Disruptive Innovation at Skype (Essay Sample)

Disruptive Innovation at Skype
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Contents
* Introduction……………………………………………………………………....3
* Skype's disruptive potential………………………………………………………3
* The industry in which Skype operates……………………………………………4
* Key success factors in the telecommunication industry………………...………..5
* Other firms competing with Skype in the telecommunication industry………….7
* Reasons for Skype's leadership in the VoIP telephone market…………………..8
* Why Skype was an attractive target for eBay…………………………………….9
* How Skype compliments business portfolio of eBay…………………………...10
* Will Skype be able to sustain its success in the coming years?............................10
* Future of the telecommunications industry……………………………………...11
* Conclusion…………………………………………………………………...…..12
* Bibliography……………………………………………………………………..14
Disruptive Innovation at Skype
Introduction
Skype like many other Voice over Internet Protocol (VoIP) clients available, has played a great role in creating communication means, which are far much reliable and economical to use. Its strategy of using peer to peer, technology to connect users together, enabling them to communicate with each other in a more reliable way has made it to be the top most among many other programs. Niklas Zennstrom from Sweden and Janus Friis from Denmark pioneered Skype in the year 2003. It was later sold to eBay in the year 2005. Later on, in the year 2011, Microsoft acquired Skype (STADLER 2009). This paper explores the disruptive innovation at Skype.
Skype's Disruptive Potential
In the market, a process or product is considered disruptive if its consumption allows the design of new processes, products or services at lower prices. In other words, it brings forth a very different value proposition than had been before. At first, disruptive innovations are perceived unattractive by the established industries in the market. This is because their projected profits are low, and customers do not value them. As a result, products, which are based on disruptive innovations are normally introduced into a niche market by small innovative firms. This product tends to be cheaper, smaller, and often, more convenient to use. Despite this, they tend to under-perform other well established products in the market (MOHR, SENGUPTA & SLATER, 2010). In the new market, these small-scale innovations increase their innovation's performance and begin to penetrate the established markets securing a dominant position.
Skype's disruptive potential can be explained using Rafii and Kampas framework. These two authors explained disruptive potential using six stages. First, the firm enters into a foothold market that is normally underserved compared to the main one in terms of quality and price. Secondly, the firm enters the main market after managing to conquer some obstacles such as access to capital and marketing channels. Third, the firm starts to attract customers by offering goods or services at a lower price or even some free of charge. Fourth, customers start changing their suppliers depending on the switching costs. Fifth, the dominant firms in the market starts to retaliate either by abandoning the market incase profits realized are not promising. Finally, the dominant firms are displaced to some degree either from minor harassments to total displacement.
The industry in which Skype operates
Skype operates in the Telecommunication industry, which was begun with the use of smoke signals in the past. Later on, the telegraph invented in the year 1844, enabled the use of wired communications. The telecommunication industry has been incurring numerous changes, with the invention of more powerful means of communication. The telecommunication industry has emerged as the only industry with many technology related business sectors. It encompasses both traditional areas of telephone service, and advanced technology based services, which include the internet, wireless communications, satellites, and fiber optics (PENNINGS, HAGEDOORN & KRANENBURG 2005). The telecommunication industry is also intertwined with all sorts of entertainment programs.
Cost control, innovation, and reasonable approach to investment and spending, has helped the industry to flourish in a splendid way. New cellular, satellite, wireless technologies, and VoIP promise uninterrupted fast changes in this industry and pose immense threats to old means of communication such as landlines. In addition, government regulations have been noted to enter the communication sector in an alarming way, and it is perceived that they will bring bigger changes in the market. In general, the telecommunication industry is in a state of uninterrupted technological and economic growth driven by the massive new technologies and high competition between firms (ACADEMY & INDUSTRY RESEARCH COLLABORATION CENTER 2011).
Key success factors in the Telecommunication industry
1). Brand Name
This is one of factors, which play an integral part in ensuring that customers choose services from a particular company. For instance, some of industries in this sector such as Bell and Cable companies have built their brand names over time. However, VoIP entrant companies should spend huge sums of money in advertisements so that they can be in a position to counter these strong brand names.
2). Customer Service
In the telecommunication industry, customer contact with the service provider is minimal. Customers normally contact their service providers during times of installation of software and outages. However, the customers expect that the service should be available whenever they need them, and most important be of good quality. Companies, which offer poor customer services that are sometimes unavailable when a customer needs them, find it difficult to maintain and attract new customers. As a result, they experience a retarded growth.
3). Quality of the network
Customers always desire to have a high quality of any product they purchase. In the telecommunication industry, companies, which provide high quality and reliable network services attract many customers. It is therefore imperative that companies in this sector should always strive to make their services as unique and reliable as possible.
4). Financial strengths/Resources
Companies in this industry normally incur high fixed costs and frequent network licensing and upgrading costs. Therefore...