January 5, 2015

Skype for Business? Risks for service providers

Stakeholders in the enterprise messaging and communications market stood up and took notice in November 2014 when Microsoft announced the renaming of Lync as "Skype for Business." The attention is warranted; there are approximately 300 million Skype users, and the calling and messaging provider has, in effect, become its own long distance carrier.  

While the response to the Lync re-branding over the past few weeks has focused heavily on how Skype for Business will impact enterprise vendors, it saddles telco providers with a critical business decision: whether or not to promote and sell Skype for Business. For service providers evaluating this decision, there are a handful of key factors to consider. 

Skype for Business impact on enterprise brand equity

Microsoft has rebranded Lync as "Skype for Business," but brand perception of the service within the enterprise is probably closer to "Skype for Consumers." In other words, because many CIOs and IT decision makers view Skype as a "best effort" service from a reliability, security and control perspective, this will impact how enterprise customers view a Telco's brand. 

A useful analogy is the psychology of how consumers purchase cars. Yes, car shoppers have personal preferences for different makes and models, but evidence suggests there are price bands that consumers associate with each automotive brand. A buyer might be willing to purchase a Lexus for $40,000-70,000, but if the price goes above that, it pushes the limits of the price ceiling consumers associate with the Lexus brand. They may not be willing to buy a Lexus for $80,000, but will have less of an issue paying that same price for a Rolls-Royce. 

The price band mentality matters if decision makers who traditionally associate Skype with consumer-grade capabilities suitable for businesses with 10s of users, not 1000s - and the low price point that goes along with it. Service providers that have spent years if not decades building their enterprise-grade brand risk undermining those efforts by offering a consumer-grade service, and must question if doing so aligns with their overall brand strategy.  

Voice still matters

The temptation for mobile operators to de-value voice is understandable. After all, a 2014 Juniper Research report suggests voice and messaging traffic lost to Over the Top (OTT) players such as Skype, WhatsApp and Facebook will cost mobile operators $14 billion in revenues globally this year, up 26% from 2013. This is a big number, but represents a slice (or two) of a large pie of voice revenues that remain core to a mobile operator's business. 

Another distraction from voice for mobile operators is the meteoric rise of messaging startups like WhatsApp, which have grown their user bases by hundreds of millions seemingly overnight. The OTT threat coming from all directions makes it even more critical for mobile operators to analyze the implications of selling Skype for Business, as it undermines a core revenue stream that still represents hundreds of billions of dollars - voice. 

The continued integration of Lync and Skype brings a scenario clearer into focus whereby Microsoft enables enterprises to bypass the service provider's voice network by providing Skype to PSTN (SkypeOut) calling. As a result, service providers that resell Skype for Business validate Skype as a legitimate telco service; further confusing the role the Telco satisfies in the future business communications market.

Limits ability to deliver innovative, superior UC services

At the end of the day, the battle for the enterprise will be won by those providers able to deliver innovative collaboration and communications services that unlock the creativity, productivity and performance of teams and individuals throughout the organization. But this innovation must go hand-in-hand with the ability to deliver superior, high-quality, real-time communications that enterprises associate with a service provider's trusted brand. 

This portends a major hurdle for Skype for Business. A common refrain among investors is that, "past performance is not indicative of future results," but this does not apply to a service provider's brand perception among customers - where past performance indeed impacts a customer's expectations of future service results. Historically, Lync has struggled to convince the enterprise market of its real-time communications credentials, due to the fact that the vast majority of deployments have focused on overlay collaboration in parallel with a reliable voice system. Another change to a consumer-grade brand (Skype) could slow enterprise penetration because it can take years of time and massive investments to then try and nudge the Skype brand back upstream. 

There is a great deal we don't know about Microsoft's objectives with Skype for Business, and it is very possible that the end game will make sense for the company and certain customer segments. But for the Telco channel, there are far more robust Unified Communications offerings at their disposal that are better suited to provide an innovative, superior end-user experience. 

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Mike Wilkinson is VP, Market Offers at BroadSoft, a leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks

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