Harnessing the value-creating power of Skype while avoiding the value-destruction

“I knew it was over when I downloaded Skype,” Michael Powell, chairman, Federal Communications Commission, explained. “When the inventors of KaZaA are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it’s free – it’s over. The world will change now inevitably.”
Fortune Magazine, February 16, 2004

Skype’s performance so far, the compelling cost/benefit story, the short time over which massive disruption could occur and the pedigree of the Skype founders, are four good grounds to look seriously at the Skype phenomena.

1. Skype seems to have the elements to be such a fast-track product: people love to converse with their friends, family, peers and colleagues; Skype makes this very easy and it is free. Skype advantages are compelling to anyone with a fixed or mobile phone, at work or private, of all ages and wherever they are.
2. Skype was created by KaZaA which has been downloaded 300 million times, and is one factor behind the $20B/year reduction in CD sales. In commercial service since August 2004, Skype has been downloaded 42 Million times. It has 1.4M members on-line at peak times, has carried 3.02 Billion minutes of traffic (15% of annual VoIP traffic), and carries about 30 million minutes traffic per day. It is “virtually” present in 170 countries, and so has achieved in months a “global carrier” status that has eluded several big consortia of carriers. This has been achieved with no advertising.
3. If this rate of growth were to continue, and the main ISPs, such as AOL, Yahoo, MSN, EarthLink, T-Online etc. perform the same, VoIP would be downloaded 700 million times in just two years – more than today’s world total of fixed telephones.
4. Niklas Zennström, 38, has a strong track record in paradigm-breaking telecom companies with extraordinary growth: Tele2, KaZaA and Altnet. the world’s largest issuer of DRM licenses

We are not as bold as the FCC chairman in assuming that the Skype phenomena will happen to such an extent that “it’s over”: a horror scenario where “if Skype has the same impact as peer-to-peer on the music industry, it could lead to 40% revenue loss ($400Billion) in two years”. Rather than assume we can predict the outcome in such great uncertainty, as scenario thinkers we ask  ”What would we do differently in an extreme future where all voice telephony is “free”, and does this help us evolve our strategies so they are robust whether or not the Skype phenomena does come to dominate voice telephony?”.

1. We see seven opportunities in which, if each player starts evolving its strategy now, each and all of them are winners if the “Skype phenomena” dominates, and are sensible strategies if it doesn’t:
   
2. Skype’s viral marketing provides a model for very low cost, rapid and global mass-market proliferation of new telecom services.
   
3. Skype’s “free calls” adds urgency for operators to force through transparent cost-based tariffs to eliminate arbitrage and to pre-empt an irreversible “cost exceeds price” culture.
4. Skype redefines “easy to use”, motivating users to multiply their voice-usage and grow total spend on telecoms.
   
5. Skype excites retail establishments to build a hot-spot culture.
   
6. Skype’s “easy to use” interface can also enhance conventional, mobile as well as fixed, phones.
   
7. Skype upgrades user expectations of quality and useful services.
   
8. Skype VoIP encourages upgrading to broadband.