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Systems MGCR 620 E-Business: Skype and its Impact on the Telecom Industry November 9, 2008 Tomotaka Brink Fushimi [email_address] (260301050 ) Benjamin Carrion Schafer [email_address] (260339078) Tess Hong [email_address] (260332417) Ting Miao [email_address] (260314135) Tom Takahashi [email_address] (260313560)

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Skype’s E-business Description <ul><li>VoIP & P2P calls: </li></ul><ul><ul><li>Computer to computer/Skype Phone </li></ul></ul><ul><ul><li>Computer to landline/mobile phone </li></ul></ul><ul><ul><li>Computer to PDA/Blackberry </li></ul></ul><ul><li>Free Software </li></ul>

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Skype’s E-business Description <ul><li>Founded in 2002 </li></ul><ul><li>Skype software launched in 2003 </li></ul><ul><li>Acquired by eBay in 2005 </li></ul><ul><li>7 countries, headquarters in Luxembourg </li></ul><ul><li>309 million user accounts (Q1 2008) </li></ul><ul><li>14 million concurrent users (October 2008) </li></ul><ul><li>15.9 billion called minutes (Q1 2008) </li></ul><ul><li>Net sales USD 126 million (Q1 2008) </li></ul>

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Skype’s E-business Description <ul><li>Cost Advantage </li></ul><ul><ul><li>Free Skype-to-Skype calls </li></ul></ul><ul><ul><li>Low charge on Skype-to-other </li></ul></ul><ul><li>Multiple Services </li></ul><ul><ul><li>Conference Calls </li></ul></ul><ul><ul><li>Instant Messaging </li></ul></ul><ul><ul><li>File Transfer </li></ul></ul><ul><li>User Advantage </li></ul><ul><ul><li>Easy to use </li></ul></ul><ul><ul><li>High sound quality </li></ul></ul><ul><ul><li>Low equipment cost </li></ul></ul>

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Skype’s E-business Description <ul><li>4 competitor categories </li></ul><ul><ul><li>Traditional landlines and mobile phone providers </li></ul></ul><ul><ul><li>VoIP competing with lower call rates </li></ul></ul><ul><ul><li>Internet Service Providers with similar online calling services </li></ul></ul><ul><ul><li>P2P service providers developing similar tools and offering similar services </li></ul></ul>

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Rationale in Starting Business <ul><li>The global telecom business generates trillions of dollars in revenue!! </li></ul>

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Rationale in Starting Business <ul><li>Skype’s Creators = KaZaa’s Creators </li></ul><ul><li>Having the know-how </li></ul><ul><li>P2P -> bypassing central servers -> higher voice quality </li></ul>

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Rationale in Starting Business <ul><li>Using “unused processing capacity of its customers” means Skype can provide a telecom service without high capital expenditures </li></ul><ul><li>This means low cost to consumer </li></ul><ul><ul><li>A call to Canada </li></ul></ul><ul><ul><li>Skype: US$0.024/min </li></ul></ul><ul><ul><li>AT&T: US$0.05/min ~ US$0.61/min </li></ul></ul>

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E-Business Analysis: Reasons for Success Cost advantage : lower cost structure Easy handling Viral spread being freely downloadable Large community working on compatible solutions for Skype Continuous innovation and expansion of services ( Skype out , Skype In , Video conf .) Agreement with Wal - Mart to sell Skype - certified hardware devices and prepaid cards Partnering with certain computer manufacturers to include Skype Scaling : additional infrastructure is not required

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E-business Analysis: Synergies with EBay & PayPal <ul><li>EBay’s Chief Executive Margaret C. Whitman “We can create an unparalleled e-commerce engine.” [Businessweek 2005] </li></ul><ul><li>Lead generation. In addition to paying eBay listing and completed-auction fees, sellers could also pay eBay a fee for getting an Internet call, or lead, via Skype </li></ul><ul><li>U se Skype to expand eBay’s moves into new markets, such as new cars, travel, real estate, </li></ul><ul><li>PayPal has already embedded its service into Skype payment flows, which can boost Skype's revenues and increase PayPal's payment volume </li></ul><ul><li>Skype Send Money, which allows users to send/receive money using PayPal through the Skype client </li></ul><ul><li>Communication via Skype allows buyers and sellers to benefit from being able to communicate directly with each other anytime </li></ul>

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E-Business Analysis: Risks In August 2007, Skype experienced an interruption for two days The decline knocked $1 billion + off eBay’s market cap. eBay shares closed down 2.58%.

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Summary: Why Skype was Successful

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As a manager, what we learned…

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Lesson one: Wide customer base create business opportunities (high economic profit)

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Lesson Two: Create a clear business model with rapid, global expansion <ul><li>Skype business model: </li></ul><ul><li>First entry advantage. Need for rapid growth. </li></ul><ul><li>Use of the internet for fast, easy, cheap and global market penetration </li></ul><ul><li>Offering high quality, cheap and value-added services </li></ul>

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Lesson Three: New IT technology to circumvent higher entry barriers New Technology

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Lesson Four: The Value of Simplicity in IT Easy Install Easy Use Single tool for: PC2PC calls Video conf. PC2Phone Phone2PC File sharing

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Lesson Five: Sustainability in IT <ul><li>Necessity of customer support </li></ul><ul><li>To hold registered users </li></ul><ul><li>To attract new users </li></ul><ul><li>Customer Satisfaction </li></ul><ul><li>Voice Quality </li></ul><ul><li>Easy to use </li></ul><ul><li>Cheap </li></ul><ul><li>Multiple services </li></ul>Technological obsolescence is a risk factor for Skype’s business.

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Questions….