Peter Lewis

Whether cheap local calls over internet phones disrupt Telstra and Optus remains to be seen.

It’s interesting to see that Skype, the Google-owned internet phone service, announced last week that it will launch a new domestic service in Australia with a low monthly subscription fee and a connection fee but no call time charges.

It will mean free or very low domestic call rates if you are happy to use your computer, have bought cordless handsets that connect via broadband or have a Wi-Fi mobile phone.

So what hope exists for Telstra and Optus, who have enormous investments in fixed-line infrastructure? Will this significant part of their businesses and even mobile calls be disrupted and go the way of the mainframe computer, film cameras or even the cuddly woolly mammoth?

Of course it depends on how these 900-pound gorillas react to the threat and whether Skype can find a big enough market.

Whether this is a market that can be disrupted in the next few years is an interesting question. Disruptions can actually occur more often than lunar eclipses, but they still need alignment of a few “planets”.

First, they happen when a bunch of people would like to be able to do a particular job, but because of cost, ability or access can’t do it. Look at teeth-whitening kits that you can buy for $20 and do it yourself at home. Having treatments at the dentist is expensive and requires some flash equipment. Imagine how this cheap but probably inferior product is disrupting dentists’ paypackets!

Second, to use the words of Harvard Professor Clark Gilbert, the disruptive innovation must be undervalued by existing customers. When the personal computer was launched they were slow and clunky with very little of the functionality of Big Blue’s humming mainframes and certainly didn’t appeal to corporate Australia. But as their performance improved, admittedly over an extended time, they nibbled away at the corporate computer market until it was finally overwhelmed.

Finally, the innovation must help people do jobs they are being prevented from doing by a lack of products or services. Take heart disease, for example. Prior to 1974, blocked arteries meant open-heart surgery to bypass the affected vessels rather than trying to fix them. The angioplasty balloon was introduced in the late 1970s as a repair mechanism, but arteries often collapsed, meaning a reversion to coronary bypass grafts.

Using a technique called Outcome Driven Innovation, Johnson & Johnson found that minimising this occurrence of restenosis was an incredibly important need for cardiologists. The boffins got to work and created the heart stent, which now resides in many of us and in the process disrupted traditional open-heart surgery and angioplasty and created $1 billion in sales for J&J in just two years!

So will Skype disrupt the incumbents? Well most of us have access to cheap, high-quality fixed and mobile lines. The pressure on prices, thanks to the likes of Vodafone, is steadily downwards and may end up near zero for standard calls, so finding customers that don’t use landlines or mobiles because of price, ability or access is unlikely. But undoubtedly the quality and functionality of Skype will continue to improve in the coming years as it adds functions such as conferencing, video calls and the like. And in doing so it could become disruptive to Telstra if it targets businesses with these types of reliable low-cost or free services.

Fortunately for Telstra chief executive Sol Trujillo, disruptions can take years or even decades and he will probably be sipping margaritas once again by then!

Is your business ripe for disruption?

. Is there a group of consumers that would love to use your product but don’t because they can’t afford it, can’t use it or can’t reach it?

. Are there substitute products in your industry that are currently cheap and nasty but steadily improving with time?

. Are there groups of customers using your products who are largely satisfied with your offering but have one or two jobs that no products in the industry can currently do?


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