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1. 2. Skype’s business model is illustrated in Business Model Generation (98-99), but the identification of customer segments and the value proposition are rather brief and generic. Prepare a more detailed Business Model Canvas for Skype based on the information provided in the case.
Key Partners * Payment providers (Visa, Master, PayPal) * OS developers (Windows, Linux,) * Third party websites which provide downloadable software * Hardware manufacturers (Logitech, Plantronics) * Landline and mobile service providers * ISP’s
Key Activities * Software Development * Skype.com maintenance and promotion * Service provisioning * Infrastructure Development
Value Proposition * Free video and voice calls, IMs, and File sharing with other Skype users. * Cheap option to * Place calls to landlines and mobiles. * Receive calls from landlines and mobiles. * Do Group video calls
Customer Segments * Anyone who wants to make free pc to pc calls. * Anyone who wants to communicate using video. * Anyone who want to access inbound phone calls from their pc. * Anyone who wants to make outbound calls to landlines or cell phone. * Businesses who want to incorporate VoIP into their own offering. “Click to Talk” * Anyone who wants a low cost additional phone line.
Key Resources * Software Developers * Technical Architects * Servers * Client Software * Skype.com * CRM staff
Customer Relationships * Transactional * Reactive * Email-based * Self Service * Customer-Customer * Free Online Forums (Communities)
Channels
* Direct * Word of Mouth * Web Sales * Skype.com * Third party applications and websites like idroo for Skype. * Hardware Partnerships
Cost Structure * Software Development * Website and Online forum management * Fixed Interconnection Fee * Gateway with equipment
Revenue Streams * Free (Up-Sale Model) * SkypeOut, SkypeIn, Skype for Business.

3. 4. The case identifies four different Skype offerings. Develop a table that describes each offering, identifies the target market segments, and addresses the full range of competing alternatives available to the targeted customers.

Offering with Description | Target Market Segment | Available Competing Alternatives | Skype’s Basic Computer-Computer Service * Allowed Skype users to send Voice, Video, Text messages and to transfer files for free with each other | 1. Users who want to communicate using video (PC to PC). 2. Users who want to send voice, text, or files (PC to PC). | AOL’s AIM, MSN and Yahoo! Messengers, Gmail, TrillionSIP phone, deltathree’s iconnectHere, Net2Phone (1) | SkypeOut * Allowed users to make cheap long distance and local calls to landlines and cellular phones either with flat rate or per minute charging | 1. Users who want to make cheap local calls.2. Users who want to make cheap long-distance calls.3. Users who want to get new services not available on their current phone lines. | All available landlines and cellular service providersVonageCablevisionSIP phone, deltathree’s iconnectHere, and Net2Phone, Yahoo!(2 and 3) | SkypeIn * A subscription based service which allowed Skype users to receive calls from preselected, conventional phone numbers carried on the public switched telephone network | 1. Users who want to receive calls on their PC from traditional phone lines.2. Users who need another phone line for home/personal/small-business use.3. Users who want a telephone number in a different area code.4. Users who want to get new services not available on their current phone lines. | Vonage and some other VoIP providers who positioned themselves as full-fledged substitutes for regular phone serviceCell phone and landline phone service providers. (2 and 3) | Skype for Business * By using BCP feature small business administrators can allocate and monitor use * Skype for SIP and Skype for Asterisk allowed businesses to connect their VoIP-based internal phone systems to the Skype network | 1. Corporations needing internal communication.2. Corporations needing external communication. B2C and B2B. | SIPphone, deltathree’s iconnectHere, Net2Phone (PC-PC/PC-to-phone providers)AOL’s AIM, MSN Messenger, and Yahoo! Messenger (IM) Vonage and some other VoIP providers who positioned themselves as full-fledged substitutes for regular phone service (4) |
(1) For free PC to PC communication, instant message competitors built VoIP capabilities into their client software.
(2) For PC to phone communications, Yahoo introduced PC-to-phone calling for 2 cents/min long distance, a lower long-distance price than SkypeOut. Skype offered competitive local service price at $2.95/month.
(3) For phone to PC communications, Yahoo offered $30/year long distance plan, a lower price than SkypeIn. Established carriers like Verizon and AT&T offered VoIP to existing customers. Cable companies, like Cox, could offer higher-quality signals because they owned their private network and could prioritize VoIP transmission.
(4) For internal and external communication, competitors included established and standalone carriers using VoIP.

