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Summary:

Skype goes beyond the traditional PBX features with its support for IM and ability to share contact information with other applications. These features are exactly the selling points of the newest software based PBX systems. The IM thing especially, as it ties into something called “presence.” […]

Skype goes beyond the traditional PBX features with its support for IM and ability to share contact information with other applications. These features are exactly the selling points of the newest software based PBX systems. The IM thing especially, as it ties into something called “presence.”
Guest Post by Jesse Kopelman

Let’s clear one thing up, right off the bat. I’m not here to tell you how much Skype is worth. That’s not the point, anyway. The point is that, if you are looking at things from the angle of what kind of margin can one make selling generic voice services by the minute, the world has passed you by.

The per-minute price for voice is not going to stop going down. This is why there has been so much consolidation in both the fixed and mobile telephone business recently. The only way to grow the business is to keep adding customers and even this will become a losing game eventually. If you are using VoIP to set yourself up as a new player in the telephone business, you’ve come to the party way too late. The most you can hope for is to cut into the profits of the existing players enough to force them to buy you out.

So, you may ask, what is up with Skype? Are they all about hoping to make enough noise that someone will overpay for them Moviefone style? That may well be, but it seems to me they are positioned to make money in ways that are related to charging per-minute for voice only peripherally if at all.

The business model I envision for Skype could be generalized as Centrex service. The idea behind Centrex is you want the benefits of a PBX but not the cost of buying the equipment and the hassle of maintaining it. So, you get a company (usually your local phone company) to do these things for you and send you a monthly bill. What are the benefits of a PBX? The most common are things like voicemail, being able call the other people on the PBX for free, and the cost savings of being able to efficiently share a smaller number of lines than users. Funny how those things are pretty much what you get from using Skype. What is more, most PBX/Centrex users have fancy phones that let them have multiple simultaneous calls and make it easy to conference calls together – functionality found in the Skype client.

Skype goes beyond the traditional PBX features with its support for IM and ability to share contact information with other applications. These features are exactly the selling points of the newest software based PBX systems. The IM thing especially, as it ties into something called “presence.” The thing that gives Skype a huge advantage over say the latest Avaya PBX is that you automatically get the advantage of having millions of existing users on the same “PBX” as you and it costs nothing to add more. Meanwhile, with a traditional PBX/Centrex solution you are going to be paying a monthly fee for each and every user and you don’t even want to think about what it would cost to have 3 million simultaneous users. The thing is, if Skype offers all this good stuff for free, how can they make money?

Well, to begin with, they are already charging for the most fundamental PBX feature – voicemail. I think as time goes by they will begin charging a more substantial monthly fee for the whole bundle (and still charge something extra for Skype In and Skype Out), maybe as much as $20/month. Before they can do that however, they must increase the value of being part of the Skype network of users. They must make Skype into a way of life in the same way e-mail and phones are.

One way Skype is doing this is by playing up the social networking aspects. Not only does it offer the best way yet to stay in touch with your far flung friends and family, but there is the opportunity to meet new people whose profiles strike your fancy. There are plenty of personals websites that charge for that sort of thing. At the moment Skype is being a bit of a dilettante in this arena, but by catering with more detailed profiles they could easily bring in a whole new wave of users whose first experience with Skype is as a paying customer. Indeed, a merger with one of the larger personals websites could work very well for Skype.

At the same time as Skype is making inroads with the set that see it as the next evolution of AIM in terms of meeting people online, a whole other grouper is using Skype for reasons that could not be more different. These are business people who love the fact that Skype essentially replicates the features of their PBX for free. At the moment, they Skype with at best the tacit approval of IT and at worst in violation of company policy in regards to user installed applications. If Skype can get companies to realize the benefits of extending PBX functionality to employees working from home or on the road, those companies would surely be willing to pay for the service. There is also the whole issue of why upgrade to that new PBX platform Avaya is selling when you get something that offers the same features, costs less per month, and works outside of the office. What Skype really needs to make this happen is some sort of corporate façade to put on the service. Larger companies hate to think that they have the same hardware or software that can be bought by the hoi polloi at Staples. Ideally, Skype should form an alliance with a Nortel or the like to sell a functionally identical version of the client and service that is Nortel branded (I pick Nortel just because this would go well with their VPN software and because of their ubiquitous office phones). If Skype can win over the corporate world or the social user, they will certainly get the small business user as he will either get Skype to talk to his clients/vendors or will be using it already in his personal life.

