Skype - Reasons for Growth

Abstract: In terms of user registration, Skype is one of the fastest growing companies ever. In less than 2 years and with limited marketing resources, Skype went from zero to 50 million registered users. Today Skype is the global symbol for telephony over Internet. Prior to Skype’s launch in 2003, Net2Phone was the clear market leader of VOIP, and the company that industry analyst thought would dominate the market. Net2Phone has now a marginal market share. This thesis looks closer at Skype’s explosive growth in relation to Net2Phone’s decline, in order to find the empirical and theoretical reasons behind Skype’s success. I was employed by Skype from January 2004 to August 2006, and had the opportunity to closely follow the development of the company and the industry. The thesis uses my first-hand experiences as the empirical background, as well as interviews with Skype employees, industry experts, and printed material. According to this thesis, Skype managed to grow its user base so quickly primarily because the quality of the product. More specifically, the company managed to develop a standardized product that was valuable to people across borders, age groups, and other demographic differences; and because the product quality and Skype’s closed network made the product viral. Finally, Skype had an exciting story to sell to journalists and partners from all over the world, which created initial brand awareness. Even though it’s possible to discuss Skype’s marketing strategy and growth by using existing marketing theories, they are usually not quite suited to explain Skype’s extreme growth, and cannot really explain how marketing should be structured in similar companies. To finish the thesis, I therefore discuss what a software company should focus in terms of product development on to achieve rapid growth.