5. Develop a table that identifies the features and benefits of Skype’s offering to each of the targeted customer segments. Rank the features and benefits in terms of importance to each of the targeted customer segments. What differences appear? Which of the value disciplines (Treacy & Wiersma) make the most sense for Skype in meeting the needs of each target market segment?

Offering | Target Market Segment | Ranking of Features and Benefits | Value Discipline/Reason | Skype’s Basic Computer-Computer Service | 1. Users who want to communicate using video (PC to PC). | Video transmitted peer to peer for free. Benefit is private, visual method of communicating for free. (1) Product Usability – Fun and Easy (2) Video Quality (3) Price (i.e. Free) | Product Leadership: Skype uses word of mouth to promote its offerings. It must maintain its popularity to remain relevant and engage with users to market other offerings. | | 2. Users who want to send voice, text, or files (PC to PC). | Voice, Text, and file transfers are sent for free via PC to PC communications (1) Price (i.e. Free) (2) Transmission Quality (3) Product Usability | Operational Excellence: The most important characteristics of benefit is that it is free and that it maintains some level of quality so it can be an open door towards marketing other low cost offerings to consumers. To do this, Skype must focus on keeping low prices and reliable transmissions. | SkypeOut | 1. Users who want to make cheap local calls. | Phone Service offered at an affordable cost. For the first two market segments, the most important feature is the ability to reliably make calls to landlines/mobile phones at a low price (1) Low Price (2) Reliable Service (3) Online features not available on traditional Phone lines. | Operational Excellence: Skype must ensure it is able to continue to offer the best price for these services with a minimum level of quality. Consumer preferences regarding VoIP show Price as key consideration. To do this, Skype must ensure it optimizes its products and processes to achieve low costs and reliable products. | | 2. Users who want to make cheap long-distance calls. | | | | 3. Users who want to get new services not available on their current phone lines. | Phone Service offered with additional features not available on traditional phone lines. Important features are the interoperability of phone with other technological needs like email integration or online retrieval of call history. (1) Integration with other PC solutions and other online features. (2) Reliable Service (3) Price | Operational Excellence with some customer intimacy: Skype must ensure that it offers features and benefits that support interoperability and customization to customer needs. To keep prices low, some amount of standardization is needed so economy of scale operations should still take place. This segment may need more customer service than the segments needing only phone service. | SkypeIn | 1. Users who want to receive calls on their PC from traditional phone lines. | Phone Service offered at an affordable cost. For the first two market segments, the most important feature is the ability to reliably make calls to landlines/mobile phones at a low price (1) Low Price (2) Reliable Service (3) Online features not available on traditional Phone lines. | Operational Excellence: Skype must ensure it is able to continue to offer the best price for these services with a minimum level of quality. Consumer preferences regarding VoIP show Price as key consideration. To do this, Skype must ensure it optimizes its products and processes to achieve low costs and reliable products. | | 2. Users who need another phone line for home/personal/small-business use. | | | | 3. Users who want a telephone number in a different area code. | Phone Service offered with additional features not available on traditional phone lines. Important features are the interoperability of phone with other technological needs like email integration or online retrieval of call history. (1) Integration with other PC solutions and other online features. (2) Reliable Service (3) Price | Operational Excellence with some customer intimacy: Skype must ensure that it offers features and benefits that support interoperability and customization to customer needs. To keep prices low, some amount of standardization is needed so economy of scale operations should still take place. This segment may need more customer service than the segments needing only phone service. | | 4. Users who want to get new services not available on their current phone lines. | | | Skype for Business | 1. Corporations needing internal communication. | VoIP/SIP integration offers a way to connect the communication infrastructure of a corporation. (1) Security (including Encryption) (2) Price | Operational Excellence: Primary considerations are price and security in communications. Established carriers like AT&T have the product leadership position in this area so the focus of Skype should be on offering the lowest price. | | 2. Corporations needing external communication. B2C and B2B | VoIP/SIP integration offers a way to connect the internal CRM with its customer-facing portals (1) High-Quality and easy to use ways to connect with customers. (2) Reliable service. | Customer Intimacy: Each corporation has different scope and scaling needs for its communication systems. This requires a tailored architecture to fit the corporation’s needs for connecting with its customers. |

