Has VoIP Peaked? 8 Reasons Why I Think So
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Yes.
That's my short answer, and here are 8 reasons why.
Before I start, I'm not saying that VoIP is dead - far from it. Having an analyst's perspective, I see a lot of things, and it just strikes me that a lot of stars have lined up now that collectively tell me that the winds of change are shifting. Furthermore, I'm not a technical or a financial analyst, so I'm not basing this on stock market indicators, but I'll bet you could find enough there to support what I'm thinking.
I'm just going to give you the basic ideas here - I'll be here a long time if I went into the details. That's another conversation, and hey, we all have to make a living.
Here we go - in no particular order....
1. Verizon/Vonage - whether this case holds up or not, Vonage is getting boxed in - or out - depending on your view, and they are no longer the threat they were early on. They've pushed as hard as a startup with lots of money and market support would allow, and at the end of the day, they barely have 2% of the landline market. I think the Verizon case makes this official, and they could really close this chapter by acquiring Vonage outright.
2. Order has been restored - related to Vonage, Humpty Dumpty has been put back together, and the U.S. telecom market is ruled by 2 mega carriers. When was the last time anybody talked about RBOCs? We went from 7 to 4, and now it's basically just 2, with Qwest as an asterisk. Cable and mobile - same deal - just a handful of big operators who control the market - and largely true too, for ISPs. Disruption has come, but has not changed the status quo that much for VoIP. The likes of Vonage were supposed to destroy the obsolete RBOCs, but at the end of the day, he who controls the last mile and has the customers, wins.
3. Consolidation is largely done. Building on this theme, we're down to a handful of big carriers, and a handful of big vendors. Most of the good, proven companies have been taken, and the remaining players are large, with deep pockets. When Cisco spends $3.2 billion for WebEx, you have to wonder are we heading for a bubble? It's too late in the game for the big players to develop their own solutions, and they have to acquire the missing pieces, not just to grow, but to keep them away from their competitors. Don't get me wrong - there's more consolidation coming, but when you see big deals like this, that's a sign to me that the barriers to entry are going to get very high now. That may be good for the companies in the winner's circle, but it's bad for innovation and competition. That's why Open Source and disruptive media are so hot now - it's not too late there - but I think it is for VoIP.
4. Absence of successful IPOs. Imagine how the prospects for VoIP would have looked if Vonage's IPO was a hit with investors. VoIP has evolved to the stage where there should be lots of successful IPOs happening now. Again, it shows you how hard it is to make money in VoIP, especially to the point where you can be a public company. I'm starting to think that Acme Packet's fantastic IPO was the exception rather than the rule. And they have good news coming out this week that supports how well they're doing. Of course, that's the problem right there. If VoIP was a successful market, Acme would be the rule and not the exception. Don't get me wrong - there could well be some good IPOs coming this year - such as Veraz, Sylantro, BroadSoft and NexTone. I think all of these have a great chance of success. But that hasn't happened yet, and as I'm seeing things right this minute, that's how I feel.
5. Jeff Pulver. Without a doubt, the most successful man in VoIP, right? And Jeff's going to share his vision of the future this morning at VON. I don't know what he's going to say, but I don't need to know. Anyone following Pulvermedia knows that Jeff's focus - and passion - has shifted to video. It's not clear to me what his vision is for VoIP now, but as I've said before, Jeff's intuition and timing is usually very good. Follow the money? Perhaps. It's also worth noting that if anyone should know how to create successful businesses around VoIP, it's Jeff. While there's never any guarantee of success in a business like this, even Jeff has had difficulty making money in his VoIP enterprises. He's started a number of innovative ventures - Free World Dialup, iPeerX, and most recently, Tello, but none have been game changers. Let's hope things are different with Vivox!
6. The demise of Voiceglo. They ceased operations a few days ago, and I take this as another sign of a market top. Voiceglo has not been a factor in this market for some time, and a lot of people felt this was just a stock play. Say what you like, but I think they had a very innovative concept early on, and I was one of their earliest supporters. They're a great example of how difficult it is to build a viable business once you've started out being a free service. I'm citing them here because the business was run by investment bankers. This may not be the ideal foundation for a nextgen provider, but as a rule of thumb, when the bankers say it's time to go, it's time to go.
7. Wireless has thrived and not been hurt by VoIP. I've always said that while VoIP is a big, exciting market, wireless is an even bigger, more exciting market. Landline VoIP is a good place to start, but the real growth potential for VoIP is in wireless. Despite all the economic attractions of VoIP, the mobile carriers have done quite nicely without it. Sure, we're seeing "minutes stealers" out there - which at least makes things interesting, but so far, VoIP hasn't had much impact at all on how wireless operators do business.
