Owner of Skype

It has been over six months since Microsoft officially became an owner of Skype, one of the biggest communication services in the world. The company has been growing quietly, thanks to its “Skype everywhere” strategy. In April 2012, Skype reached over 40 million concurrent users online, a remarkable achievement for a company that didn’t exist a decade ago. Today, the New York Times published an article that reveals some more data about Skype and outlines where its new owner, Microsoft is planning to take the company.

“In seven months, the number of people using the service each month has jumped 26 percent to near a quarter of a billion, affirming Skype's status as one of the crown jewels of consumer Internet services.”

The last several months

“In the last several months, Skype has cranked out versions of its calling software for Google Android smartphones, a Sony portable game console, Comcast set-top boxes and Apple mobile devices. Skype is the fourth most-downloaded free app of all time for both the iPhone and iPad.

Skype's use has continued to grow briskly, jumping 40 percent to 100 billion minutes of calls in the first three months of this year from the same period last year.

So by all counts, Skype is doing fine pursuant to this agreement Microsoft ownership. The software giant has kept its paws off the baby. But, the current level of success isn’t enough to mask the fact that the company is facing increased competition from upstarts, who are using social networks and mobile to grow at breakneck speeds and are likely to strike at Skype within a few years. They are all trying to siphon attention away from the classical telephony services – phone calls, SMS and even Skype.

In those early days, Skype’s initial burst of growth came because it offered two things – free calling to other Skype users and instant messaging. Instant messaging worked so then on both slow and fast networks. It was something people were used to. Free calls were just the icing on the cake. The instant messaging was one feature that brought people back to the app every day. It was what kept everyone logged in. It was what gave Skype app the attention, something I have written about a number of times.

Today, that same daily and constant messaging behavior is going mobile. Whether it is SMS or IM, today’s smartphone users have dozens of options to communicate. Facebook Messenger, Viber, Whatsapp – the list is endless and it keeps growing. And all these apps are vying for our attention and time. Internet users, as many companies have learned the hard way, are quite fickle, shifting loyalties very easily.  If all my friends are using Whatsapp, at the time I am always using Whatsapp. Or Viber in this regard.

Whatsapp saw the number of messages on its platform grow from a billion messages in October 2011 to 2 billion messages in February 2012.  In the two years it has existed, Viber has signed up about 70 million users. More than 150 million calls are being made on the app every month and a billion text messages are being sent every month.

Sandvine, which monitors traffic on telecom networks, in a recent report noted that in North America alone,  an average of 7.6 million WhatsApp messages were sent per day. In Asia-Pacific, WhatsApp was the tenth-ranked most used app. Skype was at the ninth spot. Here is what they write in their report:

communications applications benefit from tipping points - once your friends are using the app, you use it too - and WhatsApp, like Skype, has emerged as the standard cross-platform communications tool on many networks

This is due among other things to harsh competition and new Internet services which are replacing previous methods of communication. Social networks like Facebook and Twitter, communication services like Skype, WhatsApp, and many more - all have one thing in common: They are offered over the Internet and can be used via the fixed network, mobile network, or wi-fi. What is more, they appear to be free of charge.

Skype was a pioneer of what is now commonly known as the network effect. It was as well smart to piggy back on Kazaa, a P2P file sharing network and get distributed across the web.

In order for Skype to work for you, the software depended on you to convince your friends and family to sign-up for the service, download the software and at the time sign-on. That is, it used you as its sales tool. More people signed up for the network, the faster the network grew and today it has hit a point of maturity where many people already are on Skype.

Time previously the iPhone

And Skype came while a time previously the iPhone. It had to grow at a much slower pace. Today, apps like Viber are focused utterly on smartphones and along these lines have access to a much bigger market. Thanks to social networks, these apps have been able to accelerate their growth and get a much larger network effect.

As these apps develop bigger networks, they start to siphon attention away from the incumbents and that includes the phone companies and Skype. I think many people might take issue with me calling Skype an incumbent, nevertheless the company is actually an incumbent. Sure it doesn’t have the legacy networks yet it is making money the old fashioned way – selling minutes and premium video-calling services.

Skype’s growth is as well going to be impeded by one more group of competitors — the phone companies  themselves. The phone companies are so worried about the likes of Whatsapp and Viber and Skype that they are launching their own set of apps. Take Voice or VoIP (Voice over Internet Protocol) apps as an illustration: there is Bobsled from T-Mobile. There is TeliaSonera charging about ?6/month for VoIP (Voice over Internet Protocol) apps. There is IP messaging app, Huddle from AT&T. And this is only the start.