Skype Redefines Itself: It’s All About Local

I’ve spent the past few months in talks with Skype about how the company would like to diversify its product model, and better position itself as a tool to generate leads for local businesses.

Perhaps the timing couldn’t be better for a redefinition like this. Months of speculation over eBay’s divestiture of Skype culminated with this week’s announcement that it will spin off the company in an IPO next year. As an independent company, perhaps it will be better equipped to realize this vision.

In the meantime, the wheels are turning. The idea was born with Nick Corr, Skype’s senior product manager of e-commerce, and first got going in talks with an undisclosed (NDA protected) visionary at a European Yellow Pages company. Corr, a former Yellow Pages guy himself, knows how to speak the language.

Calling for Change

The idea is that Skype is used by 405 million global subscribers to make free and cheap calls. Why not position it as a complementary tool to help find and drive calls to local businesses too? This was the same idea behind the launch of SkypeFind (which we covered here), but takes it a step further.

Essentially it broadens this to the larger Web, where most local search activity is already happening. What the idea requires is that phone numbers that show up throughout local search results be hyperlinked to launch a Skype call.

Skype is already halfway there, given that Skype 4.0 users have an automatic browser plug-in that lights up any phone number in the browser window for a Skype call (see screen shot below). The downside is that the use of these links is limited to SkypeOut subscribers — those who pay to call out to landline or mobile phones.

So what Corr is proposing — a departure from Skype’s strictly subscription revenue model — is that calls to local businesses be made free. They’re instead ad supported, with Yellow Pages publishers being the source of advertisers in need of calls.

The way this is playing out in initial stages is that YP partners purchase discounted wholesale calls from Skype. They then essentially own these Skype links to drive calls to their advertisers. They also can derive performance metrics about how many calls they delivered.

Of course this concept is nothing new for YPs, having done a lot of call tracking already in print and online. But the difference here is that these Skype links aren’t unique tracking numbers that just reside on publishers’ own sites. They’re businesses’ own numbers that appear all over the Web.

“Through Skype’s contact mechanism, it basically turns all of these numbers into metered calls,” says Corr. “We can measure right down to how long the call lasted, time of day and stuff like that.”

The beauty is that these numbers are appearing in Google searches and in the famed local “10 pack” that’s gotten so much attention lately for expanding its frequency of appearances. This all comes down to the simple fact that the 10 pack’s design includes phone numbers with each listing.

skype.jpg

So essentially, these are all numbers that are eligible for Yellow Pages companies, in partnership with Skype, to take over and drive calls to their advertisers. This is big if you consider the degree to which the 10 pack has displaced local search companies that vie for Google organic traffic (see Citysearch and Yelp in the above screen shot).

It’s a wicked clever idea and is currently in trials with two of Skype’s new YP partners. Corr’s vision was first seen and executed by a smart product person within a European YP outfit, which is currently in trials with Skype and under NDA (I’ll reveal the secret identity as soon as I can).

The other partner is Yellow Pages Group New Zealand, which is very bullish on the new capability and seeing strong results in trials so far.

Proving It Out

So how will YPs monetize this, and how will Skype make any money from it? It will depend a great deal on what trial results continue to show about high-value categories and advertisers, according to Chintaka Ranatunga, corporate business development manager at YPG-NZ.

“It can fit in as a retention or ROI improvement for their existing package,” adds Corr, “And then as they learn more around who’s getting value and where the leads are worth more, they can start to price it differently based on what making the phone ring is worth to [each] advertiser.”

Though he can’t yet discuss specifics, Corr tells me that trials are showing a significant increase in calls made to businesses through their system. Interestingly, there’s also an increase in domestic calling. This could show the potential for local search to join Skype’s well-known branding as an international calling tool.

But more importantly, it could be a revenue diversification move, leveraging its massive user base to tap into the $32 billion global Yellow Pages pie. According to Corr, most of the YP deals will be set up as revenue shares and he’s confident that current trials will serve as a proof of concept for more publisher deals.

Depending on user uptake and conditioning to see Skype as a local search tool (presumably less of a challenge overseas), this could represent a big opportunity for the company — and at just the right time.

