Overview:
Skype is a global player in the telecommunications industry. It offers its customers Voice-over Internet Protocol (VoIP) service, which is telephone via an Internet connection. These services include but are not limited to; instant messaging; voice calling; video calling’ short message services using a number of product platforms available at any time a user might want its services.. Skype uses the internet at its main platform leading the communication transition from hardware to software. VoIP calls are billed per amount of information sent over the Internet; Skype users communicate for free with other Skype users and pay only a small fee for long-distance calls to landlines.

Key Issues and Assumptions:

VoIP’s market share in the overall global telecommunications market is still minimal, which had a roughly 5% market share by the end of 2010. For Skype, the main issue internally is the mismatch in the relationship between revenue growth rate and company growth rate. Growth in revenue shrunk from 685% in 2006 to 37% in 2008. Skype executives have realized that the main reason for the flattening in revenue rates is the company’s cheap international calling rate and the free user-to-user calls and videos. Furthermore, VoIP is still a small competitor in the industry, but competition in the industry is increasing rapidly, and Skype needs to determine how to remain an industry leader.

There is a question if consumers will begin to look at expanded VoIP services as a real alternative. Industry experts have suggested that the growth of Internet telephony technologies will signal the demise of the PSTN - growth of VoIP and attendant decline of landline use. Skype needs to place more focus on attacking AT&T and other big companies, and implement a long-term strategy.

Analysis and Problem Identification

Issues:

First and foremost, Skype needs to restructure the pricing model. International calling rates should be increased, and a rate should be applied for user-to-user calls and videos that are currently free since it is no longer in the early growth stage since its inception in 2003. Lower rates than that of its competitors will allow the company to be more profitable, should minimize any potential loss of customers, and still allow it to remain competitive within the VoIP market. However, it is imperative that Skype keep abreast of its competitor’s rates, and remain ahead of its competition in keeping its costs low for their customers, since competitors are expected to match it in the near future.

Secondly, Skype needs to significantly expand its customer base beyond the mature Internet markets in Europe and Asia into other geographic regions with other target markets. Especially penetrate the United States market more substantially to increase its market share in the VoIP industry in the U.S. from 1%. A partnership with one of the major players in the U.S. VoIP market would be extremely beneficial. For example, Comcast’s revenues increased 480% per annum, from $500,000 in 2004 to $3.3 billion in 2009. Or the increased usage of VoIP has propelled Time Warner Cable’s (TWC) VoIP average revenue per user (ARPU) to 25% per annum, which resulted in an ARPU of $37.02 by year-end 2009.

Third, Skype needs to increase its advertising and not rely so heavily on the buzz created by users or viral marketing. Additional funds should immediately be allocated within the budget for this type of operating expense, which can be highly beneficial in marketing its product and strengthening its brand. Alternatively, Skype can diversify their revenue streams by emphasizing the use of subscriptions, licensing, and advertising, including business subscriptions. Another major opportunity for Skype is to capitalize on the cellular market. Experts have predicted that by 2019, half of all mobile calls will be over IP networks. The IP connections would be available through VoIP applications that run through a cellular device. Mobile VoIP applications are expected to reach 278 million users, generating a $32.2 billion profit. A partnership or collaboration with a major U.S. cellular company to boost usage of its product should be strongly considered – not necessarily with AT&T since the agreement is in dispute due to questionable third-generation (3G) service coverage from AT&T. In conclusion, Skype should ensure they are implementing the 3rd phase of their accelerated growth plan that lays out the company’s strategy for the short-term, but transition it into a strategy for the long-term. “The key word is any. Use any mode, any platform, anywhere. Develop multiple market segments, established products, regional ubiquity, and mature target markets.”