Case Analysis of Skype - Term Paper Example

Case Analysis of Skype AFFILIATION: Case Analysis of Skype Introduction to Skype Skype was founded by Niklas Zennstrom and Janus Friss in 2003 and the Group was recognized as a Global Internet Telephony Company that had headquarters in Luxemburg with offices in London, Stockholm, Copenhagen and Tallinn (Skype, 2012). The founders introduced Skype with a revolutionary idea of changing telecommunication industry by offering all consumers access to free and unlimited calling option that was of superior quality via software by the name of next generation Peer-to-Peer (P2P). Skype was among the top ranked Voice over Internet Protocol (VoIP) software and it grew in popularity at an accelerating rate. With the help of P2P, Skype was able to operate at low cost and allow users to sign up for their accounts quickly (Jusevicius & Firantas, 2010). In other words, Skype is a software-based platform for communication that is offering top quality along with easy to use tools and features to both consumers and businesses for communication and collaboration worldwide via voice, text and video conversations. Skype has already released numerous versions after its launch so that users can make use of technologically advanced features with utmost ease and enjoy the sensation of having conversation online from anywhere. The best features offered by Skype are video calling, chat rooms, SMS messaging, voicemails and click-to-call. It also offered services especially designed for businesses that comprise of e-mail integration and conferencing which have configuration over Skype Control Panel. Skype has even announced world’s first Wi-Fi-VoIP phone in collaboration with NetGear and is even investing in wireless FON community. Current Situation Current Vision and Mission of Skype According to Skype (2012), the mission of the company is to be the foundation of communication on web that is real-time based. The mission statement of Skype can be defined as “We enable all users via virtually any of the Internet-connected devices to communicate with each other by using video, voice and instant messaging for free of any charges or even make low cost voice calls to numbers both fixed and mobile anywhere across the world”. As of first half of 2010, Skype had 124 million connected users who placed about 95 billion calling minutes over Skype which is approximately 40 per cent of video calls. The best aspect of Skype is that it can be downloaded on computers, mobile phones and all other connected devices for free from its website i.e. www.skype.com. According to Skype’s founders, VoIP market has a huge potential for growth that needs to be explored. It is expected that landline will be replaced with this technology in future and there is a huge potential for earning good amount of revenue and enhance customer base by attracting more people to this online communication platform (Prospectus, 2009). The history of Skype’s business development is represented in following figure: Source: Hagstedt, Håkansson & Thideman (2011) Current Strategy Business Model It is important to understand the business model of any company before understanding its goals, objectives and strategy (Michels, 2010). In case of Skype, the business model is a combination of Service Provision and Network Effects Model and it can be referred to as Freemium model as it offers both free of charge services and premium services (Gralla, 2006). The free of charge services comprise of Skype-to-Skye calling, chatting, multi-party calling, file transfer and video calling. While, Premium services constitute subscriptions, SkypeIn, SkypeOut, Online numbers, Voicemail and SMS. Goals and Objectives After reviewing the information provided in Prospectus (2009) and all other data gathered, goals and objectives of Skype can be classified as follows: 1. To increase the market share by 25% by focusing on enhanced customer services and offering attractive promotional packages. 2. Increase customer base by reaching more customers worldwide and ensure that communication becomes easy for everyone across the world. 3. To provide low cost services to the customers so that they can keep in touch with close friends and family along with business associates in an economical and efficient way. Major Strengths of Skype The major strengths of Skype that will help it in achieving its goals and objectives are: 1. Local and long distance rates are highly competitive as compared to its competitors such as Vonage, Shaw and Verizon. It is the low cost solution for all international calls. 2. The set up of Skype’s infrastructure is simple and fast. 3. eBay owns Skype which is that largest company that has mass resources. 4. Payment mechanism is easy as it uses secure and familiar service of PayPal. 5. The number of Skype users has increased at an accelerating rate and it continues to rise with the same trend in future. 6. Skype is available in twenty-seven different languages and even has specification of area code and country for selection of phone numbers. 7. Skype has even received awards for product safety as its products are free from any kind of viruses and other forms of malware. Weaknesses of Skype Skype has following major weaknesses that hamper its growth strategy: 1. P2P networks have to rely on connection speeds of the users and their broadband connection because if speed is slow, then it can hamper the performance of software and voice quality is impacted as well. 2. Likewise, if majority of supernodes go down, there are chances that the entire system go down which was the situation on August 16 when many supernodes rebooted due to single patch and it was peak traffic time (Michels, 2010). 3. There is too little or no switching costs when customers stop using Skype. Consumers who want an integrated solution can get it from cable bundles as Skype is not offering currently. 4. Skype has uncontrolled network which means that there is no registration mechanism for checking the authenticity of users. 5. Technological changes happen on a continuous basis so technological up gradation are required otherwise customers will be diverted to other programs. Competitive Analysis Current Major Competitors Skype is facing competition from technologically advanced companies such as Microsoft, Google, Apple and Yahoo but to narrow it down the three major competitors are Jajah, Shaw and Vonage. Jajah Jajah is the major competitor of Skype which is European based and its major product or service that is giving it a competitive edge is that it allows clients not to make call by using a user’s PC; in fact, users have to log onto the site, type in his/her phone number and number of the person whom he/she wants to call, the site will call him/her and connect the person to whom he/she wants to call. The calls are not free, there is certain amount of fees that needs to be paid and is competitive for Skype’s PC to landline service. The competitive strategy is focusing on key target market. Strengths of Jajah are ease of making calls to people, backing from venture capital in Silicon Valley i.e. Sequoia Capital that provides