Commodity Battle: AOL vs. Skype

Categories: VoIP.

Its not uncommon for technology companies to choose a complement to their core technology and try to make it a commodity. This can be a very successful approach: Microsoft’s OS market share has doubtless been aided by cheap, commodity-class PCs.

Sometimes when you’re developing two complementary bits of technology, it makes sense to commoditize one of them to aid the other — this is the traditional “give away the razor, sell the razor blades” model. Printer manufacturers have embraced this model with such gusto that some have even started using crytpographic handshakes between the printer and toner cartridges in an attempt to prevent the manufacture of third-party toner cartridges. (For what it’s worth, Lexmark’s use of the DMCA to make compatibility not just difficult but actually illegal seems to have been rejected by the courts).

For a long time, several companies — such as Skype and Yahoo — have offered voice clients free for download; this commodity complemented their profit-earning PSTN interwork services (e.g. SkypeOut). AOL has been slow to enter this market, in part due to an agreement they made with the FTC as part of their merger with Time Warner (they agreed to open up their AIM network to interoperability before deploying VoIP). Earlier this month, AOL announced a VoIP service to accompany their AIM software. The big splash from this announcement, however, is that AOL is offering free phone numbers and free inbound calls. Outbound calls still cost money.

In apparent response, Skype has announced that, through December of this year, all outbound calls using their Skype client are free.

As long as they’re willing to sign up for two services and run two clients, potential customers can now have a completely free inbound and outbound phone service. It will be interesting to see what happens when you have one company giving away the razors, and another giving away the razorblades.