At&T vs Skype Essay

This analysis provides an overview of the current and prospective opportunities for Skype, a Voice-over Internet Protocol (VoIP) company. The report finds that Skype’s revenue has decreased dramatically in the last three years mainly due to the increase in competition. Josh Silverman, president of Skype, realizes some decisions must be made in order to remain an industry leader. The company’s current growth plan strategy includes three phases. Phase 1 though already completed, was to become operational on at least one platform, with one revenue system, and focus on one market with one primary service. Phase 2 consist of developing many platforms, diversified revenue streams, many conversation modes, many regions and market targets. Phase 3 encompasses multiple market segments, established products, regional ubiquity, and mature target markets. Though Skype is well developed there are still potential growth opportunities. These opportunities include expansion of existing calling plans and prices, incenting existing users to ‘sell’ Skype to new users and collaborating with cell phone providers. With the market growing rapidly the next phase taken by Skype is crucial in their development. By using the current opportunities Silverman can advance the company as well as attack other providers in the industry. SYNOPSIS OF CASE FACTS Skype is a software application that essentially allows users to use any telephone or videoconference services over any internet connection. This transmission is called VoIP (as shown in Appendix A) and because of the reasonable long-distance and local call packages this option has become an attractive economical alternative to landline or traditional cell phone plan. Josh Silverman, president of Skype, is faced with making the next strategic move that will put Skype in a better position to successfully compete in the telecommunications industry. In order for Silverman and his leadership team to proceed with the next steps it is recommended that they first assess the economic environment. It is important to understand the economic environment that it currently has, as well as the predictions for growth within the industry. Finally, Skype’s key success factors (KSF’s) include cost, building relationships with mobile operators, globalization and word of mouth promotion by existing users. If Skype can focus on one of these KSF’s and be uniquely different where it sets them apart from rivals then Skype will continue to see growth in users and revenue. In terms of market size and growth rate, The VoIP market increased 66% from 2005-2006 with a projected continual increase of growth for decade upwards of 150%. This growth was due to the inclusion of an expansion to other ways of utilizing VoIP services. From internet to cell phone usage, the forecasts called for VoIP applications to create $32.2 billion in profit with over 270 million users. As of 2009, Skype would not be considered a major competitor within the VoIP Market. Comcast Corporation, which held 31.5% of the market, was the leader by 15.3%. Time Warner was in second with 16.2%, and Cox Enterprises, Inc. at 9.6% was only 1.3% ahead of Vontage Holdings Corp. with 8.3%. The rest of the market, which was considered as â€Å"other†, encompassed 34.4% in which Skype captured a small share. All of the major competitors growth rates from 2005-2009 were declining rapidly. For Skype, this was good news because the projections in growth of U.S. and Europe users from 2005-2011 showed 17% increase in the U.S. and 37% increase in Europe. ​Although major players had a traditional stronghold on the telephone industry, Skype services created a substantial technological pull that provided a major shift in the macro environment for these majority companies. In addition, the transition from PTSN to VoIP technology also sparked regulatory and social conversations of change. And according to our textbook, â€Å"since macroeconomic factors affect different industries in different ways†¦it is important for managers to determine which these represent the most strategically relevant factors† (Thompson, Peterraf, Gamble, Strickland, 2012). For Skype, this environment was ripe with opportunities for growth, and the company decided to strategically chart their progressive growth into diversification through a phased plan incorporating the one to any platform functionalities. In addition, Skype would need to be concerned about new technology which provided potential new entrants an opportunity to gain market share . ​ The VoIP industry is in the growth stage of the lifecycle process in 2009. The landline telephone market is in decline due to f the attractive and less expensive option of VoIP technology, which can utilize the increasing amount of cheaper internet connectivity. Other markets such as the cell phone market are starting to introduce technology that based on current projections over half of the cell phone market will be VoIP based technologies by 2019. ​Skype’s virtual market encompasses a global strategy due to the unlimited potential and increasing deployment of fiber optic networks internationally. The barriers to entry are reasonable because they already have achieved substantial growth and success within one platform. Additionally, gaining access to technologies through innovation, acquisitions, and mergers are ways to go from their one to any platform in the future. The Company to work to establish itself in markets that are emerging, and where other players have not focused. STRATEGIC ISSUES AND KEY PROBLEMS SWOT analysis, see Appendix B was performed highlighting the positives and negatives within the company. Skype has succeeded in the market primarily due to aggressive pricing. However, the competitive pricing also puts Skype at a disadvantage. Although Skype’s growth numbers show a 47%, 72% and 61% increase in registered users, Skype minutes and Skype out minutes, respectively, in fourth quarter of 2008, Skype witnesses a decrease in revenue growth, 46% to 26% from Q308 to Q408, respectively. The company uses a broad differentiation strategy to appeal to buyers and offers competitive pricing, suggesting that buyers can reduce fees associated with long-distance and local calls that are incurred with their current telephone provider. A defined strength is word of mouth advertising which has ultimately kept down operating costs. Everyone loves Skype because it is largely free. The executive team at Skype is faced with crafting a strategy that will put Skype in a position to compete with heavy hitters in the market like Comcast (31.5% of the market share), Time Warner Cable, Cox Enterprises and Vonage Holdings. A key strategy for Comcast was the acquisition of AT&T’s cable operations. This move increased Comcast’s membership by expanding business geographically into 6 other states. Please refer to Appendix C for competitive matrix. DRIVING FACTORS FOR RECOMMENDATIONS Skype has several driving factors for the recommended solutions. One, the ‘fan base’ is instrumental in promoting the application. According to the executive outlook, ‘Skype becomes more valuable as more people use it, thereby creating an incentive for existing users to encourage new users to join’ (Thompson, Peterraf, Gamble, Strickland, 2012). Secondly, Skype offers competitive pricing and plans which has attracted many users but a slight modification of addendum to the plan would promote profitability. Finally, acquisitions of competitors have been successful for other rivals, yet it could be expensive and not something that Skype could afford to do now. An alternative would be to continue to collaborate with cell phone providers. RECOMMENDATIONS The leadership team at Skype should focus on modifying and building out the calling plan to boost revenues. Skype-to-Skype minutes has seen the greatest growth between Q307 and Q408, 72%, however this plan is free. The addition of a small fee to this service or offering a prepaid bundled package could dramatically increase revenue in this area. Another strategy is to continue collaborating with cell phone providers making it easier for users to access Skype from mobile devices, not just desktops or laptops. Market penetration with mobile devices could increase membership and revenue. Also, Skye could partner with major W-Fi hotspot providers to have a â€Å"Skype Here† promotion where places like Starbucks would partner with Skype to encourage people to Skype from their stores. This would increase the time that a customer could spend in the store, and refresh the idea of Skyping from with a pleasure activity like getting a cup of coffee. This could lead to promotions with Skype as well. For example, if a member spends 300 minutes Skyping at a certain Starbucks then they would get a coupon for a free coffee at that location. With IM, Facetime, and other Communications applications the struggle is to keep Skype in the consumers mind as the preferred method of making communication, as opposed to the other methods. Lastly, offer incentives to existing users to encourage new users to join Skype. The incentive payout would have to line-up with the price points of the calling plans. ​Another area that Skype should explore is the corporate or B2B communications, companies spend thousands each year using conference calls, or virtual meetings. Skype should design a simple method for business to offer a fixed price conference calling plan on a per employee basis. The corporate market is largely untapped and corporations typically have a robust IT infrastructure that lends itself well to Skype. ​