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Skype’s Risky Retail Strategy

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This past week, Skype folks dropped by to Business 2.0 offices, hoping to brief me on some news which was under embargo. I refused to chat about anything under embargo, because it was clear that the news would find its way onto the web. I did not want to be shackled. I guess, embargoes are part of the new corporate culture. God, cannot wait for Kelly to come back from her maternity leave. As expected, the news did leak on the web.

Apparently, Skype is going in for a retail partnership with RadioShack, which will sell gear and other products to take Skype mainstream. (Also the company has added Switzerland and Germany to the list of countries where they offer SkypeOut services.) Fantastic way to bring the ire of the entire “old phone system” onto you. I wonder when phone partners put the squeeze on RadioShack. Nevertheless, I think there are many more risks to this retail strategy. If you buy a Skype phone, take it home and start making phone calls and only to realize the quality stinks. What happens then? I suspect, a Sony DRM situation could arise.

Like many others, I have been experiencing a slight degradation in the sound quality, and often times calls that end on the PSTN network are almost “unbearable.” In recent conversations with CEOs of big telecoms, the message was pretty clear: Skype is going to be sleeping with the fishes soon. I have no reason to doubt the giants, because they protect their turfs pretty aggressively. Susan Crawford put it pretty aptly when she wrote, “I don’t think the fight over “network neutrality” is one we’re going to win. ”

Skype’s marketing honcho Saul Klein pointed out that it was working with carriers like ePlus in Germany and trying to develop a better relationship with the phone giants. He acknowledged that the attitude adopted by the likes of SBC is a big problem for anyone who is planning to offer web/software based voice & video service. “This is an architectural issue and we don’t know how it will shake out,” he said. I queried him about the possibility of China and whole countries simply blocking Skype. After all products to do so are plenty, and so are the reasons. (Here is what I wrote eons ago!)

Klein said China is not blocking Skype. he pointed out that nearly 45,000 new subscribers sign-up in China. He then proceeded to give me a whole litany of meaningless figures. That Skype has nearly 66 million registered users. Or that 180,000 new folks sign-up every day, up from 140,000 at the time of eBay-Skype merger was announced. “Our philosophy is that we are a free service and we only want to monetize a small portion of it,” Klein said. How much is that small portion? About 3% of Skype’s customers… which is confusing since the company doesn’t break out the total number of active users, or how much time they are on the network, and how many SkypeOut/SkypeIn calls do they actually make.

Basically, Skype says take their word for it. I am not sure why? A publicly traded company eBay has bought them, so basically it should be more transparent in letting the shareholders know how their money is “working.” Oh well, that’s just me. Anyway I do think Skype might have a hit product on their hand – call forwarding. That is the best and perhaps the easiest presence management solution out there, at least from my point of view. Still, the quality issues which have been popping up recently make you wonder about that service as well. I asked Klein if there was any plan to give users like me an option to not be a supernode. I have heard that many enterprises are expressing concerns over this. Klein assured me that the company was looking forward to resolve that. So that’s good news.

Skype Non Illustration by Eirik Solheim. Check out some further works by him at his website.

17 Responses to “Skype’s Risky Retail Strategy”

  1. i’ve been using skypeout for quite sometime now, and i have no problems what so ever
    with the sound quality (except for a slight echo sometimes, which i blame on my broadband connection which is shared)
    you should know that skype ain’t for any system; you have to have high speed net with a good system to boot, otherwise you would OBVIOUSLY, Like many others, experience a slight degradation in the sound quality, and often calls that end on the PSTN network are almost “unbearable.â€?

  2. In a recent discussion on a Skype forum, we concluded that the number of ‘real’ Skype users is a bit lower than the Skype representative was telling you. People that are using the service on a regular basis (such as me) number about 5 million (not 60 million), and the increment per day is about 10 thousand (not 130 thousand). The bulk of the difference is users that have the software but use another type of phone for everyday calling. In my view, this will continue for all VOIP services, not just Skype, until quality problems with IP are resolved…. balanced upload and download bandwidth with low latency.

  3. I have been using Skype, SkypeOut, and SkypeIn since they were launched and overall I love the quality and I also love the recently released call forwarding option that Skype provides. Yes, the big telcos are going to put up a big fight but I think you are underestimating the consumer. I think people are tired of getting milked by the inefficient telcos and the longer they put up a fight, the bigger Skypes share of the market is going to be. The future is VOIP and in a VOIP world Skype will continue to thrive.

  4. Amazon interviewer had a VoIP phone. It sucked so badly, I didn’t hear him half of the time and blew the interview(actually I am a bit short tempered too) Anyway, not worth the money you save to lose your gal-friends along the coast ;)

  5. Elsewhere I suggest that adding supernode costs about a dime per user. But the real culprit is the media relay node. Colloquially we have been using supernode for both the functions. But the enterprises should be worried about media relay nodes as well.

  6. Hey Om, what problems with quality are you having? I use SkypeOut all the time and it works great – much better than my cell phone. The only problem I have (and I consider it a BIG problem) is the DTMF. I can be 5 minutes into a phone call and get dropped because it won’t recognize a number I key in. Also, I was 15 minutes into a support call yesterday to fix a website problem and the call just dropped. MAD!! Other than that, the call quality is quite good.