MANAGEMENT INFORMATION SYSTEMS

WHITE PAPER SUBMISSION

ON
SKYPE – THE WEB 2.0 COMMUNICATION LEADER

Submitted By

Amit Tiwari 09BM8078

Anuj Chugh 09BM8011
Manmohan Singh 09BM8084
Introduction to Skype
In the world where communication matters the most, there have been various many
inventions to revolutionize the way we communicate. Keeping the trend, Skype was launched
in 2003 changing the way we communicated over PCs. It is basically a software application
which allows people to communicate over the globe via voice, video and instant messaging
over the World Wide Web. It is considered cheaper than other basic methods of
communication by its huge base of users. The Skype application can be downloaded for free to the
user’s PC/laptop or any compatible mobile phone.

Skype now has become hugely popular with its services like voice calling, Video chatting,
instant messaging, Calling multiple parties, Video conferencing and File transfer. The
popularity of the service can be estimated using the use statistics like – it has a share of 8% of
the total world-wide calling time and the users had made calls for a total duration of 3.1
billion minutes in the third-quarter of 2009. In the same quarter, the users made 27.7 billion
minutes of calls on the Skype networks with video calls accounting for around 1/3rd of them.

Calls can be made within Skype networks which is free and to landline phones as well as
mobiles at reasonable charges.

It helps people maintaining their day-to-day relationships with family, friends, business
partners and with work. The competitive edge provided by the Skype services have changed
the way they looked at the communication mediums over the internet.

Skype is now a distinguished leader in the VoIP business due to its “freemium” business
model and is regarded as the best possible solution for free communication over the internet.

It is based in Luxemburg and has world-wide presence.

How things were done prior to Web 2.0

Till just a few years ago, the basic communication modes used to be landline phones, mobile
phones, pagers etc. With the advent of Web2.0 and explosive growth in its use, our
communication systems have gone a revolutionary change. Web2.0 has changed the way the
world communicates. Building upon the popularity of the Web2.0 companies like Google,
Yahoo, Microsoft, eBay have come up with their products to gain the communication market
space.

Business Model
The business model of Skype is based on the freemium services i.e. Free and Premium
services both are offered to the users. New users can register for free and get a basic account
providing basic calling service from PC to PC only for the users of Skype. This feature is the
most popular one and a substantial part of the growth has come through this feature alone.
The calls to non-Skype users come at a premium and is used by relatively less number of
users. The revenues generated by this service are enough to keep Skype’s business profitable.

The Free Services are –

• Skype-to Skype calling

• transferring and forwarding calls to others on Skype

• Video chatting, Instant messaging

• Calling multiple parties

• Video conferencing and

• File transfer

The Paid Services are –

• Subscriptions or Skype Credits (unlimited calling) – with this the user creates his own
online speed dial list after creating his To Go phone number. Then the other users call
up his number using any phone service either to his speed dial number or any other
normal number. If he calls from his cell-phone using his telecom service, his service
provider will charge him for the air-time used.
• SkypeOut (pay-as-you-go) - this is for making unlimited calls to mobiles and
landlines in the U.S and Canada for $ 2.95 per month), Online Numbers, Voicemail
and SMS service.
• Unlimited World plan- this helps you to make unlimited calls in 36 countries to any
landline phone number for $9.95 per month.
• SkypIn- with this you can purchase an online phone number with people calling you
on your Skype Network. These calls can be made from any normal phone using
general telecom service provider numbers with you picking up the calls from your
Skype account. The costs for this service is $12 for three months or $60 for twelve
months. The SkypeIn subscription gets a 50 percent discount with a SkypOut
subscription.

Other Trade Channels – there are licensing opportunities for the business as well. Skype-
Nokia and Skype-MySpace partnerships are case in the point. Selling of telecom equipment
like the 3 Skypephone is another source of revenues through revenues. Another channel of
revenues is Advertising.

