Comparison of the entrepreneurial journey made by Skype and Groupon - Essay Example

Comparison of the entrepreneurial journey made by Skype and Groupon By: + State Date Comparison of the entrepreneurial journey made by Skype and Groupon Introduction. This essay is aimed at comparing the entrepreneurial journey of Skype and Groupon in regard to their success, business decisions and acquisition. In order to completely compare the two, we need to understand their history from small start-ups to the large corporations they are today. Skype Technologies is a globally known telecommunications company with its headquarters in Luxembourg and Redmond, Luxembourg City, Washington, United States. Their main business is development and marketing of an instant messaging computer application known as Skype, and other various Internet based telephony services associated with it. Microsoft Corporation most recently acquired the company in 2011. It has operated as their wholly owned subsidiary system since then. However, the licensing and operations of the software continue to be provided by Skype Technologies (Markovich and Krieger, 2010). The company is a limited liability company. Skype was originally developed to offer voice over IP services (VOIP) from the first release in 2003. This provided users a means to make calls over the internet, computer to computer or from computer to telephone at reduced call rates. The company also offers services such as calling landline/mobile phones to and from Skype by offering a Skype Number to their users. The services offered are the main source of Skype’s revenue. Groupon is a globally known e-commerce marketplace, which connects millions of their subscribers with local merchants. This is done by offering a range of business activities, travel opportunities, sales of goods and services in more than 47 countries. The company was launched in November 2008 in Chicago. By October 2010, the company had over 35 million users (registered). Andrew Mason created the original idea behind Groupon. Groupon, Inc. is the world’s largest online coupon provider currently. History & Growth Both companies have received numerous takeover offers but not all have responded the same. Groupon received a $ 3 Billion takeover offer by Yahoo in 2011 and a 6 billion takeover offer from Google in the same year, which it declined. It has been purchased by eBay and Microsoft The most recent one is the acquisition by Microsoft. Microsoft acquired Skype Communications for $ 8.5 billion (Wilhelmet al, 2015). With the purchase, Microsoft acquired all of the company’s technologies but was incorporated as a division other than complete integration to Microsoft Corporation. Skype has continued to grow as Microsoft integrated parts of the skype services in its products. Skype’s growth can be attributed to the current advancements in today’s world. We currently use more data than we use traditional forms of communication, GSM. In comparison to the young days of Skype, people today prefer to make calls to the internet other than the traditional way (Dholakia, nd). With increased demand for VOIP services, Skype as an old and trusted company has better support in the current world. Through its large competitors, Viber and Whatsapp and gaining popularity, its services and features richness are the key motivators leading to its growth and adoption by many businesses. Business model Skype as a voice over IP service provider employs a different cost structure from its competitors. Free calls are routed via the internet, which took advantage of the peer-to-peer technology. With this technology, the company incurs minimal expenses. Most of its costs comes from client software and the hosting accounts, which are insignificantly low. For Skype to mobile calls, the cost of each call is slightly higher that what wholesale carriers charge Skype. In brief, the sources of Skype income include: i) User services such as normal Skype Out calls ii) Premium services that they offer which include but not limited to group screen sharing, live chat, unlimited calls etc. in selected countries. iii) Accessory sales through their partners such as mobile phones, computers, tablets etc. iv) Licensing of products such as Skype-Myspace, carrier relationships e.g. Skype phone On analysis of its business model, it can be deemed as successful based on the statistics associated with the company. According to Ecommerce-digest.com (2015), Skype registers over 350,000 new accounts daily. As of December 2014, Skype had a 50 million active users spread across the world (Dholakia, nd). Another measure is success is that 8% of the world’s international calling minutes are associated with Skype. Its overall video calls increased by 15% in the last year rising from 34% to 49% of the global video calls. Compared to its initial years, people are making longer calls via Skype than any other mobile network carrier in the United States. It is also estimated that 35% of all Skype users use Skype primarily or often for business making it a virtual business deal hub. On the other hand, its acquisition by Microsoft increased its overall sales and exposure as every new installation of windows comes preinstalled with Skype. The advantage of being acquired severally is evident in this scenario. Once Skype was acquired by eBay, it was integrated into its services exposing it to a new virgin market. This increased its customer database as eBay clients gladly joined Skype, as it was part of the company. On its second acquisition, Microsoft Corporation offer Skype preinstalled in all its modern operating systems making it easily accessible to every window user. In addition to that, Microsoft offers 60 free Skype to mobile calls for every office 365 subscription again increasing the usage of Skype (Foley, 2011). Groupon offered one "Groupon" a day in each of its markets. A "Groupon" was a deal from one retailer in the respective market. The Groupon acted as an assurance contract making use of The Point’s platform. The Point’s platform worked such that if a certain number of people agreed or signed up for an offer, then the deal was made public and available to all users of Groupon. On the other hand, if the predetermined minimum number of people was not met, none of the signed up users got the deal for that day. This was intended to reduce the risk for retailers who were to offer a quantity discount once the threshold was met (Dholakia, nd). In the recent years before Groupon went global, it made most of its revenue by keeping 50% of the sales made in a Groupon. For example, if an item were sold for $240 through Groupon offer, the retailer would get $120 as the company kept the rest. Unlike classified advertising companies, the merchant did not have to part with any initial costs upfront in order to participate. Customers were unable to search and browse for deals available of the website through the web or mobile and can subscribe on offers