VOIP Debate
Om Malik and Bill Burnham are having a discussion about whether Vonage's plan to get big fast is the right way to become the leader in the consumer VOIP business.
I have my doubts as well. I don't like the "get big fast" business plan. It, by definition, assumes if you don't get big fast, you aren't going to get big at all. I've seen this movie end badly many more times than I've seen a happy ending.
And I've invested in VOIP as well. It's a price commoditizing business if I've ever seen one. There are very few differentiating factors in VOIP service today. If Vonage isn't working too well, you just swap it out and put in ATT CallVantage.
It does feel a lot like online brokerages all over again. Thanks for that analogy Bill. It works for me.
There may be few differentiating factors in VoIP service today, but in the long run, VoIP is more about applications than just cheap access, meaning that competition will be based not only on price, but also on features of the 'VoIP application', aka softphone.
As competition picks up, expect Vonage, Packet8 and AT&T to add bells and whistles to their VoIP applications - softphones, web-based interfaces etc - to win over customers. In the future, the battle between Vonage and AT&T may bear certain resemblance to that between Firefox and Internet Explorer (or any other software targeted at the consumer). Given all the talk of VoIP worms, a consumer may decide to go with Vendor X that charges a few dollars but has a VoIP application that is more secure. Who wouldn't pay $30 more for a '100% Secure - Peace of Mind" Windows XP as opposed to what Microsoft sells these days?
Admittedly, the consumer segment is yet to make that shift in terms of looking at voice at more than a commodity and using a combination of price & features to choose among vendors, but once feature-laden VoIP applications hit the consumer segment, that transition is bound to happen, as it is happening in the enterprise world where reason for VoIP deployment is gradually shifting from cost savings to productivity enhancements made possible by VoIP-based location- and presence-management applications.
This is all part of the bigger shift in telecom infrastructure where the service plane, traditionally integrated with the switching elements, is now available as a stand-alone standards-based element, making it possible for startups to focus their resources on packing more innovative services into "service boxes" that plug seamlessly (almost) into the existing telecom network, which in turn means that service providers will not only be able to deploy new services faster than before, but will also use this suite of services to compete in the market place, as opposed to only price.
At the same time, I am not sure if the VoIP consumer market will make this transition (to feature-based competition from price-based) by the time Vonage's investors start demanding their money back, in which case Vonage would be stuck with fighting the goliaths (Time Warner, AT&T) in a price-competitive market. Certainly not an enviable position for Vonage or for its investors.
Posted by: Ash G | August 27, 2004 at 12:40 PM
Some random ramblings...
I'm a little disappointed to see that we're forgeting about the impact of wireless on the wireline telephony world. I know many that have forgone their home phone and survive entirely on wireless. If location-based services become more prevalent on wireless plans, then we can expect more and more of this sort of direct competition.
Vonage and Packet8 are currently mere gimmicks and have yet to get beyond the first "chasm" (to speak in Geoffrey Moore -isms), beyond the early adopters.
Price (from a providers perspective) is relatively irrelevant if you have no tangible assets to be concerned of. An old UTP copper wire versus virtual services over IP using DTAs can effectively be priced the same (since the CAPEX is nil --- assuming UTP is already amortized). So, what's the value in a DTA-based VoIP service? I see none really, and I can count several drawbacks.
VoIP (or real-time IP services, broadly speaking) has a ways to go before it delivers a tangible reason to switch... IP is still in search of that killer app. And, Vonage ain't it. The RBOCs or MSOs could roll out DTA services in their sleep, and Vonage has no real advantage if they do.
If I were Jeff Citron, I'd be worried about MSO or RBOC packet filtering/blocking more than anything --- talk about sleepless nights.
Posted by: CFK | August 27, 2004 at 02:34 PM
Some random ramblings...
I'm a little disappointed to see that we're forgeting about the impact of wireless on the wireline telephony world. I know many that have forgone their home phone and survive entirely on wireless. If location-based services become more prevalent on wireless plans, then we can expect more and more of this sort of direct competition.
Vonage and Packet8 are currently mere gimmicks and have yet to get beyond the first "chasm" (to speak in Geoffrey Moore -isms), beyond the early adopters.
Price (from a providers perspective) is relatively irrelevant if you have no tangible assets to be concerned of. An old UTP copper wire versus virtual services over IP using DTAs can effectively be priced the same (since the CAPEX is nil --- assuming UTP is already amortized). So, what's the value in a DTA-based VoIP service? I see none really, and I can count several drawbacks.
VoIP (or real-time IP services, broadly speaking) has a ways to go before it delivers a tangible reason to switch... IP is still in search of that killer app. And, Vonage ain't it. The RBOCs or MSOs could roll out DTA services in their sleep, and Vonage has no real advantage if they do.
If I were Jeff Citron, I'd be worried about MSO or RBOC packet filtering/blocking more than anything --- talk about sleepless nights.
Posted by: CFK | August 27, 2004 at 02:35 PM