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Skype in the Voice-over-IP Industry: A Commercially Viable B

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Alex Gibbs

on 10 April 2014

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Transcript of Skype in the Voice-over-IP Industry: A Commercially Viable B

Skype in the Voice-over-IP Industry:
A Commercially Viable Blue Ocean?
By: Alex Gibbs
Tyler Kirkland
Saphira Lazarre
Lin Liu
Rachel Stone
Case Overview
Porter's Five Forces
Threat of New Entrants: Moderate
Competitive Rivalry: Very High
Threat of Substitutes: High
Buyer Power: Moderate to High
Many substitute services exist e.g. Google, Viber
Cost to change providers is low
Although Skype has a few features that differentiate them, most providers offer the same core services
Supplier Power: Weak
Our Thoughts on Skype's Future
Discussion Questions
Skype's Emergence
Founded in 2003 by Niklas Zennstrom and Janus Friis
VoIP industry gaining momentum, only moderate competition exists
Skype leading the race due to:
Good voice quality
Low-cost structure & well-educated programmers
P2P architecture for increased scalability
High level of compatibility with various operating systems
SkypeOut launches in 2004, allowing users to call mobile/landlines
Skype releases video calling feature in 2005
Skype purchased by eBay for $2.6 billion
Google enters market in 2006 with 'Google Talk' application
Skype's Early Days
Low barriers to entry enable a plethora of competitors to enter the market:
ISPs/cable companies
Telephone companies - AT&T, Verizon
Internet service companies - AOL, MSN, Yahoo
Independent providers - Vonage, Lingo
Skype experiences upper management problems, Zennstrom leaves
GrandCentral emerges, gives users ability to use a single phone number for all phones and messaging services
Google acquires GrandCentral in 2007
A Once "Blue Ocean" Turns Red
VoIP Industry sees Slowed Growth
Despite increasing efforts, industry suffers losses in traffic and revenue
Microsoft acquires Skype for $8.5 billion, experiences jump in registered users
Skype integrated into most Microsoft products
Pressures primary competitors like Google to innovate
Suppliers consist of internet service providers (ISPs) who provide connectivity to users
Many ISPs exist, reducing suppliers' power to set prices
Access to broadband internet places cap on the market of VoIP services
70% have access in the U.S
Global internet accessibility is steadily growing

Low barriers to entry:
Limited VoIP regulation
Relatively small amount of capital needed for start-ups
On the other side:
Well established brand names exist
Economies of scale are necessary for profit in this industry

Buyers' Utility Map

Our Recommendations
Many competitors in market
Brand loyalty is insignificant - users more concerned with functionality, ease of use, etc.
Slowed industry growth due to decreasing traffic
Low/no user switching costs
VoIP providers have excess capacity due to the nature of the service provided
GrandCentral becomes "Google Voice", allowing unlimited free international calls for users
Skype's attempt to differentiate themselves:
Releases Iphone/Android App with video calling capability
Integrates Skype into internet-connected TVs
Skype 5.0 allows group-video calling for up to four people
Updates apps making 3G connectivity acceptable
Imitators are quick to follow suit
Viber emerges in late 2010, quickly becoming a popular option among smartphone users
eBay sells majority of stake in Skype at a discounted rate
Skype partners with Facebook to allow video chatting service
Google launches "Hangout" in 2011 to compete with Skype in social media market
Apple releases FaceTime in 2011, immediately acquires large market share
A Timeline of the VoIP Industry
Do you think Skype TX will be enough for Microsoft to penetrate the broadcast environment? (https://media.skype.com/)
Given Skype's inability to integrate with eBay, do you believe they will have more success under Microsoft's control?
How might Skype differentiate themselves from their competition in the future?
Skype is currently focusing on individual-user markets. Should Skype enter the enterprise-user market place?
Porter's Five Forces make the industry seem grim
However, Microsoft's purchase of Skype means they now control 80% of consumer communications market
Success will depend on how well they can integrate
Estimated over $2 billion in sales in 2013
Paid almost $1,000 for each active Skype user
Skype will directly connect to Office 365, Xbox, Windows 8, Bing, Microsoft Messenger, Windows Phone, Lync, and Outlook
Skype becomes part of office and consumer environment
Microsoft announces Skype TX on April 7
Skype no longer has a pricing issue as it is included in most Microsoft products
Microsoft's Acquisition of Skype
The uncontested "blue ocean" that Skype enjoyed for several years is now full of competition
Many of the questions raised in the case are irrelevant today; much has changed in the industry since it started e.g. Microsoft's acquisition of Skype
Prior to this however, Skype was experiencing issues with pricing with less then 2% of users paying for the service
Given Skype's new role in Microsoft, "blue oceans" could be created through idea generation, investing in "good ideas" and using a buyers' utility map as a reference

Continue Microsoft and Skype push to become engrained in every day life
Delve into new markets (ex. Skype TX into broadcast market)
Push the simplicity and convenience of current Skype enabled devices
Users are able to switch VoIP providers at no cost
Many VoIP providers offer service free of cost e.g. Viber, Google Talk & Gmail
Today, performance among primary competitors of Skype is similar
Full transcript