In May 2005, Vonage had approximately 600,000 users. Skype had more than 50 million. By the end of 2009, Skype had over 521 million user accounts, and had brought in close to $653 million in revenue in the previous 12 months.
What explains different adoption rates of essentially the same technology? The answer is that smart product design enabled Skype to accelerate user adoption and come out on top in a contested market.
How did this happen?
After a ten-minute download and installation process, you and a friend can start a free voice call over the Internet using Skype.
Since Skype employs a hybrid “freemium” revenue model, users can try the service for free before using the paid computer-to-landline or computer-to-mobile-phone options.
Skype’s service works through most laptops without the need for additional hardware, functions on any Internet connection and is extremely simple to use.
Vonage, in comparison, required new customers to remove their existing landline and install Vonage VoIP (Voice over Internet Protocol) hardware in its place. Since Vonage’s product was incompatible with customers’ existing infrastructure, and those considering the service had no way of testing it beforehand, potential Vonage customers faced a huge adoption hurdle.
Using your own laptop, without any additional equipment, you can register for the service, place a call and begin a conversation. You can also use instant messaging and video conferencing directly through the program.
As a parallel example, while plenty of good MP3 players were already on the market, one of the main reasons behind the success of the iPod was that you could find, buy, sort, load and play your music using one piece of hardware and one fully integrated software platform. A seamless customer experience goes a long way.
Finally, it’s simple to explain Skype to people who may never have heard of it. Anyone who can understand “free calls to anywhere in the world” can understand the value of Skype right away.
Startups who have products that lack clarity of function or who fail to communicate their product well will not benefit from word-of-mouth marketing, which is the most effective driver of market penetration.
The following key points inform the Skype model of accelerated user adoption:
Guided by these four principles, Skype was able to beat an entrenched competitor and win enormous success in the VoIP communications market.
Seba, Tony. (2006). Winners Take All—The 9 Fundamental Rules of High Tech Strategy. United States of America.