Vonage

Two seemingly contradictory pieces have crossed my desk in recent days.  Derek Thomson, writing in the Atlantic, reports that analyst firm IBISWorld is predicting that the fastest growth industry in the United States, for the next five years, will be digital voice – Vonage, the cable companies, and Skype.

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Now, these are two very distinct categories of companies.  The cable companies are running captive phone businesses that look and feel exactly like an old school telephone company, but deliver telephone calls across their cable infrastructure.  Vonage, Skype et al, however are running services “over the top”, which is to say that they are layered on top of basic internet access.

Meanwhile across the pond, the ever-sanguine Dean Bubley points out that, despite their aspirations to move up the value stack, and thus increase revenues from their customer bases, mobile operators are doing little to help the companies that are actually creating value for customers* – the Googles, Youtubes, Hulus and Facebooks of the world.  As a result, revenue is flowing to these third parties at the same time as the expense of running the high-speed networks that these parties depend upon grows.

Thomson writes that the rise of VoIP is the death of the landline.  Voice has now become an application running on a network, and the previous incumbent telco monopoly owners of that application have both lost control, and not offered anything new of value.  Innovations in the form of business model (the cable co bundles), or features (the Skype and Vonage applications) have all come from outside the industry.  But as Bubley points out, many of those innovations could have been built upon a telco infrastructure, had the telco’s exhibited the foresight to understand the value of the services they offered and the customer data they were privy to, and found ways to market that to applications providers.

These are not new ideas.  Rebels in the communications industry, myself included, have been speaking at industry events like eComm, authoring documents like the Voice 2.0 Manifesto, and building business plans for a very long time.

The big question is whether mobile operators are destined to suffer the same fate as landline operators.  Can mobile operators learn from the fate of the landline companies, or will they submit to the coming telepocalypse** that has already engulfed their brethren?

* Hat tip to Andy Abramson for the link to Dean.
** apologies to Martin Geddes for thieving the name of his excellent blog, Telepocalypse.

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All we’re talking about is arbitrage

by alec on January 5, 2009

“It seems highly likely to me that at some point in the future we’ll all look back and say that 2008 was the year that the VoIP industry finally died.”

That’s how I started off a piece last week which kicked off a round of commentary the likes of which I haven’t seen in a long long time.

Note the very deliberate italicization, which was in the original (you can read it at 2008: The Year that VoIP died.)  You could make the points in that piece in another way – businesses which define themselves as VoIP businesses are defining themselves via a technology rather than a customer benefit.  Not only that, but they’re defining themselves via a technology which is rapidly becoming a commodity.

The last couple of days have seen some fabulous paean‘s to the triumphs of VoIP past, especially from Jeff Pulver and Rich Tehrani.  I will not argue with these two giants of the industry that there have been remarkable achievements in openness, consumer pricing, and flexibility under the auspices of the VoIP revolution.  If anybody would know, having lived the entire experience, these two would.

In the spirit of Jeff’s reminiscences, I have a very old VoIP story of my own to tell.  It goes like this.

Back in early 1995, I was the product manager on the Windows 95 team at Microsoft who had been given responsibility for the launch of Internet Explorer version 1.0 and the internet features in Windows 95.  We were desperately searching for ways to differentiate ourselves from not just Netscape, but also IBM with their WebExplorer suite and Apple with the Cyberdog suite.  One day, while driving to work, I hit upon the idea that we might be able to make voice calls on the network!  What if every copy of Windows came with the ability to make no cost calls to family and loved ones?  Wouldn’t we sell a lot of Windows then, I said!

Well, I went to work and explained what I was thinking to my colleagues on the development side of the house.  After some discussion, one of the development managers (a very pragmatic guy who was trying to ship a product, and didn’t need a wild-eyed marketing guy proposing new features) offered up that “really, all you’re talking about is arbitrage.  How long do you think it will take the phone companies to figure that out?”

So we didn’t.  And about six months later, at PC Expo in New York City, I ran into IDT for the first time, and caught a glimpse of the future of PC telephony as they demonstrated their voice over IP products.

The VoIP revolution gained steam aided by Congress, the FCC, and visionaries like Jeff and Rich.  The phone companies took way longer to respond than any of us at Microsoft ever imagined they might. And by 2005, a decade later, rates had fallen, it looked as if the upstarts might actually take out a phone company or two, the phone companies were finally deploying VoIP throughout their networks, VC’s were mad crazy to fund anything that smelled like VoIP, and Skype was taking the world by storm.

It was a bubble, and anybody who could find a way to label their business a VoIP business did, whether it meant anything to the customer or not! Remember the marketing slogan “VoIP with Vonage”?  What possible consumer benefit did that offer?  It was a sign of the times.

Four years after the buzz of 2005, and 14 years after 1995, the triumph of phone calls across the internet is largely complete and the toll arbitrage play has run itself out.