access to strong cash flow and strong presence in EU market; while, its weaknesses are free of charges for its services, dependency on venture capitalist for decision making, lack of control on finances and has less presence globally (Gralla, 2006). Vonage Vonage is a comparatively new company in VoIP market and is still in entry phase; the goal of company is to be the number one provider of all VoIP services across the world. It has market share of about 25% and products currently offered are Vonage V-Phone and Vonage VoIP service. The major strengths of Vonage are offering unique product i.e. V-Phone and highly recognized VoIP company as a result of strong campaign for promotion. The competitive strategy being used is differentiation. Some of the weaknesses of Vonage are lack of financial sources and it still needs to create brand awareness (Jusevicius & Firantas, 2010). Shaw Shaw is a large company that has strong customer base in both broadband and cable internet; the main aim of Shaw is to become number one provider of VoIP services in local Canadian markets. Its market share is 10% and competitive strategy is focused as it is offering only one product i.e. Shaw Home Phone. Shaw’s major strengths are that they have a strong customer base, brand name and image that is well-established, customer service systems are well-developed and has in-depth knowledge about local market. Major weaknesses of the company are high price for services, more reliance on brand name as compared to on good quality service and not offering same unique features like that of Skype such as selection of phone number on the basis of country (Jusevicius & Firantas, 2010). Opportunities Some of the opportunities available for Skype from its competitors are as follows: 1. Since Vonage is experiencing high amount of reduction in its customer base, there are chances that Skype take advantage of implementing right marketing tactics to attract and acquire Vonage consumers. 2. Skype can collaborate with cable providers such as Comcast and have innovative new services and features in their VoIP services that can provide it a competitive edge over stand-alone solutions. 3. It can expand globally by taking advantage of increasing acceptance of VoIP services worldwide that will allow it to increase their customer base. 4. Skype can merge with giants such as Microsoft and Yahoo to take advantage of a wide customer base that these businesses are serving and enhance its presence at the same time in various other countries. Threats The major threats of Skype are as follows: 1. Enormous price war can occur when there are many potential new entrants in the market. 2. Skype can lose its market share if there is increase in promotional campaigns by the competitors. 3. Microsoft or Google can enter the market as VoIP service provider which will create tough competition in the market as both of these brands have strong presence in the market. General Environmental Analysis General Opportunities Since the economy is booming, majority of the companies will be able to enter VoIP market and create competitive market environment for the companies that are already rendering their services in the field. In the country, the number of immigrants is increasing and they usually have low incomes, they are looking for cheaper alternatives to landlines as they are very expensive; VoIP companies can benefit by offering them free services. There are restrictions on competition in North America; Skype can take advantage before monopolistic competitors sweep away the market. General Threats The major threat in VoIP industry is technological advancement because VoIP service providers that are offering free services will have to ensure that they can maintain their low cost strategy even with advancements in technology. The other threat is from increased legislation that can impose restrictions of Skype and other VoIP service providers as is being done in Europe by T-Mobile; consumers are threatened with termination of services if they are found using third party VoIP service providers such as Reismen or Skype. Microsoft, Google and other giant companies can enter the market and take away VoIP service providers’ market share. Recommendations Skype needs to keep a balance between existing paradigm of the company and changes happening in environment. Skype vision and mission don’t need to be changes but goals and objectives need to be refined so that it can explore more avenues of growth for its business. Here are some recommendations for Skype after analyzing its SWOT analysis: 1. Skype should encourage brand loyalty by doing heavy advertising for countering any new competition and preparing for a price war by price reduction strategy. 2. Focus on development of products and services in-house such as production of modems, routes and telephone that are sold by Skype that has logo or brand name of Skype. It can even produce USB type device that has been developed by Vonage. 3. Own broadband connections need to be developed to have controlled channels of distribution and it should be employed in countries where infrastructure is unavailable. 4. Integration with big giants like Microsoft will allow Skype to expand further in Internet world and take advantage of strong brand name of the company by providing high quality services to the customers. Conclusion In order to prosper successfully in the respective industry, Skype needs to ensure that it is well-aware of the opportunities. The management team should remain alert all the time for availing the opportunities as soon as they are provided so that it can move in the right direction. It is also important that weak areas are improved so that tough competition is given to existing and potential customers. Overall, Skype’s strategy is well-planned and it is following proactive strategy so that all potential avenues are properly used; while, at the same time, new developments are made part of existing strategy. Hence, Skype’s strategic review shows that it is well-informed about its market position and makes decision after carefully analyzing both competitors and external environment. References Gralla, P. (2006). Three Competitors Threaten Skype With A Smackdown: Analysis. Retrieved on August 19, 2012 from http://www.informationweek.com/three-competitors-threaten-skype-with-a/184416961 Hagstedt, K., Håkansson, E. & Thideman, J. (2011). Microsoft and Skype: Corporate Strategy 2011. Retrieved on August 19, 2012 from http://www.smi.ethz.ch/education/courses/corporatestrategy/Slides_AS2011/Microsoft_A Jusevicius, M. & Firantas, R. (2010). Case Analysis: Skype. Retrieved on August 19, 2012 from http://www.itu.dk/~martynas/B1/SkypeCase.pdf Michels, D. (2010, February 22). Skypes All Business. UCstrategies.com. Retrieved on August 19, 2012 from http://www.ucstrategies.com/unified-communications-strategies-views/skypes-all-business.aspx Prospectus (2009). Skype Prospectus. Retrieved on August 19, 2012 from http://www.sec.gov/Archives/edgar/data/1498209/000119312510182561/ds1.htm Skype (2012). Skype: About Us. Retrieved on August 19, 2012 from http://about.skype.com/ Read More