The much predicted voice price wars are finally under way, thanks to Yahoo!, and SipPhone. Not a moment too soon! When the giants are done duking it out over commodity minutes, real value can emerge in the form of new services, and new applications for communications networks.
Facts worth noting:
Speculators are suggesting that Yahoo! can offer 1 cent per minute calling because of their tight relationships with carriers. Don’t believe it. Two years ago, wholesale minutes were 3/4 of a cent. If wholesale minutes are now down to 1/2 cent, Yahoo is earning the same margin on those minutes that any other traditional carrier is earning. That’s the reason SipPhone can offer that price as well. We should expect to see many others follow suit, including Microsoft/MCI with their newly announced 2.3 cent per minute service. A penny per minute will be the new standard.
Some have commented that it’s strange that Yahoo! is rolling out their international call-in service before the US. It’s smart business strategy, and furthermore it’s a strategy that has served Yahoo! well in the past. Who’s the biggest VoIP provider in the world? It’s not Vonage, and it’s not Time Warner. Yahoo’s relationship with Softbank Japan has delivered over 4.5 million customers already, making them the largest. By focusing on underserved markets like France, Germany, Hong Kong, Italy, Singapore and Spain, they’re hoping to have similar impact.
Who will be the big winners and losers?
Vonage: loser. At a penny per minute, Yahoo! calls, if not below Vonage’s cost, are approaching Vonage’s cost. Vonage is a traditional telco without a large and loyal user base. They’re caught between a rock and a hard place. That’s the impact of running large call centers, networks and massive ad campaigns. Yahoo outsources the network. Advantage Yahoo!
Big Telco’s: loser. Check out this free paper from analyst firm Evalueserve on the impact of Skype and Skype-like services on Big Telco. They’re fiddling while Rome burns, focusing on Video to compete with cable incumbents, while core voice services are stripped away. In North America, land-line attrition has reached 10,000 lines per day.
The Prepaid Card industry: loser. The dog-eat-dog world of the prepaid phone card industry has just experienced a seismic shock. Surviving on razor thin margins before, it’s hard to know what they will do now. Only the largest, like IDT, seem likely to survive. The industry knows it too. On a regular basis resumes from former and current prepaid execs hit my inbox as they have started scouting for the next big thing.
Skype/Ebay: winner/loser. The jury’s out. At least in the short term, the prospects of Skype substantially monetizing their customer base via Skype-Out minutes is dimming. More than ever before, Skype must rise to the challenge of building a substantial value-added platform.
The Portals: winner. The portals are the early winners. They’ve just found a new service to monetize their user base with. Ad-funded VoIM clients can help to fuel the price war. DID’s help to make the customer sticky. The winners will be the companies who recognize that the VoIM client is just another platform component in the overall portal platform.
The rest of the Pure-Play VoIP companies: loser. The only hope for these guys is an exit based on some unique piece of technology or a large enough customer base. Portal players can price at or below cost using their ad revenues to backfill. Pure-Play players don’t have that luxury.
Applications Providers: winner. As commodity minutes trend to zero, new services must be introduced. Companies building those services, especially services that span the web and voice networks, will be the emerging late winners. Look for applications providers to emerge, and for consolidation to take place as the portal players snap up the strategic applications vendors. Look for acquisitions that bring core platform components and applications that leverage those components.
IP TV: loser. The internet TV buildout will be capital intensive, and ultimately a low margin business as cable and the telco’s duke it out for supremacy on the small screen. Expect the price war over minutes to impact this roll-out as service providers look for other, more immediate ways to generate incremental revenue from applications.
Gather round folks, and watch the fireworks. Opportunities are being created. Lots of money will change hands before this bonfire is over.
UPDATE: Jeff Pulver throws his
21 cents in here. Amen!