1. The Future of Skype Brian Hayes, Keila McCarty, Lesley Poberezny
Strategic Management Bus 794
Prof. Tanvi Kothari

2. Strategic Vision Mission & Vision To enable the world’s conversations
Real-time communication platform for the Internet that is leading the communication transition from hardware to software.
“The Skype service has been tremendously popular as a free service. But at some point, free doesn’t work anymore. It’s not a management problem. It’s a business model issue.”
-Jordan Rohan, analyst, RBC Capital Markets
Brian’s Slide
When Janus Friis and Niklas Zennstrom founded a software company in Luxembourg in 2003, it was to enable, as they called it, the world’s conversations.
However, enabling the world’s conversations and developing a sustainable business model are two entirely different things.
(site where the quote came from)

3. Simple Timeline Main Competitors 2003 – Skype Founded
2005 – Skype acquired by eBay
2009 – Skype sold to investment group, eBay retains 35%
Main Competitors
Brian’s Slide
The case would indicate that Skype’s main competitors are the “VOIPs” or voice over internet companies like Time Warner, ATT, and Comcast. But more and more, the competitors are Google, Apple with their FaceTime ap, Facebook chat, and Cisco’s webex. Even the late night infomercial MajicJack competes!

4. Past Strategies Minimal Advertising, Maximum Buzz A software company
Increase platform offerings and subscriptions
FREE, FREE, FREE
Brian’s Slide
As of 2009, Skype had a three phase strategy. Phase 1, largely complete, was to become operation on 1 platform (PC), 1 revenue stream (SkypeOut), in one market (Europe).
Phase 2 (2010, 2011), is to develop access to skype on many platforms (PC, cell, etc.), diversify revenue streams, and many conversation modes (voice, video, chat, …) increase target markets (U.S.)
Phase 3 Any mode of communication, any platform, anywhere
Notable exceptions to past business strategies was the absence of revenue from selling advertising

5. SWOT Strengths First Mover Low user acquisition costs
Firm foothold in Europe and Asia - more than 80% of revenue comes from outside the U.S.
U.S. VOIP market continues to grow
Keila’s Slide
First mover – Skype not only has the midshare, it has the verb. “Google” = look up online
Low costs – each additional user requires very little additional infrastructure
Growing market as more and more communication done online and less via traditional means – snail mail and copper telephone

6. SWOT
Weakness
20 million online at any time but mostly using free services
No other “in” gathering customers to its services
Group video chatting not available
Does not advertise or incorporate advertising into their program
Keila’s Slide
Skype is failing to earn additional revenue from their premium services.
ONLY a VOIP software company. Yahoo/google – , AT&T/Comcast – internet provider to businesses, etc
Group video not available - prevent companies from purchasing. 
Advertising i.e. on messaging screens

7. SWOT Opportunity Design a successful model for earning revenue
Build on brand recognition to engender customer loyalty and boost revenues
Skype has only 1% market share in the growing U.S. market
Expand to new markets
Geographically
Commercial and non-commercial markets
Keila’s Slide

8. SWOT Threats Flattening growth as market becomes saturated
Governmental regulation of communications (FCC)
“Last mile” connecting Skype to consumers is owned by its competitors
Quality of and access to Skype services dependent on internet access and quality
Keila’s Slide
Governmental regulation of communications (FCC) can change the rule affecting revenue and profits.
Last mile – because they aren’t an internet provider (as other hardware, VOIP, and Publically-Switched Telephone Network (PSTN) providers like AT&T are).
Governmental regulation of communications (FCC) can change the rule affecting revenue and profits. DOES THIS INCLUDE NET NEUTRALITY?

9. Strategic Issue #1 Current Revenue Model
4 out of last 5 years lost money
Cumulatively almost $2 billion
Skype’s model cannibalizes own revenue
Brian’s Slide
As the intro slide stated, what was skype’s business model (?). After its founding in 2003, it made money only one year and eBay was quick to shed it after losing a billion dollars AND failing to integrate its business into eBay’s own.
A look at one critical issue serves as an example. If one person can call another person on either a phone (which is billed) or a PC (which is free of charge), most persons choose will choose PC. This choice cannibalizes Skype’s subscription service

