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Case Analysis for Skype

Essay by   •  August 11, 2011  •  Case Study  •  8,140 Words (33 Pages)  •  2,408 Views

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For over a century communication through wired means has utilized the all too familiar invention of Alexander Graham Bell. The long solo reign at the top for the common telephone has enjoyed periodic technical enhancements, but nothing too strikingly different from a consumer's point of view. The invention of the personal computer, networking protocols and then Internet has paved the way for innovations in the communications industry that is leading to nothing short of a revolution. The latest trend has been a technology called VoIP. Voice over Internet Protocol is somewhat of a misnomer - simply because this technology includes voice, text/data, and video communication capabilities.

What awed mankind during Bell's time was hearing a simple voice over a wired line. Today, far superior technology within the same realm continues to fascinate, as it transmits voice and data over the Internet, the unified global network that connects us all. This excitement over the possibilities has strong business implications and creates opportunities to be capitalized on serving public interest. In the new digital economy, the focus is on the consumer and catering to their wishes is every eBusiness executive's opportunity, and responsibility...


...Two such visionaries who capitalized on technological innovations, more specifically, the VoIP trend, are Niklas Zennstrom and Janus Friis; co-founders of Skype. The peer-to-peer (P2P) VoIP network they created started from decent seed capital and adequate human resources. While these two pillars contributed to the structural integrity of an organization bound for success, it was essentially public acceptance that put Skype on the eCommerce map. The company offered a free service using a cost effective collaborative platform catering to the public's excitement over the technological possibilities in communicating with friends, loved ones, and business associates. In recent times, user accounts has grown 131% (first quarter of 2006 to second quarter of 2007) , reiterating public acceptance of Skype's service.

Voice over Internet Protocol is on track to becoming a disruptive technology because it challenges the long reigning supremacy of the public switched telephone network (PSTN). Traditional landlines, and to some extent, cellular services, stand to be affected in a significant way. The consequences of this innovation are not completely technological as there are P&L implications to any business in the industry. The associated cost of providing communication services is a product of every industry's infrastructure and available resources to an organization. VoIP has fewer dependencies on physical capacities, which opens up opportunities to provide similar services at lower costs. In Skype's case, the assumed dependency on physical infrastructure was reduced further than the aforementioned based on the technological model. However, the proprietary protocols developed by Skype were non-conforming to established standards, and as a result had difficulties with interoperability while carrying notable risks. The company's physical structure was based on a peer-to-peer setup as opposed to a client-server paradigm. The benefits of this, as outlined by the case study, are that there are no variable hardware support costs for servers.

Good business sense dictates that savings on cost, when passed onto the consumer, provides a competitive edge. Skype's pricing plan followed this 'best practice' when it came to the two premium (revenue generating) services that it offered, SkypeIn and SkypeOut. In addition to the significant savings the consumer experiences as a result of VoIP technology, Skype was positioned to provide a 28% and 52% savings from its main competitors, Vonage and Cable Vision respectively. Contributing to this competitive advantage was the scalability factor derived from the technological paradigm and the incentive variable of additional communication capabilities.

EBay's acquisition of Skype in September 2005 spoke volumes on the landscape of conducting business in the new digital economy. The status quo of industry boundary lines pertaining to mergers & acquisitions was essentially challenged. Comparatively, this high level strategy mirrors that of an aggressive portfolio of investment funds. Whereby, unique selections of publicly traded companies regardless of industry concentration are culminated to maximize the ROI. The question of relevancy to eBay's course of action in this manner has strong tie in with the leveragability factors associated with eBay's primary vision. Per the case study, the three benefits reflecting management's point of view, clearly notes where Skype "fits in" to be advantageous to some of eBay's core business competencies. Essentially, the acquisition of Skype adds value for eBay with regards to consumer orientation, expansion, and operational efficiency.


The external or macro-environmental factors have the potential to enhance or subdue business performance. Although there can be at times, volatility associated with a forecasted assessment of such qualitative factors, a reasonable outlook can be derived in order to support any short-term and perhaps even long-term strategy. The degree to which the political, economic, socio-cultural, and technological factors affected Skype increased over time as a result of public awareness and subsequent acquisition by eBay. As a standalone business prior to the acquisition, Skype had significant global potential, but eBay's vision, deep pockets and strategy for expansion introduced the leveragability factor that stands to benefit both business models inclusive of other businesses in eBay's current portfolio.

Because both Skype and eBay have an international outlook, the Political playground yields mixed assumptions contributing to the potential success. Assuming no other 'disruptive technology' enters the arena challenging VoIP, variations on the regulatory front seen from country to country will become less significant over time, provided that expansion efforts are realistic. The more liberal regulations providing the greatest opportunities are inherent to developed countries at present and Skype's presence together with eBay in places like North America has tremendous profit potential. In the case of emerging democracies, a favorable regulatory environment is time dependant, but VoIP's presence in a significant way is inevitable. The outlook on Skype's ability to capitalize in such places is a very positive one given the magnitude of eBay's reach. Countries with more conservative views,



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