How Skype Plans to Grow Its Business

Skype told potential investors in its first IPO filing today that it plans to grow its business by adding users, offering premium features like group video chat, increasing the number of business users that log in to its service, and adding new monetization models, such as ads.

Already, Skype has grown substantially over the last year, reporting in its S-1 that its user base increased to 560 million at the end of June from 397 million a year earlier. The number of users that connect has increased substantially as well, with average monthly connected users increasing to 124 million from 91 million in the past year. While paying customers represent a small percentage of its overall user base, that number has grown as well, to 8.1 million at the end of June from 6.6 million a year ago.

All this growth has led to a pretty substantial increase in revenues. Skype pulled in $406.2 million in the first six months of this year, up 25 percent from $324.8 million in the first half of 2009.

But where does Skype go next? The company of course plans to grow its user base, including free and paid customers. But according to the S-1, it’s also looking to move upmarket to business users to capture some of the low-hanging fruit from small and medium-sized businesses that need video chat and collaboration tools but can’t afford high-end video conferencing or telepresence equipment.

Skype also says it plans to grow the number of consumers paying for its voice calling and video chat by adding more premium features, such as group video chat. Skype is testing the multi-user video chat feature in the latest beta version of its client, and plans to begin charging for the ability — along with other premium features — in future versions of its software. In the filing, Skype says it “can generate more communications revenue from our users by improving awareness and adoption of [its] paid products and introducing premium products such as group video calling.”

Finally, the company also hopes to find ways to better monetize free calling and video chats, adding new models such as advertising to do so. From the filing: “We currently generate a small portion of our net revenues through marketing services (such as advertising) and licensing, which we expect will grow as a percentage of our net revenues over time.” As a result, users that don’t pay for any premium features can probably expect to see more ads shown alongside their video chats.

While Skype has shown significant growth in revenues over the past year, it will be necessary for the company to make some cash off its video chat platform. Already, video chat accounts for 40 percent of all calls made through its software, but the vast majority of revenues come from its SkypeOut landline and mobile calling business. Unless Skype can find a way to monetize its large and growing base of video chat users, it could be doomed as the number of landline and mobile calls made become a smaller portion of its overall income. With more of an emphasis on business users, as well as the addition of premium features, it could reverse this trend.

Related content on GigaOM Pro: Report: The Consumer Video Chat Market, 2010-2015 (subscription required)

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