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How Skype makes money

by SuperiorInvest

You may find this hard to believe, but Voice over Internet Protocol (VoIP) existed long before the new millennium. VOIP is a technology that allows users to make voice and video calls over the Internet. The technology takes the voice signal and converts it to digital using traditional telephone technology. This signal is transmitted over the Internet instead of a telephone line. The seeds for this technology were planted in the 1970s when the first voice packet transmission was made. And in 1995, the first VOIP application was released – and the rest, as they say, is history.

This technology has been used by several companies, including Skype – one of the most recognized communication platforms. Offered as a free service, this service caters to people who want to forego traditional landlines but still want a convenient way to communicate with others. But how exactly does it make money? Read on to learn more about the company revenues stream and his sustainability.

Key things

  • Skype was founded in 2003 and bought by Microsoft in 2011.
  • Skype makes money by selling credits and subscription services to personal consumers and business clients.
  • Individual revenue figures are not released for Skype, which is part of Microsoft’s productivity and business processes division.
  • Skype faces competition from competitors like WhatsApp and Zoom.

Skype: A Brief History

Skype is a telecommunication an application that was founded in 2003. It was intended as a way for people to communicate with each other over the Internet. The service provides a platform for video calls and voice calls on computers, tablets, smart phones, game consoles and other mobile devices using an Internet connection. The service also allows the use of video conference. People can communicate with others through Skype using voice, video and instant messaging capabilities. The voice translator service is available in 40 languages, while the text translator is available in more than 60 languages. As of 2019, the service has seen more than 40 million daily users, more than 300 million monthly users, and more than four billion users since Microsoft bought the company.

The company has changed hands throughout its history. It was first acquired by eBay in 2005 for $2.6 billion, which then sold the majority to a private equity firm, keeping 30%. In 2011, Microsoft (MSFT) bought the company for $8.5 billion—the most expensive buyout in Microsoft history at the time, and $2.5 billion more than the previous purchase of aQuantive. at that moment shareholders and analysts were nervous about the deal because Skype did not report a profit. Shares of the tech titan fell 1.3% when the deal was completed, according to the Wall Street Journal. A few years later, most of those concerns have all but disappeared as Skype has freed up $2 billion a year sales for 2013, bringing more users from all over the world every year.

Innovation

One of Skype’s biggest improvements has been its Translator software, a speech-to-speech application. It was launched in 2015 and since 2018 has been operating as part of Microsoft. While the service is available to Microsoft users as part of the Skype for Windows app, users can also download it as a standalone app. The translator supports a number of different languages ​​and allows users to translate speech in real time via Skype video call or instant messaging.

Revenues

One of the biggest draws for most users is the fact that voice, video and group calls between Skype users are free. So how does it make money? Skype’s primary source of revenue is sales credits and monthly subscription services. Credits allow Skype users to call others, including landlines, send text messages anywhere in the world, or purchase a Skype number to receive calls from anywhere in the world through their Skype account.

So how much do these services bring to Skype’s coffers? Unfortunately, Microsoft does not give a definitive answer. According to the statement of the CEO of the Skype division, Skype’s 2013 Fiscal year Revenues were close to Microsoft’s Sharepoint, which reached nearly $2 billion profit. Skype is listed in the company’s office customer segment, which also includes other Microsoft products such as Outlook and OneDrive. The office consumer segment is part of a larger one productivity and business process unit. In fiscal 2022, the office consumer unit earned $641 million in revenue, an 11% increase from the prior year.

Microsoft does not provide definitive revenue figures for Skype.

Are these numbers sustainable?

Although actual revenue data for Skype is not available, the office consumer unit has seen consistent quarterly and fiscal growth over the past two years. And the product segment, productivity and business processes, has seen steady growth since 2016.

In 2021, Skype for Business, an enterprise solutions platform launched in 2015, was discontinued and replaced by Microsoft Teams, a Microsoft 365 communication application. The interface that is part of the Microsoft Office suite is a cloud-based platform that allows users to collaborate. Like a business communication app, Slack allows users to send messages, video conference, and save files. According to the January 2022 revenue estimate, Microsoft chief executive officer (CEO) announced that the Teams platform had over 270 million monthly users in the quarter.

One of the key factors that may hinder the growth of Skype for Microsoft is the competition it faces from other similar platforms. WhatsApp is a downloadable application that allows users to make free voice, video and group calls as well as text messages to other users around the world. Facebook (META) bought the app for $19 billion in 2014.

Another competitor is Zoom (ZM), which competes with Skype on the online chat and video conferencing front. This service is a popular option for many companies. The cost to use Zoom ranges from a free basic account for one user to a $25.99 per month or $250 annual subscription for a Business Plus account, which offers up to 99 licenses as well as unlimited calls and whiteboards. The company earned $4.1 billion in revenue for fiscal 2022, a 55% increase over the previous fiscal year.

Bottom Line

If Microsoft’s numbers are accurate, Skype has certainly crossed the $2 billion mark since 2013, meaning the $8.5 billion gamble it took to buy Skype is paying off. Until more data is released, we can only assume that Skype makes money through credits and other VOIP-related services. However, this may change as Skype faces competition from other, related names in the industry.

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