Besides these, the other points of strengths underpinning the attractiveness of the business
model are:

1. No customer acquisition costs, the model for publicity is word-of-mouth, while the
competitors costs exceed hundreds of dollars.
 2. Being essentially a software-telecom service provider the capital expenditure and
infrastructure maintenance costs are negligible.

3. For maintaining a paid service account, users have to subscribe to the services and
pay in advance which results in negative working capital needs.

4. The efficiency of the business is very high as the costs involved are very less and
there is almost 100% conversion of EBITDA to Operating Cash Flows.

Issues & Problems

Service in China

The people in China are facing problem while downloading Skype software. The
problem is that they are redirected to another site TOM which is a joint venture
between Chinese wireless operator & Skype. In October 2008 it was noticed that
it had been using the material of Skype text conversations & particularly
focussing on political conversations e.g. Tibet, Chinese Communist Party &
Taiwan independence. The TOM client has been found monitoring the text
messages of Skype users of China as well as the users outside China. The saved
messages contain all the information regarding sender’s message, IP address,
landline phone numbers, the text messages as well as time & date of the
messages. A problem with server was that it made these files visible to the public
for a long time. Although, information regarding the outside China Skype users
was also saved.

• Security

Another major issue related with Security while using Skype. Although company officials
said that they use 256-bit configuration and nothing contradicting has been noticed yet, so
users need not to worry. The major concern is about the design part of Skype which allows it
to make calls through firewalls. The question which arises is: Is using of Skype in office
computers is like making hole in the security system? Can hackers misuse the data while
making calls to enter the corporate networks? As the Skype software can even be downloaded
in mobile phones so it puts question on the security of data & information. Antisocial
elements can misuse the services without being tracked by security agencies; also they won’t
be able to take record of calls in the entire world.

Customer services
The customer support services are not at satisfactory level. As of September 2009 it does not
have any channel to contact customer support services, apart from indirect services through
email and doesn’t provide any official channel to contact Customer care services. Skype has
also been noticed inconsistent with user billing information.
Privacy
Skype’s client uses an undocumented protocol. It has been mentioned in many media sources
that information can be leaked while using Skype. Mobile Skype users many times have
found that their stored has been revealed. Many users have given their feedback on insecurity
of information while using Skype. These problems give a bad effect on trust on using such an
advanced I.T. technology.

Legal Issues

Recently, Skype was found involved to overcome the legal issues. Skype uses the VOIP
technology which is basically licensed to eBay. The software was licensed to eBay by Joltid.
According to Joltid eBay has been found to misuse the licensing agreement, so Joltid has
sued eBay to possess the rights. However, eBay officials said that there is no mismanagement
of software and asked that if they are harmed by this legal issue, there is a possibility to short
close the Skype services. The case is presently with the U.K. court. This issue has made
Skype to move towards an alternate technology so as to further carry the services. According
to eBay the alternative technology may be expensive as well as it may not be reliable. In the
worst scenario the advanced services of Skype will have to be closed. Records say that
approx 480 million users make free calls through Skype which turnaround to revenue of
approx $551 million in 2008. It is expected to achieve a sales figure of around $1 billion by
2011. The decision of the VOIP technology if goes against eBay will be disastrous to Skype
technology that can lead to an end, which is presently trying to be an independent business.

Even after the legal turnarounds 65 percent of VOIP has been sold to Silver Lake & some
others for $1.9 billion. The investors are still not worried with the legal issue of VOIP
technology which is most probably to be resolved in June 2010 as the investors believe the
strength of Skype to make huge turnovers.

The Road Ahead

The road ahead for SKYPE is essentially dependent on the form and shape this powerful tool
takes up. At the moment, SKYPE, is almost a proxy for the usual telephone services
available. With the exception of video conferencing, a feature which isn’t available to a
similar extent in the currently available 3G network services, SKYPE, more or less is just
your average telephonic system put online.

