Although Skype has certainly been the industry leader for the past decade in VoIP and P2P communications which has led to some very positive economic advantages, recently Skype has faced some difficult issues regarding competitors entering the market and the incumbent inertia that the Microsoft acquisition has caused.
7.1 Competitors and Technology Growth
As we talked about in the earlier chapters, when technology and market growth are on a smooth and equal growth pattern, a pioneering firm has the best chances to secure a majority market share and develop successful barriers to entry. These may include technology leadership and the development of switching costs. We have explored Skype’s proprietary technology and the switching costs that have led to a huge market share. If we look back at that growth curve, most notably in technology growth, we can see the curve begin to level out toward the end. When this point is reached the technology has become cheaper and easier to produce.
This is what we are seeing in the smart phone industry as well as the service providers of cellular networks which are now in their 5th generation. We have seen other VoIP service providers appear, and also disappear, as a result of technology leadership becoming more balanced.
7.1.1 Mobile VoIP Competitors
WhatsApp is the largest competitor of Skype at the moment, however they only offer a portion of what Skype is offering. For messaging services they compete very well with Skype, most notably in the American market. What’sApp has over half a billion users and can be used on a number of mobile platforms. The area where Skype is able to gain a competitive advantage over WhatsApp is in their server network. WhatsApp doesn’t have an internet client server; therefore any chats that take place on a mobile system are unable to be continued on the web. Also, just as Skype has been scrutinized over its security, WhatsApp has also been investigated by some governments over their methods of uploading user’s data automatically from their contacts and address books. Nonetheless, WhatsApp is in a solid spot at number 2
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behind Skype and are sure to improve with new backing from the acquisition by Facebook in February, 2014.(www.whatsapp.com)
Viber is another competitor who is offering some of the same features that Skype has used to maintain its market share advantage. Like WhatsApp, Viber can send messages over the web, however unlike WhatsApp, Viber is available to be seamlessly used on mobile and desktop platforms. Viber also has the ability to make free VoIP voice calls to others. The quality of these calls must be questionable given the vast amount of server networks it takes to make a VoIP call that is of good quality and without delay.(www.viber.com)
Line is a Japanese service that is similar to that of Viber. They offer messaging and free voice calls. Again, the quality of these voice calls is questionable. What Line has done to attract a customer base in Asia is made their messaging service both fun and revenue generating. They have a large variety of stickers for free and premium ones for purchase.
These stickers are the smart phone equivalent of emoticons. You can share them with your friends and convey your feelings and thoughts without typing a word. This style of messaging has become very popular in Asia. (www.line.me)
WeChat is probably the closest thing to Skype out of all their competitors, and may even add more features than Skype does, however their growth has been primarily in China. WeChat attempts to combine the features found on Facebook and Twitter into their service. Customers can share pictures and comments throughout their social network. They offer a similar service to that of Instagram as well. They have managed to create a one stop social networking service that is even more comprehensive than Facebook because they offer the same VoIP services that WhatsApp, Line, Viber, and Skype offer. (www.wechat.com)
7.1.2 Business VoIP Competitors
Vonage is Skype’s main competitor in the paid subscription market. They provide businesses of any size with international phone service. Their rates are very competitive to that of Skype’s and even offer some of the same features such as conference calling, HD video calling, call waiting, and voice mailbox Vonage has roughly 2.4million subscribers in Canada, USA, and UK. Possibly the only advantage of Vonage over Skype is the ability to make emergency calls via Vonage. Vonage has seen success in their market share and profitability in recent years and is now a publicly traded company on the New York Stock Exchange. Their 2010 revenue was $885 million with $47 million in net profits. (www.vonage.com)
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Other competitors include Lingo, VoIP.com, Broadvoice and many others. Even the larger landline based companies like AT&T, Sprint, and Verizon are beginning to offer a VoIP service. Although these companies offer a total solution to calling, they are still unable to take a make a substantial grab of market share from Skype. The reasons for this include Skype’s free downloadable software and the fact that there is no need to purchase any hardware as well.
For example, if you would like to use Vonage to replace your landline telephone, then you will need to purchase their hardware.
7.1.3 Skype Comparison
At this point in time, Skype still has some large advantages over all the service providers that I previously mentioned both mobile and subscription based. Skype, now backed by Microsoft has a much more extensive server network than these smaller companies and that allows for more reliability. Some of these new services don’t work well outside their country of origin, most importantly in the VoIP category. It’s very important for voice calling for the connections between the individuals communicating be of high enough bandwidth to stream the data with little delay. This becomes more and more difficult with the increased distance between the users and the servers. The biggest advantage is that Skype has the largest network of users which makes for very important switching costs. Even though these companies have the same technology, getting them to switch from Skype to their service is the most difficult part.
7.2 Skype’s Incumbent Inertia
One of the disadvantages that big established firms always need to deal with is incumbent inertia. In Skype’s case the acquisition by Microsoft may have left Skype vulnerable to this disadvantage. The causes of this come from a firm being unable to cannibalize their own products to make way for newer ones, they may be locked in to fixed assets and unwilling to change, or they may become internally inflexible for a number of reasons (Lieberman &
Montgomery, 1988)
Since the acquisition of Skype, Microsoft has been trying to figure out how to best use Skype’s assets and vertically integrate them into their own existing business model. In the past Skype was an opportunistic company that innovated quickly and implemented their innovations even quicker. Now that they are controlled by Microsoft, they have innovated less and put fewer
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resources into R & D. This is typical of a monopolistic company with such a large market share (Ghemawat,, 1991).
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