VoIP service provider Skype has baffled analysts with its latest move of offering free phone calls to landline and wireless phones in the US and Canada until December 2006. While users are going to welcome the free service, investors and market watchers are not sure the move makes business sense.
The current price battle in this fiercely competitive market may not throw up any losers in the near future but will certainly result in millions of happy gainers – users who will find it increasingly cheap to call using their personal computers. Skype users, numbering more than 6 million in the US alone, will be able to call anyone in the country and Canada, free, through the SkypeOut service. Until now, this service had been charging @ 2 cents a minute for phone calls to traditional landlines and cellphones. PC-to-PC calls will continue to be free. Likewise, no changes have been made to charges for calls made to countries other then the US and Canada.
Analysts speculate that the company could be trying to get more people from North America to sign up for the service because the company has not achieved its growth targets. Even if that were the case, adding more free users to its customer base will only add to its operational costs, analysts argue.
Besides the 6 million users in the US, Skype has about 13 million users in China, and five million in Germany. By the end of last month, the company had a total of 100 million registered users, achieving nearly 100 percent growth in the numbers since last September.
The move comes at a time when rivals AOL and Yahoo! are taking desperate steps to attract more users. A few days ago, AOL said it would offer free phone numbers to its users who will receive free incoming calls on the numbers from anywhere in the world.
Analysts speculate that Skype could be planning to graduate to an ads-based business model but the company's general manager Henry Gomez denied having any such aim. Currently the only objective is to build a loyal customer base which they can later tap to sell premium products like corporate web calling services or ringtones.
Rivals offering conventional voice-calling services are likely to be hit by Skype's 'free' offer but they are most likely to hit back with an equally attractive offer before long.