10. Develop a Sustainable Revenue Model
Recommendation
Develop a Sustainable Revenue Model
Define Product Offering
Advertise – Differentiation!
Increase online presence with partnerships
Increase subscription services
Maximize amount of time users spend online
Brian’s Slide
Skype seemed like a science fair project that caught on too quickly before anybody stopped to think “what have we have here and how are we going to make money at it?”
Skype has to define its product offering. It has to determine the value it delivers from each differentiated product and capture that value in the appropriate pricing model. It has to shed or minimize its cannibalization. It has to convey its value to the market through an effective advertising/marketing plan.
This plan has to include expanding its subscription services and selling advertising. It may be difficult to go from “free” to “pay”, but by partnering with internet companies we believe there is an excellent chance to increase subscription services as well as make Skype more relevant.
(the chart above is from June

11. Skype Offerings Company Voice Call Phone Call Video Call
Instant Messaging
Desktop Sharing
File Sharing
Skype X
Google Voice
Apple (Face Time)
Facebook Chat
GoToMeeting
Cisco WebEx
Brian Slide

12. Develop a Sustainable Revenue Model
Implementation
Develop a Sustainable Revenue Model
Immediately perform extensive product/market review
Determine which has prospect for sustainable revenue
Through strategic alliance with partners will drive growth and revenue subscriptions
Will drive usage and proportional revenue
Brian’s
SkypeOut, in which PCs can call traditional landlines for a low rate, is already a success. Although this success is limited in U.S. We believe the market is bigger. An extensive market review will determine which technical and marketing hurdles exist for broader appeal.
Skype is a natural and inexpensive communication tool for companies which want to provide additional value in their services, such as social networking sites, tech support for businesses, education, etc. Skype provides multiple means to communicate, including chat, voice, file sharing and video. This enhances the customer experience for its partners and increases Skype’s relevance. Relevance is important to increasing ad revenue.

13. Shrinking Revenue Growth
Strategic Issue #2
Shrinking Revenue Growth
Limited Skype Relevance
Limited channels (partners)
Competitive offerings could potentially lock up profitable revenue streams
Lesley’s Slide
The second issue the we noticed was happening to Skype was the idea of the revenue growth shrinking. They were still making money, but not as much as they saw when they first started in 2003.
The team and I asked around our jobs and other social environments the last few weeks and asked our friends if anyone has ever used Skype before and they had heard of it, but never saw the needs to use it. To them Skype was not relevant. They said they used Yahoo and other competitive offerings as mentioned earlier to communicate with their friends and family that are far away.
When speaking with these same people as well, they thought that Skype should be more visible because some did not even know about them when asked. They have limited channel partners meaning they are not partnered with anyone like a eHarmony or LinkedIN (will explain shortly.)
Finally, these competitors in the market that were mentioned before could grab more market shared and lock up the profitable revenue streams that Skype has had over these years. The following recommendations this group came up with will lead Skype to where they should be in the future.

14. Recommendation Increase Relevance Social Networking Facebook LinkedIn
eHarmony
Lesley’s Slide
We want to rebrand to market online businesses so they don’t need to develop the functionalities Skype offers.
The first recommendation is to increase the relevance of Skype by partnering with social networking sites. By doing that we want to rebrand to market online businesses so they don’t need to develop the same functionalities Skype offers.
The sites have become more popular over the years and more visible that if there were a Skype option with Facebook, LinkedIn, or eHarmony, relevance of the site would increase and more and more people would start using Skype, not only for the FREE section, but the paying sections as well.
Facebook – currently have IM, but having the video chat as well you can see those friends overseas that you might have not seen in a long time
LinkedIn – If you ‘Like’ a company on LinkedIn and they want to interview you for a possible open position they could conduct the first “phone interview” over Skype where you would be able to talk to them face to face. This way when you do go in for that “first interview” you are not as nervous because you know what the person looks like you are meeting and that usually calms the fears.
eHarmony – Keila came up with the idea of how this would ease the first date jitters. When you meet on eHarmony or Match, you set up a date to meet in a common place, but now you could set up a Skype Date to ease the fears of the first date jitters. She even said it could be a Super Bowl Commercial!

15. Implementation Partner with the following social networking websites
Dating Sites (eHarmony, Match, etc.) LinkedIn and Facebook
This will increase Skype users from 540 million to 1 billion, profitability from $13 mil to $159 mil
Lesley’s Slide
Pro Forma
By partnering with these social networking sites, the pro forma below shows that there would be increase in Net Profit from 2010 (when we ended) to 2011.