6. Based on the analyses you prepared in response to the first three questions, prepare a resonating focus value proposition for Skype for each of the targeted customer segments.

Offering | Target Market Segment | Resonating focus value Proposition | Skype’s Basic Computer-Computer Service | 1. Users who want to communicate using video (PC to PC). | * Allowed Skype users to send Voice, Video, Text messages and to transfer files for free with each other over PC. * Skype allowed user’s to make group conference video calls. | | 2. Users who want to send voice, text, or files (PC to PC). | | SkypeOut | 1. Users who want to make cheap local calls. | * Unlimited calls within U.S. and Canada for only $2.95/month. | | 2. Users who want to make cheap long-distance calls. | * Country of origin didn’t affect the rates. * Flat-rate subscription for $3-$13/month option available. | | 3. Users who want to get new services not available on their current phone lines. | * Skype internet software provided services like online call history, controlling phone features from the Net. | SkypeIn | 1. Users who want to receive calls on their PC from traditional phone lines. | * Assigned users a regular phone number. * Anyone could call them on that number like traditional calls. * Unlimited incoming calls for a Flat rate of $60/year. * Skype internet software provided services like caller ID & call history. | | 2. Users who need another phone line for home/personal/small-business use. | | | 3. Users who want a telephone number in a different area code. | | | 4. Users who want to get new services not available on their current phone lines. | | Skype for Business | 1. Corporations needing internal communication. | * Administrators could allocate credit and monitor use of the employees. * Companies could connect their internal VoIP-based phone system to the Skype network. | | 2. Corporations needing external communication. B2C and B2B | |

7. Despite the economic advantages of VoIP technology as compared to regular fixed line telephone service (POTS), by 2007 only about 25% of US broadband subscribers were using Skype or an alternate VoIP provider (Exhibit 7). Consider Skype’s value proposition in light of the pricing comparisons detailed in Exhibit 2, the survey results detailed in Exhibit 3, and the operational statistics provided in Exhibit 9. What are the key elements of value? Why do you think that their market penetration is lagging?

* Customer Value Proposition (CVP) considerations based on Exhibits 2, 3 and 9.
The general CVP could be stated as: “Skype delivers reliable, high quality, free video and telecommunication to its users and low cost communication to consumers and businesses using internet technology and broadband.”

* Exhibit 2. Competitive Pricing Analysis. (See Exhibit A) * Successfully positioned itself as low cost provider.

* Exhibit 3. Customer/Non-customer Survey Results. (See Exhibit B) * Users * Low cost is a major driver. * First adopters * Non-Users * Failing to adequately deliver its core message of low cost, ease of use and reliability.

* Exhibit 9. Financial Operating Results. (See Exhibits C and D) * Growth, market penetration, usage and revenue are increasing. * Expenses are controlled as evidenced by increasing operating margins. * Increased minutes per user. * Rate of growth figures show decreases that might indicate market maturity, heavier competition, or lack of marketing.

* Key Elements of Value. See Value Curve Analysis, Exhibit E. * Initial Investment * Recurring Costs * Ease of Use * Transmission Quality * Reliability * Security * Accessibility * Technical Support * Brand Awareness

* Why their market penetration is lagging? * Regulation, out of the US. * Government censorship. * Government and University security concerns. * Availability of broadband. * Competition * Inability to communicate CVP to low- and non-tech non-customers (the masses). * Lack of structured marketing. * Use of VoIP instead of industry standard SIP.

Exhibit A.

Exhibit B.

Exhibit C.

Exhibit D.

Exhibit E.

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