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Why Skype is Good News for Service Providers, Part 2

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October 19, 2009

Why Skype is Good News for Service Providers, Part 2

By Jon Arnold, Principal, J Arnold & Associates

My last column about Skype focused primarily on the mobile market and the opportunity Skype sees for partnering with service providers. Some of that is consumer-based, and some is for the business market. Regarding the latter, however, Skype believes it has a bigger story to tell, and that is the focus of this column.

The mobility story is strong too, and adding Skype to the iPhone opens up some interesting partnering opportunities for service providers. After all, neither Skype nor Apple (News - Alert) are service providers per se, and with their strong consumer brands, savvy operators can use them to add value for subscribers, and find ways to reach new markets.
I’ve already discussed how Skype and mobility can help carriers better serve their business customers, but this is really just one dimension to consider. Coming back to Christopher Dean’s recent keynote, I’d like to pull the other pieces into the conversation and show how Skype’s focus on this market is finally evolving into an attractive partner opportunity for carriers.
We all know how important mobility is, especially when paired with broadband. Putting that trend aside, Skype’s underlying value proposition plays well for the business market – saving money. Dean put some numbers around a trend all businesses have endured this year – IT spending is down 10.9 percent, spending on communications equipment is down 12.4 percent, and 62 percent of IT managers say their spending will be the same or lower in 2010. It’s hard to deny that Skype can help businesses reduce costs, and he supported that by showing that a high percentage of the Skype community uses it for businesses, and saving money is a key reason.
On its own, service providers have little incentive to partner with Skype, since this would only lead to lower telecom revenues and a shift of minutes over to Skype. However, if Skype was integrated with other business applications and could add value, there would be a number of benefits for service providers. First would be the ability to help business customers reduce LD costs by using the world’s most popular service. Second would be the ability to offer Skype in tandem with some of the most widely-deployed IP PBX solutions.
Third would be the ability to offer a more flexible unified communications solution by integrating all of Skype’s business-friendly features – messaging, voice, video, file sharing and now mobility. File sharing is a distinct benefit for SMBs who are more likely to have bandwidth constraints for sending large files over their connections. Video is another attractive feature for SMBs to help reduce travel costs and promote collaboration. Telepresence (News - Alert) is generally too costly for SMBs, and Skype’s high quality, easy-to-use desktop video experience can serve as a reasonable proxy for traveling. In this context, Skype is more akin to a communications platform than near-free Internet calling, and the attraction for service providers becomes more about helping them make money than lower telecom costs.
To position them for this opportunity, Skype has done two things. First they have adopted a wider stance towards openness, not just in their underlying technology, but by also being open to support developers and partners. As noted in my first article, they have created a viable business model for Internet calling, but for the most part, this service does not need any outside help. Skype has succeeded with a proprietary technology that has both strengths and weaknesses. However, even they recognize that the dominant trend is openness, and to attack larger market opportunities like mobility and business, they have needed to be more partner-focused.
This brings us to the second thing Skype has been doing this year for the business market. They have made three notable moves towards becoming part of the IP PBX and UC landscape, and all of them take Skype beyond the realm of simple Internet calling. Going back a little more than a year ago, they announced Skype for Asterisk (News - Alert), which allowed for integration with Digium/Asterisk’s software-based IP PBX solution. Open source continues to build momentum in the SMB market, and this partnership was a pretty strong way for Skype to show they were opening up.
This brings us to the second item, their Skype for SIP beta, which was announced in March. Between Asterisk and SIP, these two moves now allow Skype to be integrated with the vast majority of IP-based telephony systems, whether software or hardware-based. Building on this is the third development – Skype for SIP proof points. Their first interoperability announcements started last month, with Shoretel’s UC system, SIPfoundry’s SIPeXecs, and Nortel’s (News - Alert) Software Communication System. Since then, Skype has also announced interoperability with Cisco’s UC500 series, and given their new corporate bloodlines with Avaya (News - Alert), it’s not a stretch to expect similar news from this end of the market at some point.
Collectively, these moves give Skype extensive coverage across the IP PBX market, and it would be hard to imagine a service provider who could not benefit from some degree of partnership with Skype for their business customers. This is a much richer value proposition than the consumer market, and channel partners have a broad range of options to build Skype into their offerings to carriers. The key, of course is for VARs to understand Skype’s vision for the business market as well as how their various applications can be integrated to enhance the value of the telephone/communications solutions they are ultimately pitching to carriers.
To address these needs, Dean outlined two initiatives – the Skype Academy and their Service Partner Program. The latter is targeted at the developer community, whereby Skype is looking to expand its base of partners to make Skype a stronger offering for IP PBX and UC vendors. Skype recognizes that it does not have this pedigree, and are being realistic about their role in the value chain. They are not looking to compete with telecom vendors, but can bring a distinct set of Web-based applications that can easily scale and tap new revenue opportunities these vendors could not likely access otherwise. I have no details to share about the Skype Academy, but Dean explained that this is an online education resource to help channel partners understand how to integrate Skype with their overall offerings, to access technical support, and to generate leads for new business.
While many of these developments are new and still evolving, it’s clear that Skype has a game plan for the business market and that service providers need to start thinking about them differently. As outlined herein, Skype is investing in business-class solutions, as well as the partner ecosystem and support organization to make them much more than a PC calling application.
Skype will never be a full-fledged network operator – they don’t need to – and as Guy Kawasaki says, to jump to the next curve, they’re doing the next best thing. Skype has lots of users (with minimal ARPU), but service providers have lots of subscribers, and that’s where the money is. To get there, I like their chances a whole lot better by complementing the service provider’s offerings instead of competing against them directly. That’s what I’m seeing in their business market strategy, and things sure will get interesting if they’re on target. I’ll be following this closely, and will revisit Skype sometime in the New Year.

Jon Arnold, Principal at J Arnold & Associates, writes the Service Provider Views column for TMCnet. To read more of Jon’s articles, please visit his columnist page.

Edited by Erin Harrison

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