This week we will be looking at a Network Effects and their impacts on services. The types of network effects we will be discussing are direct, indirect, cross-network and local. To further explain and provide an example of where these network effects impact services today we will be using Skype.
Skype was released in August 2003 and is a telecommunications service which allows users to connect with voice and video chat. Skype’s functionality currently extends to instant messages, file transfers and conference calls. Skype offers free calls to other Skype users using an internet connection or paid calls to land line or mobile phone numbers.
The direct effects of increasing the Skype network is simple. The more Skype users, the more people to call for free. While Skype allows users to make calls to people using landlines or mobile phones, calls which are made to other Skype clients are free. This means that the more friends or family you have using Skype the less you need to pay to stay connected.
The indirect effects of Skype are more products which are tailored to, or assist with voice and video communication. Since the increase of Skype users there has been an introduction of Skype (or VOIP) specific telephones. These devices utilize Skype’s free voice and video communication services and are able to replace traditional land line telephones.
The cross-network effects of Skype is simply a better service. As more users signup and use Skype the advertising and paid call revenue will increase. This will have an effect on all users as Skype is consistently finding new ways to improve the service. An increase of social Skype users will help improve the service for commercial users and vice-versa.
Skype can even have an effect on an individual’s local network. As Skype is often used for both business and recreational purposes, it is likely that they will also adopt use of the service to easily keep in touch with social or business groups. To summarize Skype is currently leading the way in peer-to-peer communications and with Skype’s growing popularity this is likely to continue in the future.