Windows 10 Makes Voice a Feature of the Operating System

Windows 10 unifies end user experience across devices (PC, tablet, phone), but also illustrates a trend long underway, namely voice communications that are a feature of an application, rather than a discrete service.

In Windows 10, Skype comes built in as a communications suite. In other words, Skype will be directly built into messaging, calling and video experiences, with no need to download an app.

That obviously has implications for telcos and cable TV companies that sell public network voice communications and messaging. Perhaps the biggest effect is a decline in usage of traditional long distance calling services, even if, globally, long distance calling volume continues to grow.

Some amount of volume growth, and some amount of profit margin, have been lost to over the top voice and messaging services, however tough it might be quantify.

And voice as a feature of widely-used apps--and now even operating systems--points to some longer-term strategic issues for telcos selling retail services to end users.

The way telcos and cable TV companies have combated declines in volume and profit margin for their core legacy services (voice and entertainment video) is to shift to the “bundle of services” (voice, video entertainment, high speed access) as the core offer.

To get the best prices, consumers buy all three products, even if actual demand for each constituent product varies. Over time, however, the perceived value of two of the core components--voice and entertainment video--is going to be challenged even further.

That doesn’t necessarily mean customers will stop buying, only that fewer will do so. Consider for example take rates for legacy voice, text messaging or linear video subscriptions. Some might argue there is a zero-sum dynamic at work.

If consumers want more on-demand access to video, on all devices, at lower prices, then OTT video has to displace linear video. That ripples back through the ecosystem.

Some might point out, for example, that if linear video demand dwindles, then satellite services built on point-to-multipoint architectures are dangerously exposed, since that architecture is ill suited to on-demand services.

But demand can be shaped by retail packaging. Assume many consumers face a situation where the services they really want to pay for amount to $80 a month (linear, Netflix, HBO, Amazon Prime and other streaming services).

Assume distributors decide they want to keep offering linear services, but also make on-demand streaming access available at modest incremental prices. In such cases, at least some consumers will conclude--as they do for triple play offers--that buying the bundle costs less than purchasing each discrete service on a stand alone basis.

In that case, linear demand might not fall as much as one might predict. And, in fact, demand for linear distribution architectures (satellite, for example) might last far longer than otherwise would seem to be the case.

For the same reason, bundling public network voice, messaging and other services props up demand for services that might otherwise fare worse. That might be the good news for today’s distributors.

The bad news is that profit margins are likely to keep falling, as greater inducements will be needed to entice consumers to keep buying services they otherwise might decide to abandon. Some consumers, for example, buy triple play services including fixed network voice even if they don’t use the phone line.

The point is that, long term, the triple play bundle, today’s fundamental strategy, will come under increasing margin pressure. On the other hand, the bundle could be shaped in ways that prolong the value of the bundle, overall, beyond an expected product life cycle that is mature and declining.