Mobile exposes Skype's Achilles' heel
The Skype IPO filing highlights what a double-edged sword the mobile application market is. On the one hand, mobile applications have been a massive boon for web services providers since the marriage of smartphones and third-party applications have quite literally placed these services in the palms of consumers' hands. Unlike applications running on a tethered PC, the mobile version of a web service supports virtually every context users might find themselves in. On the other hand, the more fundamental a service becomes to the smartphone experience, an incentive emerges for that service to be supported natively within the operating system itself.
The Skype application is free but it must be manually downloaded from the app store and configured. The capability of the app is almost entirely at the mercy of both the OS provider and carriers. For example, initially, Skype iPhone users were unable to make calls over 3G. Also, until the release of iOS4.0, the app could not run in the background on the iPhone. And although Skype can now run in the background on most OSes, it is a power hog, devouring battery life, which encourages users to kill the app when not in use. Naturally, if Skype isn't running, the user cannot be contacted.
Many of these issues are acknowledged in Skype's IPO filing: "For example, although our application for the Apple iPad, iPhone and iTouch is currently enabled to make voice communications over 3G networks, Apple or its carrier partners may choose to alter the terms of inclusion in its application store, effectively withdrawing this functionality at any time or develop competing applications, such as Apple Face Time, that may better integrate with Apple's devices," says Skype in the filing. What point is there of maintaining a Skype account if, for example, an integrated FaceTime experience is possible across the iPhone, iPad, iPod Touch, Mac and PC? The threat posed by the smartphone platform providers goes beyond the mobile space and Skype. It shows how the mobile space and its players are intruding the traditional PC market.
Playing in Skype's favor is its first mover advantage: since its launch the company has amassed 560 million registered users. However, an average of just 124 million use the service each month and only 8.1 million part with any cash. In the six months to the end of June, Skype posted revenues of $406 million so its annual revenue is roughly at the $1 billion mark.
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