Skype's Uphill Battle to Win North America

Region accounts for less than 10 percent of Skype's worldwide user base, but they're working hard to change that.

By Gerry Blackwell | Posted Jun 13, 2007
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Despite Skype now being well into its second year as a U.S.-based company, it has yet to capture the imagination of American consumers the way it has Europeans and Asians. But the company's vice president and general manager for North America, Don Albert, says Skype is still very much on a roll.

The company is not only making headway in his own patch, Albert says, it continues to foster the global grassroots Skype-for-business market, largely through its ecosystem of developer partners, and it continues to add new functionality to the software, including SkypeFind, a user-driven business directory introduced in March.

"The U.S. is something of a last frontier for Skype," he concedes. "Not that growth has slowed at all in those other markets. But North America is definitely behind in terms of consumer awareness and number of users."

Globally, Skype has grown its user base from 40 million to 196 million since eBay acquired the company in September 2005. The company calls anybody who downloads the software and registers at its site a user. The number of active users is smaller, but Skype won't give that number. Albert points out that the count of users active at any one time, which is presumably much smaller than the total, currently peaks at about 9.5 million.

Growth is not slowing either. Skype added 25 million users globally in the first quarter of 2007, and continues to add 200,000 to 300,000 a day. It handled 7.7 billion minutes of Skype-to-Skype calling in the first quarter of 2007—4.4 percent of all global long distance calling, Albert says—plus 1.5 billion paid SkypeOut minutes. SkypeOut minutes increased 100 percent year over year.

Revenue is also growing. It was $195 million last year. In the first quarter of 2007 it was $79 million. "That's a pretty healthy run rate," Albert says. "This was also our first profitable quarter [in which revenues exceeded operating costs]."

In North America, meanwhile, Skype has only 16 million registered users. "That's a fairly small percentage of the global total," Albert concedes, "but it's growing pretty rapidly. It doubled year over year last year." That's a faster pace than globally.

There are a few reasons why North America has lagged in the past, he says. Not least is that the company hasn't been active here very long. It first put a team on the ground to focus on the U.S. market in early 2006. Another reason is that telecom costs are higher in many European and Asian countries than they are here, making the Skype value proposition more compelling in those markets.

Albert argues, however, that many North Americans who think their low-cost PSTN or mobile long-distance plans give them virtually free calling, may be paying more than they realize. Skype Unlimited, the $30-a-year unlimited-SkypeOut-calling-within-North-America plan the company introduced this year, was intended to attract new customers, and did. One reason for its success (Skype won't say how many signed up but claims it was ahead of expectations) is that consumers could more easily see how their existing plan stacked up against Skype.

Another problem in the North American market is the "noise" level around VoIP in general, both IM-based VoIP services like Skype's and PSTN replacement services such as Vonage. "That could be somewhat confusing to users," Albert says. "One of our struggles is to separate ourselves from the general discussion of VoIP."

There was a lot of attention paid in the past year to the launch of voice services in other IM clients, such as Yahoo, AOL, and Microsoft. Some analysts speculated this could cause problems for Skype because those providers have such large customer bases. However, Albert says a recent survey from Instat shows that Skype has solidified its lead in the IM-based VoIP space and has, in fact, stolen market share from other providers.

He doesn't see any cultural reasons why Skype should do better in Europe and Asia than in North America, but concedes there may be many consumers here who continue to equate Skype with nerds sitting in front of computers, a perception the company is anxious to dispel—and not just in North America.

So what is Skype doing to crack the U.S. market?

It can't afford to spend the kind of money a Vonage does to acquire a customer, which Albert estimates at around $300. The marketing has to be "viral," he says. Skype Unlimited was the company's major play, but it has done other promotions. It partnered with Intel to offer free SkypeOut calling on Mother's Day, for example.

"That drove a significant amount of awareness and a huge spike in calling, which is exactly what we hoped it would do," Albert says. "You'll see more activities like that in future, aimed at spreading the word about Skype."

One of the company's most promising initiatives is the recently announced partnership with Wal-Mart. The discount department store chain will put Skype sales kiosks in 1,800 stores across the U.S. "We saw this announcement as a kind of endorsement that Skype is ready for the masses," Albert says.

Wal-Mart will target, in particular, consumers looking for inexpensive international calling. The kiosks will educate customers about how easy Skype is to set up and use. They'll offer kits with phones, including dual-mode cordless phones that require no PC and work both on Skype and the PSTN, plus pre-paid SkypeOut calling cards (a first for the company). Skype and Wal-Mart are also introducing a three-month version of Skype Unlimited.

Could Wal-Mart help Skype reach the tipping point in America? Three weeks into the program, it's way too early to tell, Albert says.

Skype has always insisted that its main focus was the consumer market, but at the same time it never misses an opportunity to note that 30 percent of users in surveys say they also use Skype for business. The company has made a few moves to foster this market. Most recently, in May, it introduced the Skype Small Business Pack—in Europe only, for now. If it works, it will likely show up in North America,

The Small Business Pack bundles a Skype for Business CD, the Windows version of the Skype Business Edition software, €50 of Skype Credit to distribute to colleagues, ten five-month subscriptions to Skype Pro, a discount SkypeOut calling package also not available in North America. It's a €150 value, the company says, which it's selling for €99.

For the most part, though, Skype has left it to third-party developers using the API (application programming interface) it released two years ago to develop add-in products to support business users. The company does run a certification program that lab tests products—not just business products—and certifies those it believes offer a good user experience. Skype has handled 15 million downloads from the Skype Extras gallery at its Web site which was set up to promote third-party plug-ins and add-ins.

Albert cites some of the gallery's recent star attractions for business users, including: - Pamela, a plug-in from Pamela Systems that lets Skype users record Skype calls and chats - WebDialogs Unyte, a conferencing plug-in from WebDialogs Inc. that allows users to share applications and screens while conferencing with Skype - OnState ACD for Skype, a contact management and call center solution from OnState that includes ACD (automatic call distribution) functionality - Skype for Salesforce, a joint offering that allows Salesforce.com users to make and take Skype calls to and from contacts within Salesforce and see their presence status - Communication Toolkit for Skype, add-in software from WebAssist.com Corp. that allows e-commerce developers using Microsoft Expression Web to easily add Skype click-to-talk buttons on Web pages - Meeting Center Extra for Skype 3.0, an add-in from teleconferencing service provider Convenos that lets users launch Convenos conferences from within Skype.

Skype also continues to add functionality to its core software. In version 3.1, released in March, it introduced SkypeFind, which allows users to add businesses they regularly use or that they think are good to an online directory. They can search the directory and make SkypeOut calls to listed businesses with a single click. In the first week after launch, users added 130,000 entries, Albert says.

Version 3.1 also saw the introduction of a beta version of SkypePrime, which will allow Skype-using companies and individuals that offer phone-based services—accountants and tax advisers, for example—to list themselves in the SkypePrime directory and offer pay-by-the-minute services. Callers pay Skype Prime fees using PayPal and Skype charges the advertiser 30 percent of the fee as a commission.

More recently, version 3.2 in May, introduced new personalization features, allowing users to add up-to-the-minute snapshots of themselves to their profile using the Web cam they connect for Skype video calling. They can also now import contacts from other programs and services such as MSN and Hotmail, and send money to a contact using PayPal while talking or text chatting with them.

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