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All we’re talking about is arbitrage

“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?”


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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{ 2 comments… add one }

  • Michael Graves January 5, 2009, 10:16 am

    Right! A great many people have made this point for the past couple of years. VoIP has to be about more than cheap calls or it's doomed.

    Don't bother me with offers of cheap minutes or unlimited calling. Below a nominal threshold I just don't care.

    Show me how I can do more and be more productive using your service. That has a chance of generating enough interest for me to part with some cash.

  • Dan York January 5, 2009, 1:20 pm


    Yes… I just made this point over on:
    http://www.disruptivetelephony.com/2009/01/define… (also http://bit.ly/YTb3 )

    Whether or not we can say "VoIP is dead" depends VERY much on how we define "VoIP". :-)

    I'll talk to you at 9pm tonight…


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