to receive instant updates concerning available offers in their respective markets. The key point of success to Groupon was its ability to sell (Bonfiglio, Mellia, Meo and Rossi, 2009). It had a large database of hired copywriters who produced draft description for deals featured via email and available on the official website. These descriptions are perceived as the contributing factors to the popularity of the site as it featured a distinctive mix of witty humour and thorough fact-checking hence providing the clients with a feature rich and yet interesting description. The deals offered through Groupon were very beneficial to retailers. This is based on research carried out which prove that 40% of the business that were featured in a Groupon offer experienced return customers. Although the business strategies applied at Groupon were beneficial to the retailers, there was a slight possibility that the deals would be problematic in that, a business would be too overwhelmed by the large number of customers going for a particular product. A successful deal was possible to attract client in the hundreds and hence swamping a small business with too many clients increasing the probability of dissatisfied clients or too many clients such that the current stock would not meet the clients demand. A small coffee shop in Portland, Oregon, which struggled to satisfy its increasing number of customers for three months as it sold 1000 Groupons on one day, observed the case. As observed, there was a problem with the companys business model. As Groupon encouraged new customers to try local businesses, there were businesses that took advantage of the offer and exploited the weaknesses. Businesses such as Yoga studios and other services offered customers long-term subscriptions to services that were not bound by Groupons terms (Edelman, Jaffe and Kominers, nd). This weakness in their business model proved to be worse than expected when the company reported that its revenues had declined in 2012. This was coupled by customer growth reduction and a reduction in the amount of money clients used up on the website. According to reports by TechCrunch analysis of Groupon that businesses interviewed were finding it hard to be featured in Groupon. However, upon closer investigation, it was discovered that customers who had participated in previous deals became loyal to the retailers they first encountered on the site. Hence, users of Groupon did not easily choose new businesses. Groupon ventured into marketing the company through mobile apps. It had developed mobile applications for iOS, android and Windows Phone. Its success was increased by the easy interface it provided for its customers allowing them to freely browse and buy deals on their mobile phones and redeem this offers using their screen as a coupon. This promoted the use and sharing of the mobile apps allowing for free marketing of Groupons website. As more people joined, the company experienced an increased revenue and increased customers. The venture into mobile apps proved profitable as Groupon aggressively increased its daily deals, which helped them expand their market, their customer database and increase their revenue and sales. From February 2011, Groupon managed to join the Russian Company Mail.ru and started offering deals through social media in Russia. This move was profitable to Groupon as users could easily buy, share and review deals straight from their profiles. Groupon continues to offer a number of new and profitable services including i) Groupon Goods which focused on delivery of discounted merchandise ii) Groupon Gateways which offered discounted vacation packages and global travel deals iii) Groupon live which focused on delivering discounts on ticketed events such as concerts, theatre events and sporting events. By the end of February 2014, Groupon had acquired other small companies including Ideeli a fashion company. In regard to success of the businesses, the business models each company decided to use was in some way beneficial but Skype’s business model presented to be more beneficial in terms of financial gain and customer retention (TechCrunch, 2014). Groupon’s business model, however successful in the initial years, became troublesome as it experiences numerous loss of revenue and clients. As Groupon changed its business model to a more open and modern approach, its success increased as its revenue and customer database increased rapidly. In conclusion, the entrepreneurial journey made by Skype and Groupon present different opinion regarding the sale and acquisition of companies and the use of business models. Skype as a telecommunications company has been acquired severally with each purchase increasing the profit of the business and new the acquiring company integrated the new service in their business (Li and Wu, nd). This type of business model ensure that features are constantly added to the system and new markets are achieved with each acquisition. On the other hand, Groupon business model faced challenges, as it did not sell to other companies. Though it faced these challenges, a change in its business model and increased partnerships with other companies increased its market share and re-entry into the global market. Although the two businesses are completely different and the techniques used in marketing and maintaining profitable revenues. The success of each can be owed to the planning and execution of its business strategies / models. Bibliography Bonfiglio, D., Mellia, M., Meo, M. and Rossi, D. (2009). Detailed Analysis of Skype Traffic. IEEE Trans. Multimedia, 11(1), pp.117-127. Dholakia, U. (n.d.). How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions. SSRN Electronic Journal. Dholakia, U. (n.d.). What Makes Groupon Promotions Profitable for Businesses?. SSRN Electronic Journal. Dholakia, U. (n.d.). What Makes Groupon Promotions Profitable for Businesses?. SSRN Electronic Journal. Ecommerce-digest.com, (2015). Skype Case Study Analysis. [online] Available at: http://www.ecommerce-digest.com/skype-case-study.html [Accessed 7 Dec. 2015]. Edelman, B., Jaffe, S. and Kominers, S. (n.d.). To Groupon or Not to Groupon: The Profitability of Deep Discounts. SSRN Electronic Journal. Foley, S. (2011). Has Microsoft hit the right number for Skype?. [online] The Independent. Available at: http://www.independent.co.uk/news/business/analysis-and-features/has-microsoft-hit-the-right-number-for-skype-2282089.html [Accessed 7 Dec. 2015]. Li, X. and Wu, L. (n.d.). Observational Learning and Social-Network Word-of-Mouth: Evidence from Groupon. SSRN Electronic Journal. Markovich, N. and Krieger, U. (2010). Statistical analysis and modeling of Skype VoIP flows. Computer Communications, 33, pp.S11-S21. TechCrunch, (2014). A TC Teardown: What Makes Groupon Tick. [online] Available at: http://techcrunch.com/2010/05/02/teardown-groupon/ [Accessed 7 Dec. 2015]. 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