free as a business Model patterns 99 Skype is a voice calling services company operat- ing under the economics of a software company Skype disrupted the telecommunications industry and helped drive voice communica- tion costs close to zero. Telecom operators initially didn’t understand why Skype would offer calls for free and didn’t take the company seriously. What’s more, only a tiny fraction of the traditional carriers’ customers used Skype. But over time more and more customers decided to make their international calls with Skype, eating into one of the most lucrative carrier revenue sources. This pattern, typical of a disruptive business model, severely affected the traditional voice communication business, and today Skype is the world’s largest provider of cross-border voice communication services, according to telecommunications research fi rm Telegeography. maximum outsourcing software devel- opment and no network mainte- nance roughly similar voice oΩer automated mass customization global reach without the limitations of a network no infrastructure software distribution 100% low cost chan- nels cost structure of a software company 90% free usage 10% paying Skype versus Telco Giving away software and allowing customers to make free Skype-to- Skype calls costs the company little 5+ years old 400 million+ users 100 billion+ free calls generated 2008 revenues of U.S. $550 million VP CR CH CS KP KA KR R$ C$ bmgen_final.indd 99 6/15/10 5:37 PM