Skype Dials for Business Dollars

The PC-to-PC calling company is wooing small businesses with its low-cost services. But competition is building quickly to tap into a vastly underserved market

Skype wants to send a new message: it's not just for consumers anymore. The provider of cheap PC-to-PC communications for 75 million consumers worldwide is angling in earnest for business customers, too.

The company is unveiling Skype for Business, aimed at small companies with fewer than 10 employees, on Mar. 9. Skype for Business will include a new Web site,, as well as a host of features and hardware. While Skype has introduced features appealing to business users one by one for the past six months, the new announcement marks the beginning of a concerted effort.


 Skype, under new owner eBay (EBAY), could harness demand from businesses to drive growth and achieve profitability. About 30% of Skype users are already tapping the service for business, the company says. And, unlike consumers attracted to Skype's free calling, business users are willing to pony up for service. About 97% of them pay for SkypeOut, which allows for calls from a PC to a phone and costs 2 cents a minute. Among the business users, about 31% list a SkypeIn number on business cards, Skype says. That service lets people call into a PC from an outside phone and costs about $35.80 a year.

The new services are likely to appeal to users of eBay, which purchased Skype in October for $2.6 billion. Hundreds of thousands of small companies use eBay to carry out business, says Saul Klein, vice-president of marketing for Skype in London.

But the appeal is likely to extend far beyond existing Skype and eBay customers. While demand for Voice-over-Internet-protocol (VoIP) calling among consumers has taken off, it's just revving up among businesses and is expected to grow swiftly. Small businesses often can't afford the equipment needed to create their own networks, and purchasing the services from telecom providers can be costly.


  Take centrex service, which is aimed at companies. The service can run $50 to $60 a line each month, far more than comparable consumer VoIP capabilities. So centrex is used in only about 10% of U.S. business lines, says Alan Martinovich, principal at tech consultancy Adventis. While demand for this service is rising, many businesses are looking for lower-price options, says Jon Arnold, principal at J. Arnold & Associates, a VoIP consultancy.

And the number of low-cost small-business service packages has been limited. Vonage, the Web-calling outfit expected to go public this year, offers two small-business plans, starting at $39.99 a month (see BW Online, 2/9/06, "Vonage's Iffy IPO"). Enter Skype. "Someone needs to champion the micro-business," says Klein.

"The opportunity is huge," says IDC analyst Will Stofega. How huge? The U.S. market for hosted business VoIP services, including the variety provided by Skype, will grow to $785 million in 2009, compared with $233 million last year, according to consultancy Yankee Group.


  "Small business is an underserved market," says Stofega. "A lot of businesses are caught in between paying a lot of money to telcos or getting a substandard service (from consumer VoIP offerings). So Skype is entering at the right time."

So are a slew of other startups, such as Tello (see BW Online, 1/23/06, "Say Hello to Tello" ). Skype will also need to contend with bigger players, from instant-messaging vendors to telecom carriers to cable operators, says Martinovich.

AOL's new Instant Messenger, due to be released this year, will offer features specifically designed for small businesss, says an AOL spokesperson. Yahoo's (YHOO) Yahoo Messenger with Voice, released in August, already offers features such as file sharing and stealth mode settings, which gives a user control over who can tell whether that person is logged on, and when. Yahoo is also striking partnerships designed to enhance its IM's value to corporate users. Last March, the company made its IM interoperable with Microsoft's (MSFT) Live Communications Server.


  Still, many of these offerings face security and service-quality issues. While consumers might have forgiven Skype occasional static on the line, "corporate communication is mission-critical," says Richard Nespola, CEO of telecom consultancy TMNG. And some Internet services "are not industrial-strength."

Skype will aim to make Skype for Business as handy and reliable as it can. A special application will let users conference in a live translator to facilitate foreign-language conversations. The new offering will do away with inconveniences that prevented small businesses from using Skype in the past. Business owners will be able to replenish employee accounts through bank transfers, for instance.

And small companies may only be in the first wave of Skype's business thrust. "Third parties can work with Skype to extend its capabilities," explains Klein. Already, customer relationship-management software vendor (CRM) has integrated Skype into its application.

"This is a big step for them," IDC's Stofega says of Skype's targeting of businesses. "They are trying to up the ante and provide a service that's up to snuff." With the stakes this high, and in a market promising to be this crowded, they'll have to.

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