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Skype versus Telco FREE AS A BUSINESS MODEL
5+ years old KP KA VP CR CS

400 million+ users software devel-
opment and no
100 billion+ free network mainte- automated mass 99
customization
nance
calls generated global reach
maximum
without the
2008 revenues of outsourcing KR roughly similar CH limitations of a PATTERNS
voice oΩer
network
U.S. $550 million software
no distribution 100%
Skype disrupted the telecommunications infrastructure low cost chan-
industry and helped drive voice communica- nels
tion costs close to zero. Telecom operators
initially didn’t understand why Skype would
offer calls for free and didn’t take the company C$ R$
seriously. What’s more, only a tiny fraction 90% free usage
of the traditional carriers’ customers used cost structure of a software company 10% paying
Skype. But over time more and more customers
decided to make their international calls with
Skype, eating into one of the most lucrative
carrier revenue sources. This pattern, typical of
a disruptive business model, severely affected Skype is a voice calling Giving away software
the traditional voice communication business, services company operat- and allowing customers
and today Skype is the world’s largest provider ing under the economics to make free Skype-to-
of cross-border voice communication services, of a software company Skype calls costs the
according to telecommunications research company little
fi rm Telegeography.

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