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Re-thinking Skype’s business model - again!

Over a year ago in February 2008 when there were rumours that eBay were looking to sell Skype we wrote an article on the opportunities to re-think Skype’s business model here. It’s still just as relevant today given the current news.

According to EBay, Skype is still growing traffic but revenues are “decelerating”. It made $126m in 2007-08, but that’s from about $600m in revenue; so it’s a gross margin of under 20%. Not that great. It also has the problem that the more users sign up, the fewer calls they need to actually pay for, because more of the people they call are likely to be on Skype - a sort of counter-Metcalfe’s law. The flip side of this is that Skype’s on-network activities are cost-free; an increase in user-to-user traffic as a proportion of the total reduces their requirement for DIDs and interconnection with the PSTN.

Mind you there’s some two-sidedness in this interview with CNN Money:
“As five-year-old companies go, this is in the upper echelons of success,” says Silverman, noting the company’s 51% revenue growth. “We give away something that costs us nothing. In exchange we get lots of customers for free and offer them a paid service.”
That would be Strategy Two as identified in this post. An interesting thought; one of Skype’s unique selling points was that it provided PSTN interworking out of the box, and in fact Skype as a business only exists to facilitate interworking between the Skype p2p network and the traditional telecoms world. It sells SkypeOut calls; it sells SkypeIn numbers and terminates calls to them. Everything else in the Skype world is user-provided, with the exception of the secure enrollment process and part of the mechanism by which an isolated Skype client discovers its local supernode.

What if Skype was to make this explicit, release the software to open source, and concentrate on being the best Skype-enhancer in town? It sounds wild, but it’s exactly what Sun did with Solaris, its flagship operating system - and Sun eventually decided that the open-source community version was better than the in-house one. And Skype doesn’t make any money from the rights to its software; at least, it doesn’t derive operating revenue from it. (The consequences for Niklas Zennström’s personal pocket of selling it to EBay are well known.)

Back last February, we thought the real opportunity for Skype would be in integrating with other new forms of voice and messaging and in helping to remove friction from other people’s business processes. We still think that; but we can’t help noticing that the action has moved on. Asterisk and CEBP platforms like Ribbit are now the glamour clubs. To its credit, Skype is adapting to this; it’s permitting SIP interconnect, and it’s also experimenting with Skype-Asterisk integration. However, if Skype and Asterisk get together, Skype’s role in this is just as a transport layer and as a provider of PSTN interconnection; the Asterisk side gets the value from the application. It’s an example of the old telecoms wisdom that, as we pointed out in the Voice & Messaging 2.0 report, signalling is what matters.

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