Posts tagged Network effects
Posts tagged Network effects
Skype will kill the telco, you’ve probably heard it many times across many tech blogs. Well, they’re wrong. There’s one fundamental problem with this logic.
Skype needs telcos for it to work.
Without the telco, whether that is a mobile carrier or a fixed line provider, Skype need their infrastructure. How else would you be able to Skype someone if there wasn’t a data pipe wired or wireless? Moreover, Skype rely on telcos for their revenues. Let’s look at how Skype makes money - https://support.skype.com/en-us/faq/FA335/How-does-Skype-make-money
Each and everyone of these services relies on telcos and carriers, whether directly or indirectly.
Calls to phones and mobiles receive an interconnect fee, Skype pays telcos for these fees, reducing cost by making it a ‘local’ call, therefore you are only charged local interconnect fees. The telco make revenue from this, and Skype make money from the extra they charge on top of this fee. Use Skype voice or video? No revenue for Skype.
Sending SMS’s goes through the carriers, Skype will pay the carrier and charge you a little more. Use Skype messaging instead of SMS? No revenue for Skype
Skype to go, making international calls local. Again, paying interconnect fees and charging a premium on top.
Cannibalizing Network Effects
The more successful Skype is at gaining users, the more they will kill these 3 revenue streams. Skype to Skype messaging, voice and video calls are all free. This means network effects work against Skypes revenue model.
The last two revenue streams are not affected by Skype user growth. Skype Wifi, utilises the service of existing wifi providers. Skype Premium is the only revenue stream from the above that doesn’t directly rely on a partnership with an external service provider. It’s just utilizing the existing infrastructure
Kill the Telco
If Skype were to kill the telco, they effectively kill off the infrastructure they rely on, yet they need substantial amounts of money to maintain and improve their services for ever-increasing-data-hungry services from mobile phones and telecoms disruptions. The disruptions that are killing telco revenues are also rely on telco infrastructure.
$400B needed for LTE rollout and maintenance in 2012 alone. Kill the telco and Skype effectively kill themselves. Who will be left to takeover infrastructure? No Internet or consumer electronics company want to touch this because they will then come under scrutiny of regulation from government organizations such as the FCC. Google Voice got into trouble for not covering rural areas which telcos have to do.
This is the big paradox that Skype are contributing too. Marginalize telco services by disrupting their revenues, yet still rely on them to improve their infrastructure that Skype rely on.