Friday, August 08, 2008

"Skype" And "Failure" In The Same Sentence?

Well, Skype certainly wasn't a failure for the founders! Financially. And any way you cut it, it's the most successful and widely utilized "free VoIP" service on the planet.

HOWEVER, there is of course some truth to the charge that Skype is a failure:

- Proprietary technology based upon P2P vs. open; so non-interoperable (could have been SIP)

- Sold out to eBay, and they haven't done anything with it; it still exists but the "strategic synergy" just never happened. eBay had to take a HUGE writeoff.

- The quality is sometimes great, but often terrible; you can't rely upon it.

- Uneven implementation of advanced features. For example, you can get a voicemail box; but you can't create a custom message.

- Roundly criticized for poor customer service. But hey, it's almost free what do you expect?

I would argue that on one level it's a raging success; but on another it's a bit of a dud.

However, you cannot say the founders did not create something truly great; or that they didn't personally make out like bandits (financial success). Overall, I'd give it a pretty high rating for innovation, and for timing of the sale. It set many precedents that every new VoIP/UC service provider will (should!) study for years. And eBay is probably going to turn around and sell it to someone else - they have a new CEO and he isn't the type to let grass grow.

On the other hand .... I am still trying to understand how Skype will sustain profitability.

The service is a commodity, network effects of being on the same system as your friends are only going to last for so long, and the commercialization of Skype services is rather tepid. One of my friends used it for the first year of his consulting business as his initial phone number, since the cost of entrance/switching was low. He then transported the number to a fixed-line service provider once the business was going steady. Had all kinds of tech issues with availability, line quality, and consistency that made further use not feasible (imagine telling a client that you cannot hear them because you are too cheap to get a real phone line).

Skype knows that, but Skype does nothing to fix the issues ... which to me speaks of a lack of business strategy. I guess they simply do not know what to do. Being part of another 500 pound gorilla in a commodity business that does not know what to do seems to rub off.

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