Why VoIP Innovation Died with Skype

October 1, 2007

in general

This post reflects on eBays stewardship of Skype, the failure of Skype to remain the innovator in VoIP, Skype Marketings failure to maintain momentum, and some challenges for the new CEO.

Andy Abramson’s blog woke me up to the Management Shake Up At Skype this morning. I’m happy to leave all the money posts to Bloomberg, WSJ, Skype Journal, GigaOM Valleywag etc. For me, my interest today is not about the money. It’s also not about Meg Whitman / megatwork either although I wonder why no one comments on her ability to continue holding her job after such a write down and payout. The numbers say the eBay strategy has failed.

I blogged Skype from the very beginning, I followed it, I founded Skype Journal (as other eg Inside Facebook and similar today) for two years I was completely committed to "What’s your Skype strategy?". Then eBay purchased Skype. I know I felt I had lost something that day. It also shook my beliefs. So watch out Zuckerberg; careful what you do with Facebook!

Skype started out in 2003 like a Web2.0 startup today. Niklas and co managed without the blogs although put in a Forum very early on. There early adopters solved problems, told stories, and requested new features. Janus Friis who wrote today about the earnout and the history has applied all the lessons from Skype, getting users, developing a dialogue, beta, etc to Joost and the companies Atomico is investing in are similarly Web2.0 centric.

(not) just another monday » Janus Friis

The other project is Atomico. Atomico is our new risk capital group where we invest our own capital. We have already, quietly, invested in many companies such as Technorati, FON and Last.FM, and now we are going to take it to the next level.

So why didn’t Skype become another Web2.0 powerhouse? Simply the money! The VC’s choose to sellout (given Skype’s apparently under performing record since on revenues – remember this was the models the VC’s pitched and sold) just as Skype was beginning to emerge in a Web2.0 vein. Efforts to start a formal developer program were rushed; however, by that time Skype already had their API; really cracking open new opportunities for devices, and software enhancements. Concurrently, an element of conservatism stepped in. Call Transfer, Headless Skypes all talked widely prior to the sale remain limited even today two years later.

Impact on VoIP:
Skype  failure to perform has directly impacted on the VoIP category. Skype made a mistake by not selling up the category; talking the category (search google today VoIP and Skype isn’t mentioned) or more broadly communications. In fact if you look at the Skype homepage today all links to forums, blogs etc are unavailable or deleted. The homepage says nothing about what it is other than cheap phone calls. VoIP was always about more than this. It was also about the revolution in communications and what happens when the cost of a call goes to zero. When I see this, when I look at a page like this there is only one place to point the finger. It’s at marketing. It should be noted that Niklas stepped down and Marketing was the department that lost its head.

Failure is Marketings:

The real problem at Skype after the initial launch and growth has been marketing. Niklas and Janus are not marketers. In fact they were always surprised that Skype took off as quickly as it did. Some may beg to differ with my conclusion saying Niklas was the most brilliant marketer; look at what he sold etc. In this regards the team VC’s and Niklas and Janus were. I have always thought the problem was "marketing" which for the most part has remained faceless for four years. I cannot rest all responsibility for this at Niklas’s door; rather I’d point to the VC’s and more importantly eBay which has had two years to get it right with their own people in charge.

eBay marketing took Skype from what was on the cusp of being one of the first Web2.O companies and made certain that it embraced 1.0 mediocrity. I would have thought they would have known better with their community background; the problem was the types of people they talk to. eBay isn’t about consumer marketing; it is about marketing and supporting small business. Skype is about you and me. Ebay never managed this. They couldn’t understand why skypers never asked for more than a great calling experience and lower rates. Concurrently, they didn’t listen or provide feedback to the people and community that could. They turned their back on the innovation engine and tellingly more and more engineers left.

The problem is marketing product leadership, capability to engage users, and ability to keep innovating around new services. Example today, Skype has an active user base that is much larger than Facebook’s for a service that is much more mission critical. And yet Facebook could usurp Skype and the Skype network tomorrow if they so choose. Those that tend to be most passionate about Facebook today, were once most passionate about Skype. The apps this same group are now developing are directed to Facebook not Skype. That’s a shame. Skype’s strategy timeframe also isn’t six months. They don’t have the luxury in looking and spending months finding a new CEO. In six months they could be irrelevant.

In a world of rapid change Skype doesn’t yet have the network affect working for them. Unlike eBay, and less so PayPal, Skype is not a universal channel for communications. I still believe it could be. The actions that could have thwarted competitors, accelerated growth still remain; however are now too risky because of eBay, ownerships and money. Skype has four possible plays which it failed to capitalize on 1)Directory, 2)SIP & Identity, 3)API 4)Presence. All of these possibilities were well known to evangelising Skype users and early beta testers. I’ve certainly written about them all on more than one occassion.

In the beginning Skype had a launch program with news every two weeks . PR Before eBay – An Era Over. This was in place until eBay took over and since then the PR program has been all downhill. Kelly Larabee was marketing and the Skype PR queen before it all went wrong. PR is a Marketing responsibility. It failed again on the recent Skype Outage; the outage wasn’t so serious… the response and management was.

