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Skype disclosed in its filing for an initial public offering today that less than 7 percent of its users actually pay for Skype calling services. Just 8.1 million of its 124 million users take advantage of SkypeOut, paying a small amount of money to make calls to landlines.
The company acknowledges that it needs to find other ways to make money. Skype is extremely popular, but its curse is that no one wants to pay for it. The company knows that rivals could charge less money or give away for free what Skype currently charges for, and then it would just be a race to the bottom in terms of who tries hardest to get the most users with free services. To grow, Skype plans on expanding its reach to more users. But it also said in its filing that it is working on new ways to make money from advertising, gaming and virtual gifts.
There isn’t much explanation beyond that. But it shows that Skype is well aware of the perils of being too narrowly focused on one source of revenue at a time when “freemium” business models abound. Skype said it is currently testing multi-user video chat in the latest beta version of its Skype calling client, and it plans to charge for multi-user chat in future versions of its software. The company also said that it generates a small portion of its revenues from advertising and licensing now, and that over time, these sources of revenue will grow.
Skype is also working on ways to make it easier for users to pay, even if they don’t have credit cards. The company is working to facilitate the purchase of Skype Credit with mobile phones and other accounts. Skype is also looking at introducing business-focused products. It has introduced a couple of products for enterprises and plans to enhance those offerings.
Most intriguing is the company’s plan to create a better software client. This “next generation Skype Home product” will have more web functionality built into it. That will allow the company to “integrate a range of rich features including display advertising and online gaming, to be accessed and dynamically updated in the Skype software client.” It will be interesting to see how Skype can “gamify” its service, or add games that keep users engaged and possibly entice them to pay more. You can imagine Skype borrowing all sorts of ideas from social and casual game companies. For instance, it could charge real money for a virtual currency, which you could use to purchase time for multiplayer gaming. Skype has to do this, since every good business has multiple revenues sources, particularly when any single revenue source is vulnerable to competitive threats.