Wednesday, December 13, 2006

Skype's $29.95 Calling Plan - Disruptive or Quick Money Grab?

This morning, Skype announced the calling plan we've all been waiting for. They have finally come to market with a plan to monetize their P2P voice service, and this is a nice change from the pay-as-you model they've been using since launching SkypeOut/SkypeIn.

Basically, it's an unlimited U.S./Canada plan for SkypeOut - outgoing calls to the PSTN - for an upfront, annual fee of $29.95. Of course, existing calls among Skype users remain free, but this really gives you a reason to use Skype for all your outbound U.S./Canada calls, presuming you have convenient access to Skype. And to sweeten the deal, the offer is 1/2 off if you sign up before January 31. Pretty hard to say no to this one - for basically a dollar a month, I can make all the outgoing calls I want in the U.S. and Canada - works for me.

I should also add that this is only for SkypeOut - outbound PSTN calls. SkypeIn is another thing altogether, where you subscribe to the service and they assign you an inbound phone number so people can call you on Skype from their PSTN connection. That's a bit more complicated, and I think it's fair to say that most people use Skype for outgoing calls, and not inbound.

Personally, SkypeIn is also of secondary interest because they don't yet offer Canadian area codes - that's mainly a 911 issue. So, to do this, I'd probably go with a U.S. area code, which I could live with, but it's not ideal. Mind you, nobody from Toronto would ever call me on SkypeIn, so it wouldn't matter much. I digress.

So, is this a disruptive offer that puts Skype into the big consumer VoIP fishbowl, or are they pricing it low to get as much revenue now to boost short term financial performance to keep eBay shareholders happy? After all, once you set the bar at $29.95 a year, it's going to be hard to raise prices or to get more revenue out of these subscribers. Of course, Opex and marketing costs are pretty low, so the margins will be very high, which is great. I guess it's a question of do you go deep or wide? Looks like they're going wide to get as many subs as possible with a really great offer.

On that basis, they're definitely going head-on against all the voice players, as their pricing plan is way lower than any telco, cableco or broadband-based offering. What Skype is charging for this service on an annual basis is what most plans charge per month. So, what gives?

Well, Skype is not a replacement for your landline, plain and simple. However, if people start shifting more and more minutes to Skype with this new plan, it starts to look a bit more like one, doesn't it? There may be some basic calling features there, but there's no 411, or 911, and it's still best-efforts Internet for the most part, and of course, it's largely PC-based calling. Of course, that's changing too, and that's where things get more interesting. Yesterday, for example, they announced that now over 120 mobile devices support Skype for use with the Windows Mobile software.

They're doing a lot of things to make the pie bigger, and in that regard, I see Skype as more of a disrupter than doing a cash grab. Of course, being a disrupter attracts attention from the disrupted, and if this offer proves wildly successful, you can expect to see new roadblocks and tactics to stall them, much like we saw a variety of well-timed actions from Vongage's competitors just before their IPO. Could 911 become an issue? Sure. Could network operators do things to block or degrade Skype traffic? Maybe. Bottom line is that Skype needs to anticipate these things if they truly want to be on big stage with those from whom they will take traffic.

Finally, I briefed with Don Albert - Skype's North America General Manager - last week, and came away with good sense that this is the beginning of their grand plan to make Skype a truly mainstream offering. With Skype 3.0 out now, and an ever-growing multitude of Skype support on devices beyond the PC, there is a lot more going on here than shifting from free calling to almost-free calling. Look to see a lot more social networking type of applications for Skype, where voice is really just the entry point to a richer platform that will look to take advantage of Skype's community.

I also wanted to add that it was nice to see the press release refer to research from ChangeWave, which showed Skype to be the #1 VoIP service in the U.S. I've been posting about ChangeWave for a while, and I commented about these particular research findings more extensively a couple of weeks ago, and concluded that this research was good news for Skype. Looks like Don Albert thinks so too!

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