Thursday, December 01, 2005
Skype Mainstream?
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1:20 PM
Walt Mossberg at the WSJ has a report today lauding a new wireless Skype phone and service, projecting that Skype will now go mainstream. Skype is the most popular of a number of services (e.g. Yahoo! or AOL or Microsoft messenger services) that offer free phone calls over the internet using a user's computer and broadband connection. These should be distinguished from stand-alone VoIP (Voice over Internet Protocol, e.g. SunRocket, Vonage, etc.) services, that require a subscription and a broadband connection, but no computer for phone service.
Skype type services are generally free over the user base, and something like $0.02/minute to call anyone else. 10 minutes of out-of-network calling a day is thus about $73/year. Stand alone VoIP services run something like $16-$30/month for calls to anyone nationally, but extra for most international calls. The base cost is thus ca. $200-$360/year. That is equivalent to something like 26 to 49 anywhere (SkypeOut) minutes/day at $0.02/minute, and less if the rate is higher.
Can Skype go mainstream? There is an elephant here in the room, and some pricing comparisons that need to be done. First, we need an estimate of how much, or how valuable, nationwide long distance calling is for an average user. For Verizon, it's about $20 a month. Most VoIP services are selling for around $25/month. The average cell phone subscriber pays $50/month, and that buys something like 500-700 minutes/month. The rapidly approaching future is that everyone has a cell phone with the average included nationwide long distance, or more as that average moves up.Cell phone adoption is driven by convenience and price. Where do Skype and VoIP fall in this?
- Cost: The consumer and business market are very different here. The cost advantage of Skype for the consumer is only in the margin above 500 cell-phone minutes nationwide, or in the need for international calling. VoIP is more cost competitive for nationwide calling as it can replace a ca. $16/month local line, so the margin is something like $0-$10/month for nationwide long distance. It also could allow for possible downgrading in user's cell-phone usage, and hence needs, leading to more consumer cost savings. (we don't anticipate that shift, but it's possible). Nationwide VoIP nearly pays for itself. VoIP is less competitive for international calling. For business users, unlimited nationwide long distance is the deal, and for them, VoIP beats Skype hands down, and is the same or worse for international calling (the monthly VoIP subscription price may be insignificant if the long distance volume is high enough). So for businesses, they are complementary cost wise. For those on very fixed budgets (college students, etc), Skype allows nationwide long distance without a subscription, so there is a segment where they are cost competitive nationally.
- Convenience: Skype requires a computer that is on. That is an elephant of a problem. Not a problem for business use, but a significant hindrance for consumer adoption. That may change as media center PCs become more popular, and remain always on in the living room. That same device could easily serve as the voice gateway, but only then would Skype have a fighting chance at consumer mainstreaming. Mossberg addressed part of the handset issue only: POTS phone equipment has been easier to use than Skype equipment. The form factors are now converging, but all the Skype equipment still requires an always-on computer, and POTS phones are not generally Skype capable.
- Quality: Quality of Service (QoS) is generally worse for Skype and VoIP than for POTS, so there is a quality vs. price trade off. It's probably better than or equivalent to average cell-phone service.
In summary: Skype shines over VoIP for international call pricing. Skype is worse than VoIP or POTS (plain old telephone service) or cell-phones for convenience. The two are complementary for national calling depending on call volume. All services are worse than cell phones for convenience, but are better on price.
Given that background, the question is: What would it take for Skype to go mainstream? By mainstream I mean a real competitor, not just a small niche player. Here's the basket of changes necessary:
- Broadband - need it everywhere. happening now.
- Always-on PC - now true for business. Media PC most likely solution for consumers. Slow adoption rate over next 5 years.
- POTS/Skype Box - a box between the PC and the phone that handles the Skype functionality so any current phone can be used. These might be available. If they are not its a stupid oversight and no problem technically.
- Pricing - free nationwide calls to anyone. At that point, Skype replaces local land line, and beats dedicated VoIP service nationally. Until then, it doesn't.
- Network Skype Box - given slow adoption of (2) and cost of (3) a better solution is a box that allows for putting a regular phone directly on a broadband network, eliminating the need for a computer or a special kind of phone.
With (4) and (5), Skype takes over the world. Until then, Skype is not mainstream. They remain a niche player for international calling.
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