A personal anecdote as I search for a viable voIP service to call from my computer to my grandparents’ landline in Florida… and encounter network effect marketing along the way!

Skype is a rather popular program that offers free text chat, free calls to other Skype users, as well as a number of paid services such as SkypeOut and SkypeIn. Skype ran a promotion last year offering its SkypeOut service for free. I happily used Skype to call my grandparents during this free trial period, but once it was up, I searched for an alternative. After becoming frustrating with the quality of other free voIP services such as iCall, I decided to search for other alternatives. During my search, I stumbled upon a potentially promising service, the Gizmo Project.

Rather than market its service via a free trial like Skype, voIP provider Gizmo Project flaunts “FREE calls” on its website. But, there is a catch. In order to be eligible to make a free call to a landline or cellphone you must:

1. Download Gizmo
2. Signup for a free account and add all your phone numbers to your profile
3. Get each friend you want to call (for free) to do the same

Only then, can you make a free call to that person and even then, that’s not the fine print:

The All Calls Free calling plan applies when both call participants are active Gizmo Project users making a few phone calls per week with Gizmo Project. Free calls may originate from anywhere in the world, but must be to a qualifying number in one of the 60 countries for which the plan is offered. Calls must be made from the caller’s contact list to either the “home phone” or “mobile phone” number the call recipient included in his or her profile, and both parties must have shared each others profiles with one another.

Well, my grandparents aren’t going to do all this, so Gizmo was a no-go for my needs. It seems, however, that Gizmo is looking to capitalize on network effects in promoting its product. If I wanted to call other people, I’d have to recruit them as active users of Gizmo, thus the service grows. As more and more people sign-up, the more useful it becomes [a user’s payoff is directly proportional to the number of other users]. However, while Gizmo might take off in the future, I don’t see anyway they will reach a critical mass of users [a tipping point] with their current strategy. I don’t know anyone who uses Gizmo at this point, so there isn’t much incentive [zero payoff] for me to install another communication client on my computer (I already use AIM via GAIM, Google Talk, and the aforementioned Skype. Perhaps Gizmo might offer a free trial period like Skype did in order to attract a base of users and then go from there…

Conclusions

For two companies that make money through their premium services, profit is all about attracting a large user base to increase the probability that one of them will use a premium service if the need arises. So which company’s strategy is more effective? Well if Google Fight is any indicator, Skype is dominant: skype: 252,000,000 results; gizmo project: 1,370,000 results. Oh, and by the way, the free trial of Skype got me hooked on the great quality of the service and I recently gave in and purchased the SkypeOut Unlimited plan.