This Post Has 9 Comments

  1. Michael Taylor

    The beauty of Skype’s approach for YP companies is that no matter where these numbers show up, the YP company gets credit for pushing the SMB data out to its partners and syndicated networks. A good deal of YP online traffic does not come directly through the YP portal but through other parties who re-purpose the data. My thought is that this will help YP companies get more credit for their efforts and show more value for being part of their IYP network.

  2. Mike Boland

    Yes. it’s all about syndication and breaking free of the IYP walls. We see the same principle play out in lots of ways such as distribution deals for local content, SMB video ads, etc. This is a great extension of that concept, and i think it positions the individual phone number as a new ad unit in itself.

  3. Andrew Shotland

    I’d love to hear more about the customer experience on these calls. Does Skype play a “would you like to talk to our advertiser” message before they connect the caller? Seems like a fair trade for free calls. I am curious what the repeat usage will look like as people learn that they can just pick up the phone and avoid the ad.

  4. Mike Boland

    Good question. No such message is given i’m pretty sure. It’s connected directly to the merchant. The YP presence isn’t seen by the user — only to the advertiser who gets performance analytics.

    So the question becomes, What is the YP bringing to the table here? Essentially they are subsidizing a skype call, making it free for the user (otherwise, skypeout subscription required). The degree to which these links are called out as being free is something i haven’t been able to talk about because of Skype’s IP – pending patent protection.

    The next question is, as you alluded to: Is the alternative of picking up the phone to dial the number (the traditional way)easy enough already that it’s not necessarily a problem in need of a solution(from a user perspective)?

    This will be revealed in trials and likely come down to different regions where Skype is more or less saturated.

  5. Andrew Pass

    Sounds like a brilliant idea and an effective money maker.

  6. Stefan Timm

    Local calls are free. Have always been in the US, and are nowadays in almost every country. Just ask around. So if the search is local, this can only be about convenience.

    I can hardly imagine anyone to consider a Skype call more convenient. Skype is used to save on international calls. Skype for local calls makes absolutely no sense to me.

    Users will also shy away from this (at least in Europe) because they will assume this service is about data gathering (e.g. giving Skype identity to business, getting annoying calls on Skype in the future).

    On top of that, last I’ve heard yellow pages companies know that any kind of performance based advertising just proves to the customer that they pay too much for the ads.

  7. Steven Kalter

    Mike – interesting growth opportunity for Skype. Quick question – why does the local merchant have to pay the middle man (i.e the yellow page companies)? Wouldn’t this eventually evolve into the Google model where advertisers acquire sponsored links in an auction model? I would imagine Skype could simply create some user friendly automation software that allows the advertiser to have their number hyperlinked, with the price determined in an auction-like model. Other than having the print relationship with the advertiser, what value do the YP companies bring to the equation?

  8. Matt Howard

    I have the same question as Steven Kalter. Why doesn’t Skype simply offer a “get more phone calls” service directly to the SMB market? Why do they need the IYP in the middle? Is it simply because Skype would rather monetize via 100 IYP channel partners around the world — rather than go direct to 30 million SMBs?

  9. Mike Boland

    Same reason all of us don’t go direct to SMBs — sales channel. And relying on self service hits a wall at a certain point. Skype sees YPs as a way to scale this up and get decent ad coverage, even if it means sharing margin.

    At the same time, to Steven’s point Skype could also create a direct channel for these links (calls) via auction (ebay??). Their size, installed base, and brand recognition gives them some advantages in gaining trust of advertisers as a marketing channel.

    Regarding the other question about why would advertisers pay YPs? Because they’re aggregating the traffic (or in this case calls). SMBs aren’t going to do it on their own, just like SEM. They want someone to do it for them but still provide reporting.

    In reality, this is kind of piggyback’s on skype’s technology, which is i think the basis of the question (what value are YPs providing here?). The answer is they’re providing value by underwriting the links, making them free for users which ramps up the call volumes.

    That’s what they’re going for anyway. I’m not convinced it’s a slam dunk but i do think it’s interesting. Particularly the part about turning all of these existing phone numbers — that pop up everywhere — into ad units in their own right.

    The other point is that YPs won’t sell it to SMBs as getting calls from skype — they’ll simply make the phone ring. They’re moving towards that proposition in lots of ways — getting paid for leads regardless of source (though we all know there are different levels of quality for leads from different sources;, a whole different subject).

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