the users such as Skype phone

(Q6)

Microphone

Speaker

Computing deviceSuch as PC,Laptop, MobilePhones, TV box,VOIP handsets

InternetBroadband

NetworkSwitches

P2P Connection

VOIP software

Landlines

Mobile Phones

The following figures show the working elements of Skype’s VOIPTechnology. The chasm of VOIP technology is the gulf in between thevisionaries and pragmatists users. Pragmatist users require ease

Computing deviceSuch as PC,Laptop, MobilePhones, TV box,VOIP handsets

VOIP softwarevisionaries and pragmatists users. Pragmatist users require easeof use, reliability and standardization of the VOIP technology. As Internet broadband speed increased significantly, as more people becoming Internet savvy, as computer is becoming a regular commodity, and as VOIP isgetting easier to be installed in any computing system, VOIP is crossing the chasm to the PC users. However the next phase seems to be in the mobile devices such as smartphones which is a booming market.As VOIP is preparing to crossing the chasm to mass majority in mobile phonesmarket, it has a large implications on Skype in terms of increasing users adoption of its services. Skype needs to redesign its product to cater for users in smartphones and rethink its strategy to monetize its users.

(Q7) Skype’s VOIP technology is different from the standard VOIP clients as its technology operates on peer-to-peer model rather than usual client-server model. This has led to the following pros and cons:

Pros:

Negligible capital expenditures and network maintenance costs:As Skype’s technology is peer to peer, it’s the Skype users who need to invest in items such as PC, routers, Skype

hardware or bandwidth subscription from the broadband providers.

Free calls and no monthly subscription:As Skype operational costs are almost zero, there is no need for Skype to charge users any monthly subscription

cost unlike other VOIP service providers which need to maintain their server.

Able to cater for unlimited users and number of calls at any time:The peer-to-peer technology prevents data traffic from crowding a particular voice server hence causing poor connection. It allows unlimited number of calls without needing to worry about server capability.The speed of network increases with increasing number of users as each nodes added into the network The speed of network increases with increasing number of users as each nodes added into the network increases the processing power and bandwidth of the system.

High calls completion rate and good quality calls:Companies operating on centralization typically allocates small resources for their servers, hence the completion rate and quality of calls drop. The decentralization technology by Skype overcomes this issue.

Cons:

Security and potential vulnerabilities:The P2P technology exposes the end PC users to potential vulnerabilities of being hacked by virus and worms.

Hard to troubleshoot and poor customer service:System failure due to changes in the operating system is difficult to troubleshoot due to the P2P nature. For example, Skype faced a setback in system wide failure in 2007 due to Microsoft upgrades.

(Q8)

These are the characteristics of a successful business which implements advertising-based business model:

(1) The business has a large number of active audiences who will happen to browse the advertisement.(2) The business is able to deliver the advertisement at low cost.(3) There is efficient interactivity between the audiences and the advertisement such that it’s easier for the

audience to find out more about advertisement. (4) The business has analytics information regarding its audiences such that the advertisement can be focused on the right

consumers.

Yes, Skype has the common characteristics of a business to implement the advertising-based business model. It has a large number of audiences, mainly the free users who are using the Skype system. To successfully implements the advertising strategy, it can add advertisement or moving letters at the bottom of its user interface so as not to interrupt or cause disturbance to the users. The advertisements can be clickable so that it can bring the users to the content of theadvertisement.

(Q9)

(a) 3 alternatives, mainly:

(i) A new business model to focus on the advertising rather then user fees.

Pros: Skype is able to derive advertising income which could be more profitable than charging for fees as the free users grow rapidly.Cons: Skype’s active users might be small compared to the registered account.

(ii) A mobile model for Skype.

Pros: By making Skype easier to access from mobile phones, more users will use the system and spur growth in revenue for its premium services.Cons: Wireless carriers might not allow VOIP in their network as it will reduce wireless carriers revenue stream.As more users use Skype in mobile, the users will opt for free services like Skype-to-Skype which will slash its revenue making business in selling minutes to calls to landlines and different mobile network.

(iii) A new pricing for Skype PC to PC.(iii) A new pricing for Skype PC to PC.

Pros: Customers might be loyal and stay on subscribing to Skype as they see a great value in Skype products.Cons: Most users like things to be free on Internet. They will switch to use other VOIP system which gives them free services such as Instant Messenger by Yahoo and Google.

(b) Other strategies:(iv) Target small and large businesses to use Skype solutions for B2B and B2C services.

Pros: Increase revenue streams by charging businesses for using secure solutions at minimal costs.Cons: Companies are skittish about the vulnerabilities the Skype system will expose them to.

(v) Pre-install Skype software into mobile phone. Skype collaborated with hardware manufacturers to pre-install Skype in their handsets.

Pros: More people will get to know Skype and use its system. Skype can monetize on the users in advertising and premium services which a portion of users will be willing to pay.Cons: Paid services might suffer and handset makers might not be interested to embed Skype due to potential security issues.

(vi) Increase means of payment besides using PayPal such as pre-paid cards sold at convenience stores to cater for consumers without access to Internet banking.

Pros: Able to increase revenue stream for its paid services. Cons: Extra costs in the distribution of pre-paid cards and we do not know how successful it will be.

(v) Promote customized Skype solutions for niche market such as for education to enhance communication between lecturer and student in large lecture hall.

Pros: Able to attract mass users to adopt Skype and it builds up the Skype branding in VOIP services. Able to build the communication link without high spending in the communication infrastructure. Skype can also promote an efficient sharing of information/files with peers in school.

Cons: All students need to have mobile phones with installed Skype. Not all students will have the right deviceshence disallowing them to participate. Piracy and copyright issues with file sharing among students.

(vi) License out Skype VOIP technology where other companies can customize the core engine for their applications.

Pros: Able to make money from the licensing fees.Pros: Able to make money from the licensing fees.Cons: Increase the intensity of competition in the VOIP market, hence reducing its own profitable core business.

(c ) Recommendation:

Skype can go for multi-sided business model to increase its revenue stream besides its main revenue making paid call services with(i) Innovative advertising by yellow pages where businesses listed their companies and contacts and users can contact this businesses using Skype.

(ii) Increase revenue stream in paid services by exploring innovative up-front payment for different types of users.(iii) Promote innovative Skype services to the public in niche market such as customized solution for education to build

mind share among the young generations.

(Q10)

No. Skype does not integrate well into Ebay’s business as it has imagined. Ebay envisioned Skype as a ideal solution for businesses such as car sellers in which the nature of business requires real time effective communication to close the deal. However, most of E-Bay majority businesses participating in Ebay are small and medium sized. These businesses normally operates in low cost environment, and they do not have many employees. Integrating Skype into Ebay causes the small businesses short of manpower to serve the users. So Skype is not attractive to the Ebay merchants and most of them are notwilling to adopt the technology. Therefore Skype is not giving similar return as Ebay could have imagined with their acquisition of Pay-Pal.