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Thursday, 26 August 2010

Beware of new entrants

Students ofthe Michael Porter 5 Forces business model will be gladdened by the news that Google are going to launch a rival service to Skype's service to call landlines and mobile phone.

As the HBS competition has been telling the world for the last 35 years, if you run a business there are 5 categories of partypooper who can wreck the the soaraway success that you call your "business". The first two are obvious: your customers and your suppliersho may establish a stranglehold on your business and dictate their terms to you. Then there are your competitors who may slash their own margins just to stay in business, followed by new better products or just whole new ways of doing things.

But the most ominous of all is the new entrant, the guy who looks over the fence and sees a party going on and thinks he would like to join in. And Skype's business model lays itself open to such an attack. Sure it is quick and easy to sign up for Skype, and the free Skype to Skype calls are great and they tie useres into the Skype technology, but that is all they are, free.

Skype's revenues come from the paid for calls, used by 8m of their 50m signed up users, and that is what Google is going for. Of course, by going for the desktop to landline market Google don't need a vast network of "GCall" [whatever it is called] subscribers to be attractive. They only need to charge less for calls to landlines.

That Skype IPO suddenly looks a lot less attractive, or in the minds of the astute analyst who thought this was likely to happen, brings market expectations back into line with reality.

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