Skype

Blue Ocean Strategy
Institute

Skype in the Voice-over-IP
Industry:

A Commercially Viable Blue
Ocean?
02/2013-5949
This case was written by Katrina Ling, Executive Researcher, and Jee-Eun Lee, Institute Executive Fellow, both at the
INSEAD Blue Ocean Strategy Institute, under the supervision of W. Chan Kim and Rene Mauborgne, Professors of
Strategy at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
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Blue Ocean Strategy Institute

Copyright 2013 INSEAD 1 02/2013-5949
Meet Sarah C. Scott An Actively Connected Skype User in 2011
In 2010, after a 20-year career in the New York fashion industry, Sarah C. Scott went solo.
Seeking a fresh start, she left her home town and moved to San Francisco with her husband
and 2-year-old son. Professionally, the location change suited her well as her suppliers and
consultants were equally distant in Hong Kong and Paris. Personally, it meant being away
from her parents in New York.
In her previous job, Sarah had worked for an internationally renowned fashion house. As the
creative process was highly visual and could not be done effectively by phone or email, Sarah
would make monthly trips to collaborate with colleagues in Europe, or fly in the other
direction to hand-pick textiles from suppliers in Asia.
This had changed in the late 1990s. Seeking to reduce travel costs, Sarah's company had
installed a dedicated video-conferencing system to replace all but essential travel. However,
although the system was extremely expensive, it was complex and difficult to use. For the few
business partners who were equipped with video-conferencing, Sarah found it impossible to
set up a call without the aid of the IT department. During her presentations she would cringe
every time she advanced her slides on the remote control for fear of pressing the wrong
button, which had stopped the presentation more than once.
Now that Sarah was the sole designer/decision-maker in her own firm, she found that the
more she travelled, the less she got done. The time wasted going to and from the airport, and
on security, transfers and jet lag, just didn't justify the cost. Yet a dedicated video-conference
system was neither an affordable nor convenient option.
Shortly after arriving in San Francisco, a friend of hers suggested she try Skype, an internet
voice and video service. Today, Sarah doesn't know how she ever lived without it. Now she
starts her day sharing her latest design ideas with her associates in Paris via Skype's video-
conferencing application. Making a Skype videoconference call is as simple as clicking on the
Video call button. To make a voice call she simply clicks on the Call button:
On Skype, I can show my consultants my vision for the new line, point to areas
where they need to pay special attention If I had to convey the same ideas by
phone, fax or email, it would have taken a lot more time and effort on my part;
and on the receiving end, it might leave more room for misinterpretation, errors
and time wasted going back and forth.
Seeing is Believing
As Skype provides file- and screen-sharing capabilities, Sarah can easily send her design
specifications to her colleagues on the same call while she is explaining the details in the
document, or show the design on her screen to answer a spontaneous inquiry. Furthermore, if
she needs to get a point across while her business partners are engaged in a conversation on a
Skype call, she can simply send an instant Skype text message to one or more participants
without the need to interrupt the conversation. Since Sarah has a subscription to call US and
international numbers on Skype for a low monthly fee, she feels less pressure to end a
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conversation prematurely, which while saving on long-distance phone charges, could end up
costing her more in design errors.
Sarah has eliminated the use of a traditional wired phone at work. Instead she uses an online
number from Skype that enables her to receive calls from people outside of the Skype
network. This resembles any other phone number with a US country code, local area code and
7-digits. To the caller, it works the same as calling a number on any phone exchange. But to
Sarah, she has more control over how she receives incoming calls. For example, she can pick
up a call from her computer while she is working at her desk or from a mobile Skype
application on her smartphone. If the call is not picked up with the Skype application, it can
be forwarded to her landline or mobile phone.
Sarah's clients and colleagues find it easier to reach her as she has one number regardless of
whether she is in her US office, passing through Hong Kong, or in the park playing with her
son. To make outgoing calls on her mobile phone, it is just as easy for Sarah to make the call
through her phone carrier directly as it is via Skype. By setting up her most frequently dialled
international numbers with a Skype-generated local number, Sarah enjoys the same low rates
offered by VoIP calling cards, but without the hassle of dialling long access codes.
The real-time interactivity that Skype video calling offers Sarah the entrepreneur is equally as
valuable to Sarah the mom and daughter. Instead of waiting for annual holidays to take a
