Online communications tool Skype has been wildly popular in its seven-year existence. And for good reason — it makes free internet and video calls feasible for people who want to communicate around the world. But the business model has one discernable flaw: if everyone in the world used Skype to call each other, the company would make no money.

Skype CEO Josh Silverman says his company's mission is to be “the fabric of real-time communication on the web." With over 23 million people Skyping in March, it seems the company is getting pretty close to achieving that goal. But getting users to pay for premium services could be a challenge. That's why the company is considering adding advertising to its interface. Will consumers take to ads after getting Skype for free all these years?

Skype has quickly been gobbling up users — and scaring telephone carriers with its rock bottom rates. The company is valued at an estimated $2.75 Billion. As a testiment to the company's ubiquity, Skype software will be shipping preloaded on 70% of new PCs worldwide this year.

Quite simply, Skype is an easy choice for most consumers making long distance calls. When users make calls from their computer using Skype, they are only charged a fee to call actual phones. If one Skype user calls another, that call is free, regardless of the length or distance. Consumers have caught on to what a great deal Skype provides — they're using it now more than ever.

But that business model can't last forever. The more that consumers bypass their telephone carriers and use Skype to communicate, the less money they have to pay. Especially when they call other Skype users. Skype offers premium services, but most customers don't even know that. According to Silverman:

"Our main problem is that many users don’t know that we have premium services."

Skype is trying to rectify that issue. Last week the company announced new monthly subscription services that will offer even cheaper calls to and from 170 countries. Skype is already cheaper than most international caling plans, but the new services will cut Skype's pay as you go minute rate by as much as 60%. 

This week, Skype this week will also start offering a 5-way calling feature, that will eventually be a premium feature.

That's sounds convenient for businesses who need a better way to conference call, but Skype continues to have a growth problem. If you can get free calls to other Skype users, why bother paying for other features?

That's why the company is leaning toward a new ad model. Silverman tells the Telegraph:

“It’s challenging to get right as the way people use is Skype is very personal but we think our users expect us to do it so we can continue to support free. But it will be done in a tasteful way."

It will be interesting to see if Skype can carry off an effective ad load on its products. The video service is now available on all sorts of products, from computer to TVs and mobile devices. It's easy to see the utility of Skype when users are trying to make international calls from their computers. Putting up with a few ads for free calls can still be a no brainer. Especially considering that international calling rates are astronomical.

But Skype is also trying to make a strong push into mobile. This year, the company made deals with 3, the Symbian platform, Apple and Verizon to get the Skype application on mobile devices. But advertising on calls from the mobile environment could be a harder sell, considering that smartphone users are dialing back their mobile calls and already have calling plans in place from their providers.

Skype knows that consumers don't want to pay for features that are currently free. The question will be whether they want to deal with ads where now they are none. Considering that people have come to rely on Skype to communicate — and the company may not exist otherwise — they may have to.

Images: Skype

Meghan Keane

Published 10 May, 2010 by Meghan Keane

Based in New York, Meghan Keane is US Editor of Econsultancy. You can follow her on Twitter: @keanesian.

721 more posts from this author

You might be interested in

Comments (2)


Peter Parkes (Skype Blogger)

A clarification: in March, we reached a peak of 23M people online on Skype at the same time – it’s probable that a substantially higher number of people used Skype during that month.

about 8 years ago


Carlos Bortolussi

The author says "if everyone in the world used Skype to call each other, the company would make no money". I say "if everyone in the world used Skype to call each other, the company would make a lot of money by charging a competitive price"

over 7 years ago

Save or Cancel

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Digital Pulse newsletter. You will receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.