Living Up to the Skype?

Since its purchase by Microsoft in 2011, Skype has struggled to capitalise on the proliferation of video conferencing over recent years, particularly during the COVID-19 pandemic. How did such a formerly ubiquitous service lose its edge over the market it once dominated?

Whether it’s high-flying executive power meetings or intimate family quizzes, video conferencing has exploded over the past few weeks of 2020 – I’m sure I don’t have to go into why at this point.

Shortly after its launch in 2003, many feared Skype would be the death of telecommunications as we knew it – this was certainly Microsoft’s hope when, in 2011, it purchased Skype Technologies for $8.5 billion, in what was then its most expensive acquisition to date. To “Skype” even entered the Oxford English Dictionary in June 2014.

However, in this current boom period, Skype is missing out on growth and Skype for Business has seen the lowest overall growth rate this year, despite holding on to the highest share of usage compared with its competitors, by a wide margin. Now, this 2005 article from The Economist declaring Skype to be the end of the phone business seems rather quaint. “Kill Your Telephone” indeed.

Last year, Skype was hit with a European Court decision ruling that it is a telecoms provider, due to a ruling from a Belgian court brought on by lost revenue from traditional telecommunications providers – estimated to be in the hundreds of billions. Despite their arguments that they should not be subject to the same regulation since they carried no signals themselves, it was concluded that since Skype’s premium service can be used to place calls to fixed-line and mobile devices, it qualifies as a regulated service. In Europe, this is part of a wider move to bring in an EU-wide code, the European Electronic Communication Code, one of the few regulations that the UK has committed to implementing despite its withdrawal from the EU.

In trying to challenge the telco status quo, Skype put itself in the firing line for the same regulatory artillery as traditional providers, sacrificing its dot-com finesse in the process.
In 2019, Microsoft announced that Skype for Business would be replaced with Microsoft Teams in 2021. Skype will, however, continue to exist, with Microsoft rolling out personal and family packages for Teams as part of the Office 365 package, spurred on undoubtedly by the unprecedented demand for video conferencing apps right now. Furthermore, new features introduced in April 2020 have expanded the business conferencing capabilities too.

Nevertheless, the one-time wunderkind is now competing with a cadre of other applications in a crowded market which is rapidly accelerating, with businesses now able to choose from the likes of Google Hangouts, Slack, Zoom and Microsoft’s own Teams. Meanwhile, more casual users can see their friends and loved ones on their phones via FaceTime and HouseParty, with Facebook, WhatsApp and Snapchat also incorporating video calling features to their apps.

Skype was built making use of a proprietary peer-to-peer protocol, based on co-founder Niklas Zennström’s experience with file-sharing application Kazaa. But this secret sauce that powered its service also made it insular and unreliable – culminating in a two-day outage in 2007. And then again in 2011.

This protocol also tethered it to desktop devices, in a world that was increasingly trending to mobile communications. P2P was subsequently excised by Microsoft in 2017 in favour of Azure, so as to better integrate Skype with Windows’ wider cloud architecture.
Many regard Skype’s tenure with Microsoft as the latest in a long list of industry titans absorbing and eventually smothering smaller operations. Around the same time Skype was founded in 2003, Microsoft acquired PlaceWare for $200 million, and repackaged its NetMeeting program as Microsoft Office Live Meeting, which was then later absorbed into Skype for Business.

There are even echoes of Microsoft’s similar ill-fated venture into the world of telecoms with its acquisition of Nokia’s mobile device business in 2014 to power its now-discontinued Windows Phone, and that of Danger in 2008, the makers of the Sidekick – remember that?

Recently, Skype introduced Meet Now to compete with new kid on the block, Zoom, allowing users to make video calls without the need to download or sign up for its service. This is, of course, totally different from Skype Qik, which was introduced in 2011 and abandoned less than three years later. Between these remixed releases that were rolled out and dropped soon after, it’s hard to quite determine what Microsoft’s long-term strategy is in this area.
Users have long recognized and railed against the flaws of Skype; the move towards a more mobile-friendly user interface was met with a distinctly negative reaction.

About 40 million people still currently use Skype daily, and the company has lately seen a 220% increase in call minutes. Though these are significant numbers, they’re a far cry from the 300 million monthly users the platform boasted back in 2015; since then, Microsoft has been increasingly reluctant to divulge more recent use figures.

Existing telcos feared that Skype would rock the telecoms market to its core and kill their business model. But now, when it comes to video conferencing, Skype is the establishment, under threat from faster, slicker upstart competitors. Meanwhile, telcos have shifted their priorities from voice to the data services that these various apps depend on.

While Zoom and Teams may now be having their respective Skype moments, there will no doubt be another wave of challengers to them and so on. As the last few weeks have proven, business can change very quickly, and though the telcos may not yet be the darlings of the digital world, having the infrastructure it runs on can still be a lucrative business.