Dial S for Skype, P for profits

 Sure, Skype can shave a few bucks off your phone bill. But now it’s helping savvy entrepreneurs create brand-new business models.

By Hillary Woolley, Business 2.0 Magazine

November 10 2006: 8:40 AM EST

(Business 2.0 Magazine) — Free Internet phone service was always likely to change the world – but until recently we had no idea how. A little more than a year after eBay (Charts) bought Skype for $2.6 billion, the service has become a business tool on a surprising scale.
A million people worldwide, 300,000 of them in the United States, will rely on Skype as their primary means of business communication in 2007, according to telecom analyst Albert Lin at American Technology Research. And those are just the power users: Skype says nearly a third of its 113 million users now log on to make work-related calls.
That suggests the next few months could be a boomtime for brand-new Skype-based business models. What can’t you do with an intercom on the Web?
“This is a growth industry,” Lin says. “Most people look at Skype and think they’re just going to save money. It’s only recently you’ve seen any attempts to turn the technology into another business.”
Business models whose time has come
Saving money, of course, can be enough in itself to transform a small business. When Bill Lewis taught software to executives over the phone using a landline, he suffered phone bills as high as $10 an hour and felt tied to the San Francisco area code, where he could get a lot of execs as pupils.
With Skype, Lewis is bringing in the same $5,000 a month he did when working on a landline. (There is, after all, only one of him.) But now he has no overhead from phone charges.
And he’s doing it from Puerto Vallarta, Mexico, where he lives two blocks from the beach. He’s considering taking on employees and says a small expansion could triple his revenue.
Lewis’s business at least was possible before Skype. But more interesting are the ideas that have only now become commercially viable, like that of entrepreneur Mike Hollands.
A former language teacher born in Brazil and schooled in England, Hollands often experienced shortages of fellow teachers. So he tried a few tentative language lessons over Skype, and was delighted to find they worked. He set up his tutorial company, Toniks Languages, in April 2005.
This time Hollands had no trouble with staff shortages: He got 900 applications for 12 virtual tutor positions in less than a week. The tutors, who live around the world, get paid $30 an hour.
If Hollands had to pay conference call fees to set up the group classes, he says, it would cost him $25 an hour and erase his profit. Instead, Toniks is making $40,000 a month.
Life free e-mail, free calls are here for good
It’s not just language learning. Skype users are offering everything from voice-overs to band rehearsals. Mark Miller, a Chicago-based piano teacher, uses Skype to give music lessons to students as far away as Australia. And as the customer base grows, so will the opportunities.
“Tens of millions of downloads will evolve into millions of regular users,” says Richard Edwards, a senior research analyst at the Butler Group. “And the way people use Skype is very much like intercom over the Internet.”
He predicts you’ll see doctors talking to patients via Skype, as well as instant tech-support services for frazzled PC users.
Services like Skype also have the potential to change online social networking.
That’s why San Francisco-based engineer Charles Carleton has spent two years developing Jyve, a site that lets members form communities, then makes money when they sell each other services – such as a short calculus tutorial or a session with a tax adviser.
Using Jyve, which is in invitation-only beta mode, service providers can log on, write quick summaries of what they offer, and name a price. Payment between teacher and pupil is made through PayPal, and Jyve takes a 20 percent cut.
Of course, there’s a high likelihood that Skype will eventually raise prices – owner eBay has already said that beginning in January, it will charge for calls from PCs to phones.
But even if Skype tacks on fees for premium services, free basic Internet PC calls have become like free e-mail – they’re here to stay. As business users have already proven, migration to a new phone service is easy. The next Skype – whatever that may be – would also be just a phone call away.

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