16. Implementation Selling Ads
Revenue/profitability is incremental to existing revenue structure
Additional $7 mil increase in net profit (from $159 mil to $166 mil)
Lesley’s Slide
Pro Forma
2009 – From data
2010 – Projected data
2011 – Implement recommendations w/o selling ads
2011 B – Implement recommendations w/ selling ads
As the pro forma showed us before that we would have increase in net profit from 2010 to 2011 if the idea was implemented, Skype could also increase their net profit if they would sell ads on these sites. For instance, when you are currently Instant Messaging to your friends on Yahoo, there are ads that pop up in regards to clothing stores you might have shopped at in the past online, shoe stores, or any other accessories. This is something that could be censored by parents if they have any concerns. This sort of selling would even help out the company by increasing their profit by $7 mil.

17. Recommendation Increase Users Increase Relevance Education Schools
Catch them while they are young
Introduce them to other cultures
Enhance their learning experience
Lesley’s Slide
The second recommendation is to implement Skype in to education. If you start implementing the software at a younger age, they can carry it through to their adulthood. In other words, “catch them while they are young.” Our group started using different messengers that were available to us when years back and now we all carry them through to our work, school, and even social on our cell phones. It is something that has become part of us and Skype can become part of the school and that is how you can receive more users, yet increase the relevance at the same time. By using Skype in the schools, students will grow up with it and later in life it will be the form of communication they use. For instance, I started using Yahoo Messenger years ago and now that is all I use. I used it when I was working, to communicate with my friends, and even my school mates. It is something that is stinking with me now and will stick with me later on.

18. Implementation
Education
Partner with interactive whiteboards (e.g., Smart Board) at schools
Create the Skype Classroom at top teaching universities
Lesley’s Slide
Partnering with Smart Board at schools would help to enhance the experience. Currently, Smart Boards are growing in education and more and more schools are getting away from the green board and chalk and moving on to this electronic board that all you need is your finger. If Skype were an option on the Smart Board, students that are not able to attend class because of doctor appt. could Skype in to the session while waiting in the waiting room and would never miss a beat.
The second idea is to turn the classroom into a “Skype” Classroom where the whole class in via Skype. This could start at top universities and then from there Skype could figure out where they want to market next (D1, D2, or D3 schools). Today we have a video that shows two girls practicing Skype in their classroom to prepare for an actual Skype video chat overseas. Lets watch!

19. Strategic Issue #3
Net Neutrality
Proposed Legislation not allowing ISPs to control content or access
Comcast – prevented users from gaining access to file sharing websites
Keila’s Slide
Net Neutrality – would not allow ISPs to control content or access.
Specifically, network neutrality would prevent restrictions on content, sites, platforms, types of equipment that may be attached, and modes of communication

20. Recommendation
Net Neutrality
Do not engage large ISP-VOIPs directly in large business sales
Become more politically active
Target
International/Widespread Businesses
Small Businesses
Websites
Prepare for sale
Keila’s Slide
Large businesses –
In order to connect with their customers, Skype will always be dependent on their competitors because they own the last mile.
Skype may not be a solution for large businesses because they don’t have that IN or that bargaining power.
International/Widespread businesses - internet/phone providers not be consistent across locations & countries
In the meantime, because they can’t challenge AT&T directly, they may want to groom themselves for sale ???

21. Implementation Advertise on net neutrality & potential consequences
Use popularity overseas to feed into American market
Offer free month to new small businesses applying for licenses
Rebrand to websites as a software service
Keila’s Slide
Use popularity overseas to feed into American market – approach German company already using your services to have their American constituents begin using Skype

22. Overall Implementation Timeline
Year 1
Define product offering/establish advertising schedule
Have a contingency plan for passage/non-passage of Net Neutrality bill
Begin partnership strategy
Social Networking, Education
Year 2
Review of Year 1 initiatives (NN, advertising)
Survey/Questionnaire (with regard to education)
Establish rate schedule (selling)
Year 3
Review of Year 2
Prepare for public offering or buyout
Group slide
Each of us will do one year.
Lesley – Year 1
Keila – Year 2
Brian – Year 3
Will that work??????

23. Questions?