8. Analyst firm coverage. I know of 3 well-known industry analyst firms with strong VoIP coverage that are in varying states of difficulty, and I suspect they are not alone. With fewer vendors and carriers to support their high-end services, something has to give. No surprise there. Rising tides lift all boats, but what comes up, must come down.
Ok, so what do we do now? I'll first say that I'm still pro-VoIP - don't get me wrong. I just think the market has changed. I recently have contributed to a dialog started by fellow blogger Luca Filigheddu on what I think has made VoIP successful (and not, as well).
My basic take is this. VoIP really isn't an industry. It's a technology around which a lot of businesses have had to reinvent themselves to adapt to the disruptive potential of IP. VoIP has had a good run, but many of the incumbent players are still standing, and still have the customers. In a way, VoIP has been its own worst enemy by making it easy for everyone and anyone to get into the game, and offer a service that costs next to nothing to provide, and gets cheaper all the time.
This could still work if the quality of VoIP was truly better than what people are used to using. Sometimes it is, and sometimes it isn't, and companies of all sizes are finding that it's harder to do than it looks, so this is not going to be a quick transition. In that scenario, only the strongest can really survive, and that's what we're seeing now.
I do want to end on a positive note, and here it is. VoIP as we know it has peaked in my view, but it's just one chapter along the way to an all IP world, which I do believe we'll have. There's a lot of talk about Voice 1.0 vs. Voice 2.0, and I think that's a big part of the story. Much of the VoIP we've seen has been tied too much to the TDM world, and modeled on Voice 1.0 thinking and habits. Voice 2.0 - which can mean a lot of things - is the basis the next wave of innovation.
Much like where VoIP was 5 years ago, Voice 2.0 companies are at today. They have the benefit of VoIP's progress to build on, which is great. However, a lot of them really aren't about VoIP, at least the way we've known it. Examples? Grand Central, Iotum, Talkster, TruPhone, DiamondWare, Flat Planet Phone Company. These are just a few examples of course. They're all different, but they're all about voice, and they're really all applications built around specific business problems. They're not trying to be complete platforms or systems, which is much harder to do.
So, maybe this is where VoIP goes next. I'm still not sure, as I don't really know how you build a whole business around these. But at least they can stay below the radar of the mega players long enough to develop into viable businesses. Of course, I'm only talking about the voice market here. There are tons of exciting things happening in other spaces, especially video, but I'm not as steeped in that market yet. You'll have to ask Jeff about that!
Technorati tags: VoIP, Jon Arnold, Jeff Pulver
That's my short answer, and here are 8 reasons why.
Before I start, I'm not saying that VoIP is dead - far from it. Having an analyst's perspective, I see a lot of things, and it just strikes me that a lot of stars have lined up now that collectively tell me that the winds of change are shifting. Furthermore, I'm not a technical or a financial analyst, so I'm not basing this on stock market indicators, but I'll bet you could find enough there to support what I'm thinking.
I'm just going to give you the basic ideas here - I'll be here a long time if I went into the details. That's another conversation, and hey, we all have to make a living.
Here we go - in no particular order....
1. Verizon/Vonage - whether this case holds up or not, Vonage is getting boxed in - or out - depending on your view, and they are no longer the threat they were early on. They've pushed as hard as a startup with lots of money and market support would allow, and at the end of the day, they barely have 2% of the landline market. I think the Verizon case makes this official, and they could really close this chapter by acquiring Vonage outright.
2. Order has been restored - related to Vonage, Humpty Dumpty has been put back together, and the U.S. telecom market is ruled by 2 mega carriers. When was the last time anybody talked about RBOCs? We went from 7 to 4, and now it's basically just 2, with Qwest as an asterisk. Cable and mobile - same deal - just a handful of big operators who control the market - and largely true too, for ISPs. Disruption has come, but has not changed the status quo that much for VoIP. The likes of Vonage were supposed to destroy the obsolete RBOCs, but at the end of the day, he who controls the last mile and has the customers, wins.
3. Consolidation is largely done. Building on this theme, we're down to a handful of big carriers, and a handful of big vendors. Most of the good, proven companies have been taken, and the remaining players are large, with deep pockets. When Cisco spends $3.2 billion for WebEx, you have to wonder are we heading for a bubble? It's too late in the game for the big players to develop their own solutions, and they have to acquire the missing pieces, not just to grow, but to keep them away from their competitors. Don't get me wrong - there's more consolidation coming, but when you see big deals like this, that's a sign to me that the barriers to entry are going to get very high now. That may be good for the companies in the winner's circle, but it's bad for innovation and competition. That's why Open Source and disruptive media are so hot now - it's not too late there - but I think it is for VoIP.
