Skype’s model is not a “two-sided network strategy” where one distinct group of people gets the service for free while another one pays. “If you are a user, the fact that other people who have Skype can now reach you, makes Skype more valuable,” Mr. The other way Skype makes money is through business partnerships, with companies of all sizes, including big ones like Nokia and MySpace.īy giving away its services for free, all of Skype’s services become more valuable, explains Marshall Van Alstyne, an associate professor at Boston University's management school. Currently, users can choose to upgrade to a prepaid credit plan or monthly subscription, which add features like text messaging, calls to phones (instead of just computers), and now, group video calling. First, it gives away core services but charges for upgrades. Since Skype started in 2003, it has balanced its checkbook in two ways. So why did Microsoft pony up $8.5 billion for a service that's almost free – and what can Microsoft do to improve that bottom line? Only about 9 million of Skype's 145 million users pay for use.
The novelty of making a face-to-face video call is slow to wear off, and the price – which is free for the vast majority users – is simply magic.īut in the business world, it's an unusual business model. With its blue, bubbly icons and dreamy dial tones, you half expect Grandma to pick up from Mario Land. It just feels so good to make a call on Skype.
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