MaRS Library Skype’s rapid market leadership over Vonage: Same technology, different rates of adoption
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?
Skype designed a product that was easy to take for a test drive
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 easy-to-adopt technology
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 Skype for voice calls is a seamless experience
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.
Skype’s easy-to-understand message
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:
- Be the user. Design your product from the user’s perspective, asking yourself how you can make your offering easier for new users to adopt. From purchase to disposal, work through every step in the product-adoption process, and see if you can find ways to improve your offering.
- Value clarity. Make the value of your product easy to communicate, either through marketing messages that reinforce a simple, clear value proposal or through functional clarity that is easy to understand and explain.
- Make it seamless. Make your offering as seamless to use as possible. Products work best when the user experience is not interrupted by manual tasks, platform switches, or incompatibilities.
- Employ existing infrastructure. Where possible, make use of existing infrastructure; don’t reinvent the wheel, and don’t ask your users to, either.
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.
- Develop your value proposition and business model using customer validation.
- User personas in tech product development.
- Customer onboarding: Preparing customers to use your product.
- Bargaining power of suppliers: Porter’s Five Forces.
- The high-tech buying process and the technology adoption lifecycle.