Residential VoIP by independent service providers is dead, right? Or is it? It’s true the ground is littered with failed attempts by independent VoIP players (e.g., SunRocket, Net2Phone) or at least substantially diminished expectations (notably Vonage and, perhaps, Skype). While it’s true that residential VoIP-based offers are booming around the world, these offers are mostly coming from the large players such as the voice incumbents and cable TV providers.
Conventional wisdom a few years back erred in believing that the upstarts would overthrow the voice kings. Now, prognosticators are saying that independent VoIP players are toast. This prediction appears to be similarly misguided. The doom and gloom associated with the independent VoIP companies is based on what I call Residential VoIP 1.0. Residential 2.0 players are just starting to emerge and will give the big guys a run for their money.
Residential VoIP 1.0 players used VoIP technology but essentially just replicated the old time division multiplexing (TDM) offers. Little to no enhanced value was created. Pricing (or more accurately price arbitrage) was the game without any sustainable competitive advantage. VoIP was used as the industry mantra but to the end-user it was just cheap voice. Why should they care about the underlying protocol driving the low prices?
Vonage is the most prominent example of the VoIP 1.0 players — and the biggest squandered opportunity. Like drunken sailors, they overspent to rack up impressive subscriber wins with cute commercials and low prices. But after four years of flogging the price offer, they never turned the corner to offer something better than plain ol’ telephony service or “POTS.” As the big boys entered the market and growth slowed, Vonage started to slide (not to mention their disastrous IPO). Even with three million subscribers, they are fighting just to cling on to customers, who are switching away as easily as they switched on.
SunRocket’s demise was more dramatic. One day they were second only to Vonage; the next day their incoming auto attendant told confused customers that they were out of business. I would argue that VoIP had nothing to do with their plight — it could be chalked up to their lack of vision and poor financial planning. A year ago, their company presentation was astonishingly devoid of any vision (see my blog post from March 2007 (/showmenow/www.ipbusinessmag.com/blogs.php?blog_id=614&author_id=3) on SunRocket’s talk). In short, their answer to innovation was: “WiFi phones.” Sure – let’s take a $25 dollar phone that works fine and replace it with a lower-quality $200 phone that’s harder to set up. Great idea, guys!
Many among the latest crop of independents are masquerading as VoIP 2.0 players but are really wrapping themselves in Web 2.0 language. They are still focused on price. Still focused on arbitrage. And still don’t have a good end-game to be competitive once prices inevitably fall.
Residential VoIP 2.0 is all about changing the rules of basic telephony. It will be based on creating value for the end-user that can’t easily be replicated, not just lower prices. Examples of service offerings include multimedia telephony (e.g., video calling/messaging), unified communications (combining voice, video, and data in an easy-to-use way) and voice services that are part of a larger offering such as gaming or social networking.
These innovative offerings may not happen right away (even if the need is obvious). To get the formula right takes time. Examples in the tech world abound. The Apple Newton PDA failed but Palm got it right; early smart phones were buggy and clunky but the BlackBerrys and iPhones are changing the very definition of a mobile phone. Skype succeeded in making a softphone that worked after dozens of others failed or were just plain too early (as in the mid-1990s, when I led the product management at VocalTec for the first-ever softphone Internet Phone — 14.4k dial-up was the standard for Internet access, and consumer broadband didn’t exist a dozen years ago).
In all of these examples, the formula for eventual success is the same: an intense focus on the customer, a mantra of ease of use, vision, and a stubborn willingness to tell the naysayers to go stuff it.
Inarguably, at&t, Verizon, and Comcast are kings of the hill for voice services. But we’re still living in the VoIP 1.0 world. Residential VoIP 2.0 will be huge – bigger than the 1.0 market — and will create value we have started to understand but can only dream of. These VoIP 1.0 players will not be the pioneers of version 2.0. It could be the likes of Google and Microsoft. Far more likely, through, the future leaders don’t yet exist, but are plotting in the proverbial garages of tech centers around the world.
Consider this: It’s been 122 years since Alexander Graham Bell invented the telephone and a mere 13 since VocalTec unveiled the first Residential VoIP product to the market. Already, 2008 is shaping up to be the start of Residential 2.0. Get ready for prime-time. IP
Scott Wharton is vice president of marketing at BroadSoft. He can be reached at swharton@broadsoft.com
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