Skype is not longer creating new stories. Stories of intimacy launched Skype. Today these stories aren’t even told on the home page. You simply cannot have viral growth without stories and new reasons for delight. Januus Kase launched blogs at Skype and left some time ago. Still why would you stay when your company won’t let your passions spill over into the real world? In this quote Niklas celebrates what Skype has achieved: SCOOP: Zennstrom defends Skype while stepping down

“Beyond creating a business, Skype literally touches millions of lives and this is something to be proud of,” Zennstrom said. “I would like to think that we have contributed to making the world a little bit flatter.”

I concur!

Skype Choices:
Skype must face up to either competing as a telecom or becoming the 21st century communications company it started out to be…. getting lost along the way. With eBay ownership I don’t give much credence to the latter; and I’m no longer sure or close enough to the company to know what they could do if challenged with new directions. When they were many times smaller it was obvious. They could and did change the world. Few companies get absorbed by large ones and continue to innovate at the same rate.

Skype CEO? 
You would hope the search has been on quietly for months. (Nah… I never got a call!) Who gets the shot will tell the world many things about  what Skype will become.  Some criteria.

  • Visibility: The new CEO will / must be very visible. They will either hold or lose the confidence of remaining developers. Learning to talk Skype will be a problem. Skype is less than four years old. As there are no internal candidates finding someone that can talk Skype (not as telephony) is a major challenge.
  • Guts: They will have to be a hard ass on the numbers. Skype is already in a price war, it’s time to take home the advantage while creating new value which will take some imagination and real pressure on the organization. That’s may or may not be a problem for eBay. Depending on the "agreement" it will have an impact on the new CEO, their flexibility, and the time given to finish the job that Niklas started
  • Beliefs: They have to have deep seated beliefs. Winning in this world will not come from quantitative research; rather it needs a higher level of experimentation, more transparency, and the building or a real open community. Skype is closed. Skype must be opened up. Few candidates will know how to do this.
  • Facilitate: Skype still learning has a young team and some good old fashioned recognition and encouragement is required. Skype cannot grow bigger without growing responsibilities of those that are there today. Any new CEO must know how to put in place an accelerated listening program.
  • London: the Red Herring choice. Should the new CEO simply move the company to Estonia? Politics and autocratic rule have still to be overcome. There are always hard choices to be made. Marketing is the first area to address. Adding to the marketing team will help to re-shape it without killing the gems that remain. Eg User Design.
  • Product Acumen: Skype wins or loses not based on the US, rather on India, China, Brazil in the longer term. It cannot win at all without a mobile strategy, in fact a Presence, View, Talk, Text, or Post strategy. Communications is multi-modal today and multiple devices. Skype has understood this better than most; however is yet to press the advantage home. New competitors are also increasingly everywhere… It is not the IM clients, or the telecoms anymore. Facebook and Google remain the real challenges.
  • Power of Three: Does he/she say bullshit? eBay appears to be incapable of integrating communications into their selling process. How much management attention and time will eBay require of the new CEO? Anything over 10% and we know that nothing will change.

Note I wrote this post just after the sale to eBay. Skype Chapter 2. I cannot be more disappointed today. Almost all the reasons I wrote for the deal to be done… have not been done under eBay’s stewardship. The one thing I learned later and did not know at the time was that eBay had never bought the video rights or capabilities. That in itself shows the real lack of foresight and understanding behind what they were getting in to. Perhaps eBay will never be able to extend their market to conversations. Long term that’s an error.

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{ 4 comments… read them below or add one }

Jeremy Pepper October 1, 2007 at 4:50 pm

I had the pleasure of working with Kelly on Skype, and you hit the nail on the head: she did a great job with the launch, and more.

Post-Kelly (and post history revisionism), it changed.

Andrew October 1, 2007 at 8:12 pm

If I recall, I was sitting beside you in Estonia @ Skype in that dank concrete ex-Soviet cybernetics lab during a round table on the future of Skype’s developer program when we heard the eBay news.

That was 2.5 years ago (or an eternity in Internet time) and we laid out; with the other developers/visionarires a clear path to glory of what was needed in order for Skype to foster a vibrant ecosystem where developers and applications could profit by building on the Skype platform.

We asked for some clear specifics, a headless Skype service, access to the payment gateway, data channel access, some form of SIP proxy. Every single developer and staff member agreed that those were the most important things to Skype success in developing a platform for Web and Voice 2.0 communications.

Here we are 2+ years later, and still no closer to any of those being realized. Almost all the developers have moved on to greener pastures, a few found a niche here and there (Skylook, Unyte etc) but for the most part no one has used Skype for more than a PR tool to gain exposure to there core business.

All the pieces of the puzzle have been right in front of eBay since the beginning; but the revolving door that is Skype management has never been able to put them all together.

Jean, makes some great points in his “We once were advocates” post ~ http://skypenumerology.blogspot.com/2007/09/i-just-came-across-blog-post-of-stuart.html

They have lost that infectious, disruptive, innovative spirit that you, I and so many others were drawn too. The frustrating part of all of this, is that disruptive spirit can still provide huge business returns, if managed correctly – the new era has lost that ‘lets just do it and screw them all’ attitude. Maybe a complete restructure will bring it back… but the track record doesn’t suggest it will

Stuart October 1, 2007 at 9:18 pm

Andrew, Awesome comment! It was quite a session in Estonnia === if we had only gotten even half of what we laid out. Some times it really does pay to listen to your customers.

Robert Paterson October 2, 2007 at 1:39 am

Bang on Stuart – a textbook lesson for how to lose value today – when 1.0 kills 2.0
All the best Rob

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