Disrupting Skype

In the Automatisering Gids of last week, an article was published, in which the writers underline my earlier statement that Skype is a disrupting technology. They invoke the following arguments:

1. Telephony communication is up to a point that on accessibility, quality of service and price, users need no more need further improvements;
2. To see who's online (the 'presence' of your social network) and to switch easily between text and speech are new important quality characteristics;
3. Skype offers still a lot of development possibilities. By nature, it concerns a software solution to which new functionalities can be added;
4. Skype use of a business model which anticipates on rapidly increasing ADSL-connections;
5. Skype still has the advantage of a pioneer, they lift on the extremely strong reputation of 'the people who brought you KaZaA';
6. The incumbent local phone companies cannot embracy VoIP-telephony quickly because doing so means admitting to their shareholders high voice revenues are going away.

What's the value proposition of Skype? How generates Skype on the basis ot this value proposition an attractive income flow? The writers of the article leave these questions unanswered.

The Skype business model is based on a technological innovation. Peer-to-peer technology allows Skype to apply a software businessmodel to an operator problem. Skype claims this is disrupting existing business models of both circuit switched telco's and VoIP providers. Skype's scaling costs remain the most efficient. 

It has become clear Skype started an income flow with SkypeOut. They charge for bridging to the PSTN. SkypeOut provides Skype users on a prepaid basis the ability to place calls to the public switched telephone network. As Ross Mayfield already stated in his weblog on September, 2003, this is nog that much of a challenge technically and they can create intermediate peers in different countries connected to a softswitch to avoid paying for transport. 

The strategic business design of Skype is wonderful, based on a product pyramid profit. Skype has a simple bit of software, easy to install. It’ll let you make free phone calls to your friends all over the world. And Skype doesn’t want any money for it. It’s free.

This will create a base of the pyramid, through millions of downloads. The base of the pyramid plays a critical strategic role in creating a "firewall" at the bottom. The firewall brand creates a barrier to competitors, and protects the profitability at the top of the structure. How does it work? Well, after a couple days you discover the biggest part of your social network isn't online. Then you decide to add credit to your Skype account. Money flows in, profit starts for Skype and the product pyramide starts working with SkypeOut, SkypeIn etc...