The future for SKYPE, and for that matter, any other service based on VOIP offerings lies in
their ability to transform themselves into a communication solution provider from being just
a link between two communicating parties. At the moment, for businesses, apart from free
SKYPE to SKYPE calling, all that this tool does is to put the PBX (private branch exchange)
calls from the landline to your IP based network thus causing a cost reduction.

However, SKYPE as a tool is too powerful to stop here only. Imagine, you move into a town,
on a business trip and as you log in to the internet, you find a list of local restaurants, coffee
houses, tour operators and contact lists of local businesses on your Skype screen, there for
you to be able to call those for free. Yes, this is one of the offering being envisioned for
Skype wherein the local businesses pay per call for having their contact numbers put on the
Skype screens. So it’s a win-win for both the customer and the local business.

The 3 Skypephone, a fairly recent launch is yet another, not to mention, highly potent
offering from Skype and 3. Available for nations with 3G network offering , it offers free
Skype to Skype calls in the country of purchase along with the usual mobile telephony
services. With no minimum top up requirement, the Skype to Skype calling is hence a
perpetually offered feature.

Yet another ground breaking feature is the SKYPECAST. This feature allows the users
(typically around 100 users) to have their own conference with the moderator functionality
vested in the hands of one of the participants in the conference. The moderator would then
have the capacity to determine who speaks by being able to mute a set of users or passing the
virtual mike to another participant. Discontinued in 2008, without an explanation, the
company has announced a re-launch with both the client and server applications.

Suggestions
• Emergency Calling:

One of the major disadvantages of Skype is its inherent inability to call Emergency
services. Every Skype user is advised to have a mobile working on the standard
GSM / CDMA network or a landline connection on standby in case of emergencies.

The reason for this is the basic functioning of Emergency service calling. These
services are based on a system which is able to locate the person in distress based on
the contact number from where the call is being made.

In the case of a landline, the user address is registered with the telephone company
records and hence it is absolutely easy to trace the user’s location. In case of mobile
telephony, each user, whether moving about in its home network or in a roaming is
kept track of by the foreign network which continuously sends updates of the location
to the user’s home network thus making it possible for the emergency services to
track the user within 300 meters of its actual location.

However, in the case of Skype, which is essentially based on the IP, most of the times,
the IP address is dynamically assigned by the use of DHCP (or dynamic host
configuration protocol). This generally happens when the user is mobile and is
moving about from one network to another. This IP address could be locally
generated by the host network and so, although the user may still be using Skype to
make the emergency call, the system at Skype can never be sure of the exact location
of the user hence making it impossible for the emergency services to track the user.

A mechanism has to be looked into to rectify this loophole which essentially makes a
customer carry a conventional mobile phone just for the sake of emergency response
while Skype is the preferred mode of communication.
 • Skype, given its web based platform has a vast scope in the IT and ITES industry.
Associating with the call center business and integrating their requirements on the
Skype platform could make this tool a must for any such business to posses.

References:

• Wikipedia: http://en.wikipedia.org/wiki/Skypephone,
http://en.wikipedia.org/wiki/Skype

• http://www.skype.com/allfeatures/no911/

• http://www.skype.com/intl/en/business/solutions/travel/

• http://voip-service-review.toptenreviews.com/skype-review.html

• Re-thinking Skype’s business model:

http://www.telco2.net/blog/2008/02/rethinking_skypes_business_mod.html

• Skype Business Model Revealed at eBay Analyst Event:

http://voiceontheweb.biz/2009/03/skype-business-model-revealed-at-ebay-
analyst-event/

• L@@K: eBay spinning off Skype, IPO coming in 2010:

http://arstechnica.com/web/news/2009/04/lk-ebay-spinning-off-skype-ipo-
coming-in-2010.ars

• Skype in Legal Fight with Joltid over P2P technology :

http://blog.tmcnet.com/blog/tom-keating/skype/skype-in-legal-fight-with-
joltid-over-p2p-technology.asp

• Skype founders file copyright suit against Skype:

http://news.cnet.com/8301-17939_109-10355258-2.html