As Facebook aims to enter the VoIP market, consulting firm Strand Consult studies the impact it could have on the mobile industry. Since its beginnings 10 years ago, Skype was responsible for a major shift in the market for international voice traffic, and it associated customers to a very disruptive price: free.
Several international calling players, both MNVO (Mobile virtual network operator) and VoIP (Voice over Internet Protocol) players, entered the market after Skype. The net effect of these providers was that they forced network operators to lower prices for fixed line and mobile international calls in order to effectively compete.
Google Talk and MSN were also VoIP entrants, but Skype prevailed as the clear winner. Microsoft, unable to beat Skype in VoIP, bought the company in May 2011 for US$8.5 billion, a hefty price that was many times Skype’s revenue and a premium for Skype’s unique market position.
Skype published its income report in March 2011 before it scuttled a possible IPO. Revenue was $860 million for the year ended 2010. There were about 668 million users, 18 percent of which were active users, and 8.8 million paying VoIP users. With 124 million active users, Skype made less revenue than the annual operating profit of most mobile operators. However, it is worth noting that an operator with 124 million subscribers would normally make many billions of dollars, but Skype made less than US$1 billion – such is the nature of disruptive technology.
Technologies such as VoIP offer global connectivity at a small percentage of the cost that operators offer for the same voice coverage today. Telecom operators’ higher price reflects their ongoing multibillion-dollar investment in global digital infrastructure, without which Skype couldn’t exist. Skype, and Facebook for that matter, don’t invest in infrastructure, but they are over the top (OTT) technology platforms that rely on other’s digital infrastructure.
At Strand Consult, they think not of the question of whether Facebook will enter the VoIP market, but rather whether Facebook will succeed where Google and Microsoft have failed. They said Facebook has more likelihood than any platform to be the Skype killer.
Facebook is close to crossing the 1 billion mark with users, and half of them use their mobile phone to connect to the Facebook platform. For many users, Facebook is already the place to communicate with friends and family, so a VoIP service would be a welcome addition. And unlike Skype, Facebook already has a ready phone book from the beginning. More so, with pictures, video, news and the other features of its social network, Facebook offers a better user experience than any of its competitors.
It is not unimaginable to suggest that Facebook could at least match Skype’s revenues. The premium model of Skype has proved more profitable per user than Facebook’s advertising model. Skype’s paying users spend an average of approximately $100 per year on Skype Out and other services. Facebook’s advertiser revenue when apportioned for users in the Europe and North America (where it gets almost all of its advertising) is less than $10/user. Strand Consult’s analysis shows that Facebook could have a remarkable potential in the area of VoIP. It could create a communication experience far richer than what is available now. Insiders say, “If Skype’s VoIP service is a black and white film, then Facebook’s would be a 3-D interactive movie.