cross-country trip, Sarah calls her parents on Skype video every week to see how they are
really doing. With Skypes video teleconferencing capabilities, she can visually monitor their
health status as well as engage them in everyday activities with her 2-year-old son, who is too
young to hold a conversation over the telephone. Sarahs father, Paul, agrees:
When Sarah first told us she was moving to the West Coast, we were concerned
since traveling has become difficult at our age. Knowing how busy Sarah is, we
figured we would only see them once a year during the major holidays. We were
surprised by how easy Skype was to use. Not only is Skype less expensive than
long-distance calling, no other voice carrier offers video capabilities. Without
Skype, it would have been impossible for us to interact with our grandson in a
meaningful way and to stay in touch with Sarah on such a regular basis.
Sarahs experience is representative of millions of Skype users since the easy-to-use voice-
over-IP application was launched in 2003. In just seven years, Skype grew to 663 million
users, who in 2010 made 207 billion minutes of voice and video calls and sent 176 million
text messages. TeleGeography, a telecommunications research firm, estimates that Skype
accounted for about 20% of international long distance calling minutes that year.
By launching its video calling feature in 2005, Skype made available for the first time what
had been cost-prohibitive to ordinary people. Anyone with an internet connection and a
computing device with a camera and microphone now has the ability to see and speak with
each other in real time without the cost and hassle of fixed video-teleconferencing or travel.
By Skypes own estimate, the popularity of its video chat calling had grown to 42% of all
Skype-to-Skype calls by end of 2010.
However, according to the companys IPO filing in 2010, only 1.3% of all registered Skype
users pay for its services. So the key question is: Taking the perspective in 2011 prior to
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Microsofts acquisition of Skype, what must Skype do to make its unprecedented offering
more financially sustainable in the long term?
Questions for Interactive Class Discussion
1. Using the templates provided in Exhibit A-1 of this case, develop three buyer experience
cycle/buyer utility maps for each of the following target user groups:
a. Long-distance calling services
b. Room-based video conferencing
c. Travel
For additional reference, sample purchase options for a traditional US wireless calling
plan and a room-based video-conference facility are provided in Appendices A2 and A3.
2. What is the unprecedented utility Skype created for the target mass of travellers, users of
traditional room-based video conferencing and long-distance calling services?
If you have no experience of Skypes offering, please download a copy of the Skype
application from skype.com, install it on your computer, and make a few calls using
Skype to familiarize yourself with its voice and video calling functions. Try to also send
one or more instant text messages and send a file to your caller while on a call to
experience the multi-media interactivity of the Skype offering.
3. Using the Price Corridor of the Mass for Voice-Calling Services shown in Exhibit B,
what would be a strategic price for Skypes voice- and video-calling services for it to
convert its new market space into a commercially viable blue ocean?
4. Based on your knowledge of strategy, is there anything else that Skype must address for
its "breakthrough strategy" to have a strong and profitable growth trajectory?

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Exhibit A-1
Template for Buyer Experience Cycle/Buyer Utility Map

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Exhibit A-2
Sample Options for a Traditional Wireless Phone Subscription

Since the Nation 450 calling plan is for calling within the US only, both Long Distance and
Roaming Charges are listed above as $0.00 in the basic subscription. To make international calls
from a mobile phone in the US with this subscription will incur additional charges, as listed below for
two sample countries (Canada and France).

Source: www.wireless.att.com
If the wireless phone with this plan is used to make or receive calls, send or receive data, text, picture
or video messages while the subscriber is roaming outside of the US network, additional fees are
charged. A sample list of voice and data usage fees while roaming in Canada or France is listed
below:
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Source: www.wireless.att.com
Depending on the expected level of use for voice and data features, the subscriber must choose from
numerous options, as listed on the two pages that follow. This represents one subscription option
among many others for one traditional wireless phone service provider. The number of options
multiplies quickly by the number of wireless phone service providers, which are all different and
cannot be easily compared on the same scale.
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Exhibit A-3
Sample Options for a Traditional Room-Based Video-Conference Installation

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Exhibit B
Price Corridor of the Mass for Voice-Calling Services

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