So, no, VoIP itself isn’t dead. But the VoIP industry has become synonymous with cheap calling. Businesses that define themselves as VoIP businesses are having a tough go of it because they’re really call center businesses, and conferencing businesses, and PBX businesses, and telephone companies.  It’s just that they’re now cheap call centers and cheap conference services and so on.

It’s time for we in the industry to sacrifice the term VoIP and all the accompanying baggage of cheap calling, and move forward.

When we look back at 2008, and say that that was the final gasp for the VoIP industry, it will be because the old prices have fallen as low as they can go, and the old business models that supported those prices have finally died.  We’ll look at the transition that is happening now – to new business models, to integrated communications platforms, and to new applications – as a major inflection point.  And we’ll say that this was the year that was really the beginning of the new communications revolution.  Because otherwise, the alternative is…

“really, all you’re talking about is arbitrage.  How long do you think it will take the phone companies to figure that out?”

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Thank you to everyone who joined this discussion, both here and on other blogs and boards throughout the blogosphere.  Thank you especially to those who joined who have been absent from the discussion a long time.  If you’d like to join in live tonight, Sheryl Breuker will be hosting a discussion on Calliflower.  Get your Calliflower account and join tonight’s conference call.

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VoIP: “If you hadn’t nailed its feet to the perch, it’d be pushin’ up the daisies!”

December 31, 2008

Yesterday’s 2008: The Year that VoIP Died generated a slew of interesting responses. Jon Arnold and Andy Abramson wrote me in email to say that I had made the same points that they had.  While it’s true that I made many of the same points, my view of their meaning is perhaps different.  I don’t […]

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2008: The Year that VoIP died

December 30, 2008

It seems highly likely to me that at some point in the future we’ll all look back and say that 2008 was the year that the VoIP industry finally died.  With all due respect to my very good friends Jon Arnold, and Andy Abramson, it’s about time. Voice over IP is just a transport and […]

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Squawk Box October 24: Vonage, Cox, AT&T, and Open Source DRM

October 24, 2008

Image by wilding.andrew via Flickr For our final daily SquawkBox, we discussed these stories: Reports are emerging that AT&T is developing an iPhone tethering plan, but network glitches are holding it up! Marlin, a digital rights technology created by Sony and Samsung, is apparently ready for prime time. An open source solution, it claims to […]

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Squawk Box October 24: Vonage, Cox, AT&T, and Open Source DRM

October 24, 2008

Image by wilding.andrew via Flickr For our final daily SquawkBox, we discussed these stories: Reports are emerging that AT&T is developing an iPhone tethering plan, but network glitches are holding it up! Marlin, a digital rights technology created by Sony and Samsung, is apparently ready for prime time. An open source solution, it claims to […]

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Squawk Box July 29

July 29, 2008

First we dove into the Net Neutrality debate. It looks as if three of five FCC commissioners will vote to sanction Comcast this Friday for throttling bit-torrent traffic. Dissenter Bob McDowell wrote an op-ed for yesterday’s Washington Post arguing that engineers should figure a way out of this mess, not politicians.

I don’t think there’s any doubt that Comcast was throttling traffic. We talked about McDowell’s argument for a hands-off approach by the FCC, the issues around bandwidth shortages, and what’s happening outside North America.

We also talked about Vonage. It’s been a while since they’ve really been in the news, but they’ve been quietly cranking out announcements. They’ve announced a partial refinancing of their debt. Up to $215 million of their $253 million can be refinanced under an agreement they’ve just struck, and $125 million has been committed. They have to do this because the existing convertible notes expire Dec 12.

They’ve also announced their first patent — on virtual phone numbers.

Revenues are growing. Losses are narrowing — last quarter they lost just $8 million.

And, they’re set to announce a new CEO.

We talked about what it would take to make Vonage a success and whether or not they might really make it.

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Squawk Box – July 14, 2008 – Deployed Globally, Regulated Locally

July 15, 2008

This was my first guest hosting of Squawk box and i have a learning curve to overcome. Jim Kohlenberger, Executive Director of the VON Coalition, and Brita Strandberg, Partner at Harris Wiltshire, joined Carl Ford, Community Developer to discuss the regulatory world and particularly the intersection of Telecom and Web 2.0. The conversation focused in […]

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Shaw sees hope for Vonage

January 11, 2008

Russell Shaw had a chance to chat with a few employees at beleaguered VoIP provider Vonage while at CES.  He walks away less skeptical than before after seeing some the new VPortal, Contact Book, and Call Blast features.  Says Russell: Rather than biting the bullet and trying to go the triple-play route as their broadband […]

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Vonage halted on Toronto?

September 26, 2007

It's been a rough couple of days for Vonage.  Yesterday a jury found that the company had, in fact, violated Sprint's patents, driving the stock to a new low of just $1.30.  Today, it only got worse.  A jury reaffirmed the verdict in this year's earlier case, stating that Vonage had also infringed Verizon's patents.  […]

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