Skype Aims to Work Advertisers Into the Conversation

Skype has begun plastering display ads across its calling interface.

The Microsoft-owned VoIP service refers to them as “conversation ads.” The ads, according to Sandhya Venkatachalam, Skype’s general manager and VP of advertising and monetization, could spark additional topics of conversation and generate interactivity between families and circles of friends.

Skype will use non-personally identifiable demographic info such as location, gender and age to better serve ads. Users who opt out of such data collection approaches will only see ads specific to their locations.

Currently, the ads are only being shown to users accessing Skype from Windows who do not have Skype Credit or subscriptions to the service. The ads will appear on 1:1 audio calls, and Skype said the ads will be silent and won’t affect the quality of the call.

Skype didn’t return our request for further details.

Customer Turn-Off?

Skype features ads on its home tab, but the new conversation ads will be one of Skype’s first forays into display ads for its calls. The service will need to proceed with some caution, Jon Arnold, principal at J Arnold & Associates, told the E-Commerce Times.

“They would have to manage this well, since the user base is pretty loyal,” he said.

Even with a loyal base, Skype isn’t alone in the online call service market, so a major blip in the ad service could damage the brand, Gordon Owens, digital marketing professional at GO Digital WSI, told the E-Commerce Times.

“If ads distract the users from the main reason they are on the system — to have a conversation — then they will find an alternative,” he said.

Another potential concern is how personally targeted Skype makes its ads. It’s common for sites such as Facebook and Google to gather user info to make ads as user-specific as possible, but Jack Gold, research analyst at J. Gold Associates, said the company has to straddle the thin line between delivering targeted content and invading user privacy.

“They do have to be careful here so as not to turn off the users with excessive snooping, but so far a similar strategy has worked for Google monitoring Web activities,” Gold told the E-Commerce Times.

Even if Skype users have a problem with the service, the ads are only going to appear to those customers who are using the service for free, which doesn’t leave them much room to complain, said Arnold.

“Ultimately, nothing is really free, and Skype users have had it good for a very long time — maybe that’s about to change,” he said.

Skype and Microsoft

Despite potential concerns over launching ads, Skype is in a position where it has to generate revenue somehow — a problem that’s not so severe amongst some of its competitors, said Arnold.

“The real problem is that Skype can really only make money from direct usage of their voice service,” said Arnold. “Google has ad revenue, so they can give Google Voice away for free and still be in business. Skype doesn’t have that luxury, so there’s a tradeoff of generating new revenues from these ads against driving people away to free services like Google Voice.”

That lack of revenue probably doesn’t sit well with Microsoft, which scooped up Skype for US$8.5 billion about a year ago. At that hefty price, Microsoft has ensure it gets what it paid for, said Arnold.

“They have not had success building a social media business with their users, and with so much money being thrown at Facebook, Microsoft has to find ways to get a better return on their investment,” said Arnold.

A mutually beneficial relationship between the companies is crucial if Skype is going to prove to be a good buy, said Gold. The Conversation Ad launch might be a step on the way to bringing Microsoft and Skype’s assets closer together.

“I think the real opportunity for Skype and Microsoft is to tie Skype closer to Bing and make it a delivery platform,” said Gold. “In fact, I wouldn’t be surprised to see them try to parse some of the text files and direct ads to those subjects.”