So, what’s the bottom line? I would say in the end Skype is just like any other startup with a huge buzz around it – it could either go on to make a huge amount of money or none at all. The key is whether Skype can build on the buzz and make itself into an essential communications tool. It is a tough task, as it must make the transition into a paid service without giving up the massive user base that it got by being free. I think the way it does these things is by going two separate routes: pressing further with the idea that it is a social network that may just get you your next date and showing that it can do all the things you are currently paying big money for in a PBX/Centrex solution. What is more, there may be an as yet unexplored sweet spot that lies at the overlap of these two seemingly disparate user groups.

Jesse Kopelman is a former engineer for a famous bloated telecom that no longer exists. The way he tells it, truth is definitely stranger than fiction.

  1. This is a wonderful article, probably one which most have pondered but not realized.

    I believe “at the end of the day” a Skype-like P2P network(s) will rule the landscape. For one, I believe Microsoft should take this approach since they stand to benefit the most as a software company with no PBX hardware. Also, just think if Skype were in the hands of a Cisco who had the legions of resellers to take Skype to the enterprise market and implement optimal systems and WLAN upgrades to enhance performance.

    BTW, check out AOL’s ambitious Voip plans. They are emphasizing maximum quality in their upcoming P2P voip, including Gips and QOS in the network. Very impressive.

    http://www.voipplanet.com/trends/article.php/3526781

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  2. It is an inetersting outline – and analysis – of what Skype can be. I see two issues with your analysis:

    1. Skype requires your computer to be turned-on all the time to use it. I haven’t seen stand-alone Skype-client-in-a-box, otherwise known as a phone that we all are so accustomed to using. (Yes, I am aware of using Skype on a PDA, but that is not a phone)

    2. Does Skype want to be a “social network” or a “business PBX – Centrex style” ? As you describe, these two seemingly disparate groups are *too disparate* to focus on by one company, in my opinion.

    I also might add that Skype is proprietary unlike SIP.

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  3. Thanks for the comments guys. Good link Rick. Kanti in regards to your points:

    1. Do people turn their computers off? ;^) Actually, I think this is a bit of a chicken or egg thing where the answer is if you like the application enough you leave your computer turned on. Things like Bluetooth headsets may be more important to the long-term success than “phones.”

    2. I think you can go after both types of user at the same time, especially if you hide behind separate brands. Nextel has done this very well with Boost vs. Nextel branded service.

    As for the proprietary thing, this may actually be a strong point of Skype from a business point of view. They need to be able to do things differently/better than the competition that is comming — see the article Rick linked.

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  4. great/timely article. not sure if skype-in-the-cloud is the right answer (proprietary signaling/control) but VoI-PBX-in-the-cloud is the right direction and SIP (bloated, ugh) as well as XMPP will be used.

    the missing link may be the mobile phone (that great “social networking device”) and the wireless carriers that won’t let me use VoIP second line on my cellphone because no limit, broadband data wont happen just quite yet in the US.

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  5. [...] 7;s an interesting analysis and goes into more detail than I can touch on here. So just go read it.

    This entry was posted
    on Wednesday, A [...]

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  6. Skype as the PBX

    Om Malik let Jesse Kopelman onto his blog with a guest post on “Skype as the Next Generation PBX. Jesse’s written and commented before there. Many of you may have read the post on Om’s blog. My two cents. Great…

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  7. Skype is rubbish not for business. Many people have been burned by it andyet you recommend. Why? Is it the poor call quality? Or perhaps the great double ring from Skype In to Skype Out to PSTN – Hey that’s six rings before you even know the phone’s ringing. And they say customers hang up in four! Or is it perhaps the great way they buy blocks of numbers from other telephony companies and then have trouble making them portable after you had all that literature printed. Save me your “Skype is business worthy” nonsense please. Skype is a second rate product strictly suitable for home use. How many Skype extras that talk in silly voices, do lie detection or tell you your horoscope do you need before that becomes obvious. Me? I was that idiot who put the number on my busienss cards before I realised what I was doing.

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  8. very interesting

    PC always on – Skype is making inroads into the off PC and mobile arena from what i can see

    using a mobile phone on 3 with Skype enabled you can call skype to skype to your office for free when on the road. In the office you can have embedded phones that do not require the PC as well as Skype on laptops

    another advantage with 3 phone is that you could use it for broadband so when on the train you can be connected to the internet and call or chat over Skype (don;t work for 3 honest – could have wifi phones)

    as you say, skype can provide excellent features if used correctly in and in conjunction with hardware and software partners that provide additional functionality.

    john, your argument may read better if it offered objective opinions rather than simply a disgruntled rant – i can understand your frustration as i also lost my number but time to move on – how many times did BT change their numbers over the years costing businesses everywhere losses (yes, i was aroudn when that happened too)

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