4. Absence of successful IPOs. Imagine how the prospects for VoIP would have looked if Vonage's IPO was a hit with investors. VoIP has evolved to the stage where there should be lots of successful IPOs happening now. Again, it shows you how hard it is to make money in VoIP, especially to the point where you can be a public company. I'm starting to think that Acme Packet's fantastic IPO was the exception rather than the rule. And they have good news coming out this week that supports how well they're doing. Of course, that's the problem right there. If VoIP was a successful market, Acme would be the rule and not the exception. Don't get me wrong - there could well be some good IPOs coming this year - such as Veraz, Sylantro, BroadSoft and NexTone. I think all of these have a great chance of success. But that hasn't happened yet, and as I'm seeing things right this minute, that's how I feel.
5. Jeff Pulver. Without a doubt, the most successful man in VoIP, right? And Jeff's going to share his vision of the future this morning at VON. I don't know what he's going to say, but I don't need to know. Anyone following Pulvermedia knows that Jeff's focus - and passion - has shifted to video. It's not clear to me what his vision is for VoIP now, but as I've said before, Jeff's intuition and timing is usually very good. Follow the money? Perhaps. It's also worth noting that if anyone should know how to create successful businesses around VoIP, it's Jeff. While there's never any guarantee of success in a business like this, even Jeff has had difficulty making money in his VoIP enterprises. He's started a number of innovative ventures - Free World Dialup, iPeerX, and most recently, Tello, but none have been game changers. Let's hope things are different with Vivox!
6. The demise of Voiceglo. They ceased operations a few days ago, and I take this as another sign of a market top. Voiceglo has not been a factor in this market for some time, and a lot of people felt this was just a stock play. Say what you like, but I think they had a very innovative concept early on, and I was one of their earliest supporters. They're a great example of how difficult it is to build a viable business once you've started out being a free service. I'm citing them here because the business was run by investment bankers. This may not be the ideal foundation for a nextgen provider, but as a rule of thumb, when the bankers say it's time to go, it's time to go.
7. Wireless has thrived and not been hurt by VoIP. I've always said that while VoIP is a big, exciting market, wireless is an even bigger, more exciting market. Landline VoIP is a good place to start, but the real growth potential for VoIP is in wireless. Despite all the economic attractions of VoIP, the mobile carriers have done quite nicely without it. Sure, we're seeing "minutes stealers" out there - which at least makes things interesting, but so far, VoIP hasn't had much impact at all on how wireless operators do business.
8. Analyst firm coverage. I know of 3 well-known industry analyst firms with strong VoIP coverage that are in varying states of difficulty, and I suspect they are not alone. With fewer vendors and carriers to support their high-end services, something has to give. No surprise there. Rising tides lift all boats, but what comes up, must come down.
Ok, so what do we do now? I'll first say that I'm still pro-VoIP - don't get me wrong. I just think the market has changed. I recently have contributed to a dialog started by fellow blogger Luca Filigheddu on what I think has made VoIP successful (and not, as well).
My basic take is this. VoIP really isn't an industry. It's a technology around which a lot of businesses have had to reinvent themselves to adapt to the disruptive potential of IP. VoIP has had a good run, but many of the incumbent players are still standing, and still have the customers. In a way, VoIP has been its own worst enemy by making it easy for everyone and anyone to get into the game, and offer a service that costs next to nothing to provide, and gets cheaper all the time.
This could still work if the quality of VoIP was truly better than what people are used to using. Sometimes it is, and sometimes it isn't, and companies of all sizes are finding that it's harder to do than it looks, so this is not going to be a quick transition. In that scenario, only the strongest can really survive, and that's what we're seeing now.
I do want to end on a positive note, and here it is. VoIP as we know it has peaked in my view, but it's just one chapter along the way to an all IP world, which I do believe we'll have. There's a lot of talk about Voice 1.0 vs. Voice 2.0, and I think that's a big part of the story. Much of the VoIP we've seen has been tied too much to the TDM world, and modeled on Voice 1.0 thinking and habits. Voice 2.0 - which can mean a lot of things - is the basis the next wave of innovation.
Much like where VoIP was 5 years ago, Voice 2.0 companies are at today. They have the benefit of VoIP's progress to build on, which is great. However, a lot of them really aren't about VoIP, at least the way we've known it. Examples? Grand Central, Iotum, Talkster, TruPhone, DiamondWare, Flat Planet Phone Company. These are just a few examples of course. They're all different, but they're all about voice, and they're really all applications built around specific business problems. They're not trying to be complete platforms or systems, which is much harder to do.
So, maybe this is where VoIP goes next. I'm still not sure, as I don't really know how you build a whole business around these. But at least they can stay below the radar of the mega players long enough to develop into viable businesses. Of course, I'm only talking about the voice market here. There are tons of exciting things happening in other spaces, especially video, but I'm not as steeped in that market yet. You'll have to ask Jeff about that!
Technorati tags: VoIP, Jon Arnold, Jeff Pulver
