98 patterns free as a business Model Skype offers an intriguing example of a free- mium pattern that disrupted the telecommuni- cations sector by enabling free calling services via the Internet. Skype developed software by the same name that, when installed on comput- ers or smartphones, enables users to make calls from one device to another free of charge. Skype can offer this because its Cost Structure is completely different from that of a telecom carrier. Free calls are fully routed through the Internet based on so-called peer-to-peer technology that employs user hardware and the Internet as communications infrastructure. Hence, Skype does not have to manage its own network like a telco and incurs only minor costs to support additional users. Skype requires very little of its own infrastructure besides backend software and the servers hosting user accounts. Users pay only for calling landlines and mobile phones through a premium service called SkypeOut, which offers very low rates. In fact, users are charged only slightly more than the termination costs that Skype itself incurs for calls routed through wholesale carriers such as iBasis and Level 3, which handle the company’s network traffi c. Skype claims it has over 400 million reg- istered users who have made more than 100 billion free calls since the company was founded in 2004. Skype reported revenues of U.S. $550 million in 2008, though the company and its owner, eBay, do not release detailed fi nancial data including information on profi tability. We may soon know more as eBay has announced plans to list Skype through an initial public offering (IPO). Skype payment providers distribution partners telco partners software development free internet & video calling cheap calls to phones (skypeout) mass customized web users globally people who want to call phones software developers software skype.com headset partnerships software development complaint management free skypeout pre-paid or subscription hardware sales Skype VP CR CH CS KP KA KR R$ C$ Over 90 percent of Skype users subscribe to the free service Paid SkypeOut calls account for less than 10 percent of total usage bmgen_final.indd 98 6/15/10 5:37 PM