Classroom Companion: Business

Box 4.2 Skype and Over-the-Top Services
Skype is a digital service providing 
chat, voice, and video communication 
for Internet users. Skype was launched 
in 2003 as a desktop service. It was 
bought by eBay in 2005 for $2.6 billion 
and by Microsoft in 2011 for $8.5 bil-
lion. In 2013, Skype had almost 40% of 
the international voice and video market 
(Gara, 
2014
).
Skype is a contributor to the ongo-
ing convergence of digital services along 
with other providers of voice-over-IP 
services such as Google Hangouts and 
appear.in. These are examples of over-
the-top (OTT) services. They provide 
free voice, video, and messaging over 
the Internet, thereby competing with the 
traditional telephone and video services. 
The introduction of Skype and other 
voice- over- IP services has had a signifi-
cant impact on the digital economy in 
which the main outcome is a dramatic 
decrease in prices for telephone calls 
both nationally and internationally. 
Mobile network operators offer free 
telephone services in their subscription 
schemes to meet the competition from 
Skype and other similar OTT services.
At the time Skype was launched, the 
users of traditional telephone services 
had to pay for the volume, duration, and 
distance of the calls they made. Skype 
4.3 · The Layered Internet as Ecosystem Component

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undermined these payment methods by 
offering free calls between Skype users 
anywhere in the world. It is no wonder 
why people abandoned the expensive tra-
ditional telephony services and adopted 
Skype, especially as a replacement for 
long-distance calls. Skype is a typical 
value network, mediating communica-
tion between users. The company has 
high fixed costs (e.g., software develop-
ment and infrastructure costs) and low 
or close to zero marginal costs. The value 
of Skype corresponds to the size of the 
network; that is, the number of users.
All web services, including Skype, 
use either http or https (encrypted http 
access) as carrier protocols. It is, there-
fore, not possible to distinguish between 
different services from the type of pro-
tocol only. Moreover, the web services 
include most of the services on the 
Internet. The internet service provider 
cannot levy time and volume-dependent 
charges for web services (e.g., a fixed 
price per byte) because then some ser-
vices would be too expensive (e.g., video 
streaming services), while other services 
would cost almost nothing (e.g., email). 
This is net neutrality in practice: the ISP 
cannot discriminate data on the Internet 
based on type of content. For this rea-
son, the ISP can only take fixed access 
charges, often based on the amount of 
data that can be downloaded per month 
as prescribed in the subscription con-
tract plus additional charges if the user 
downloads more than the contractually 
agreed amount of data. On the other 
hand, the ASP may levy differentiated 
fees for apps, films, and music.
OTT services in general drives the 
convergence of digital services by pro-
viding the traditional teleservices at a 
lower cost over the Internet.