The Onslaught Begins: Yahoo and MSN Messenger Begin the Assault on Skype!

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Many of you have probably already read some of the many articles about the latest release of Yahoo messenger which incorporates VoIP..

such as Yahoo Messenger Beta Takes On Skype. Similarly, MSN has recently added VoIP and Video Calls to MSN Messenger , and AIM will shortly support VoIP (Not to be confused with the fact that AOL has rolled out its phone centric VoIP Service which is now competing with the dozens of other vendors in this space).

The fact that large, established and highly aggressive companies are fighting back against an upstart that is encroaching into their territory should not be of any surprise.

So how does all this play out for Skype? Well, on the plus side Skype has accomplished the following:

  • Through a remarkable number of partnerships for such a small young company, Skype has opened up a number of major non-US distribution channels.
  • Skype has found a sweet spot in many markets by taking advantage of the weakness of the entrenched Telcos that charge an arm and a leg for long distance service. (all of which are non-US)
  • With a simple yet effective product and product positioning message, combined with a highly effective viral marketing campaign Skype has gotten its service out to a huge number of users in a short period of time and has created a great momentum.
  • All of this has given Skype a solid and growing beachhead in a large number of non-US markets were Yahoo, AIM and MSN are weaker than in the US market.

    Likewise, Skype has done a good job of getting some key differentiating features out to its customer in a hurry:

  • SkypeOut (Yahoo has an equivalent feature)
  • SkypeIn
  • SkypeVoiceMail (Yahoo has an equivalent feature)
  • SkypeAPI
  • These features give current Skype users good reasons to hold on to Skype rather than to switch to any of the new competition. Much of Skypes strength derives from being both an internet centric and phone centric VoIP provider while focusing on non-US markets. Lastly, the SkypeAPI could lead to numerous third party innovations which would continue to differentiate Skype while these large competitors are mounting their offensive. (Those interested in this concept at a generic level should start by reading Are You Open To Innovation? )

    Nonetheless, neither one of these competitors are stupid. They may make mistakes now and again, but they adapt quickly and have plenty of muscle. They are very familiar with the terrain. They have numerous advantages over Skype. This is quite unlike the entrenched Telcos from which Skype has been acquiring users.

    In my opinion, Skype’s main hope rests around two goals:

  • to continue rushing along its current trajectory of acquiring new users in markets where its new competitors are weakest, which will certainly imply that they continue to make as many partnerships as possible.
  • to shore up their defenses by further encouraging third parties to leverage the API in as many ways as possible leaving evolution to decide which are the best applications (i.e. make it as easy as possible for these third parties to make money!)
  • Unfortunately, if Skype is pushed to defocus from these types of goals to figure out more ways to make money they will find themselves outflanked by these new competitors in a short period of time.

    As such, just like Vonage, I would hope that Skype receives a massive new cash infusion and uses it to accelerate the number of distribution channels in those non-US markets where its competitors are weakest while encouraging third parties to leverage its API.

    I do not think that Skype can “win”, but I do believe that Skype could actually dominate several non-US markets. Remember, China is on track to trump the US in broadband subscribers by 2007, and the US continues to slip in broadband penetration rates (16th place right now). By the end of this year, only 39 million out of the 150 million broadband subscribers worldwide will be in the US while 34 million will be in China. Perhaps, in a future were Skype has largely won the internet centric VoIP war in many key non-US markets it could use this as a springboard upon which to launch its own offensive in the US market.

    Not to be forgotten in all this are the telcos, the ones who are watching some of their cash cow business units rapidly become dogs. About 3-6 months ago much of the discussion was about how Skype was going to be hurting these telcos. None of this has changed, other than the basic message to telcos that Skype is but one of many companies that are enabling users with voice communication services. This is a whole new industry rather than a single company.

    I figure that any telco that understood Skype would also understand that Skype is simply a representative of this new industry from which multiple new players will emerge within a short period of time.

    I have written an overview of the current state of the Skype ecosystem which has formed around Skype and as a result of the Skype API. At SummitCircle, over the past couple of months, we have collected and categorized links to over 200 different Skype phones, add-ons and communities. If properly nurtured it is through this ecosystem that Skype will continue to generate innovative features for its users.

    BTW: Skype has now opened up its own blog. Good move Skype!

    Louis Philip is the owner of http://www.summitcircle.com/
    where he writes about the world of Skype and maintains the
    largest Skype resource site on the web. He can be reached by
    e-mail: louisphilip@summitcircle.com

    The Onslaught Begins: Yahoo and MSN Messenger Begin the Assault on Skype!
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