SME VoIP: Buyers Interested, But Hesitant

Some 60 percent or more of small and medium business owners say they are interested in VoIP, but they also say they have concerns about the quality and cost, say researchers at The Yankee Group. Fortunately, these are the sorts of problems that get sorted out over time. Those of you who were early Digital Subscriber Line adopters know what I mean.

The Coming Measurement Problem

Measuring the size of the voice market is a problem the industry will start to face in greater measure as "telephony" becomes "voice" and "IP communications." The fundamental issue is that as voice and IP communications become embedded in the business models of other applications, it becomes harder to quantify the actual financial and business impact. Up to this point, quanitifying the size of the telephony business has been pretty simple. One has public reports by governemental agencies on the amount of wireline volume and revenue, as well as mobile volume and revenue. You add them up and derive th first order, retail revenues. Then economists can start adding in the full economic impact by applying multipliers.

But what does one do when voice and communications features are a "no incremental cost" sort of item? Voice will arguably be more important in the future, as it is embedded into gaming, documents, collaboration, portals, desktop apps. But it won't be as easy to separate "voice" and "communications" revenues from "multimedia," "entertainment," "enterprise software," "advertising" and other potential revenue streams.

In other words, the killer app of the communications industry remains "communications". But the ways communication gets monetized are changing. And that's going to make harder the task of figuring out where we are, since much of the value and revenue generated by communications features will not be generated in ways that allow easy disection of volume. Sometimes a "killer app" is offered on a "no incremental cost" basis. This is one way email might be considered the killer app to drive Internet access. It doesn't cost the user anything beyond the basic subscription, but the value of the app initially is high enough to drive the access business.

In a similar way, the value of a BlackBerry or smart phone device might be driven by the ability to use email on a mobile device, even if there is no incremental charge for the messages themselves. In the developing context, one adds VoIP and then entertainment video as contributing "killer apps" for broadband access service. Sure, broadband becomes important first as a way of avoiding the "World Wide Wait," not because there are new apps possible only with broadband. But then those apps are discovered by end users. Things such as VoIP and streaming media, telepresence and rich media in general.

All of which is going to make measurement of adoption, revenues and impact much more challenging.

Easier Management, Cost Savings Top Hosted VoIP Drivers

Enterprises consider "simplicity" and "cost savings" the top two reasons to consider a hosted VoIP solution, according to Forrester Research. Which makes perfect sense: enterprises tend to have technical staffs, so "lack of in-house resources isn't so often the case. Enterprises do tend to operate out of multiple, scores or hundreds of locations, though, which makes support of consistent voice features difficult. Neither are enterprises too worried about protection from technology change. Apparently IT managers are used to change, and confident of their ability to manage it.

Why Content Prices Rarely, If Ever, Drop

Telcos getting into the media business, despite the significant investments to do so, might enjoy the extreme differences between retail pricing dynamics seen in media as compared to communications. To wit, prices in the media world rarely, if ever, drop. In large measure, the reason is simply that costs in the media business are driven by content creation, and content creation is affected only marginally by Moore's Law, which operates to push down retail prices in the communications and computing space. There are, in short, some businesses that simply are resistant to operating cost reductions propelled by normal advances in chip technology, and the rapidly declining costs of processing and storage that result from such advances.

Not that media is the only endeavor that is not seriously aided by Moore's Law. To be sure, content creation is supported by Moore's Law. It's just that such costs are a small fraction of the total cost of producing content good enough to create an advertising, subscription or on-demand business model. Education is another business whose costs are marginally affected by Moore's Law, because production of the service ("teaching," for example)tends not to be scalable. To add another couple of classes at a college, one pretty much has to hire another teacher. Sure, you can grow class size, but at some point the "buyer" logically assumes that "quality" is destroyed as the scale increases. That's why small graduate seminars are generally considered "higher quality" than undergraduate "101" courses. We can argue about whether this is really a measure of quality or not, but the fact remains that most buyers of higher education seem to buy into the notion.

Content production tends to operate in much the same way. Digital special effects can apply Moore's Law in very compelling ways. But digital effects don't seem capable of replacing the very analog and non-scaling efforts of writers, directors, actors and producers, simply because the "product" is so wildly dependent to the particular skill some people seem to have in these areas. So, to an extent not seen in communications, where Moore's Law attacks the cost structure of a key input, digital technologies do not aid us as much in the creation of media products. Again, one can argue about how user-generated content might affect the model.

But experience suggests that we will see the same sort of "quality filtering" emerge in virtually all user-generated content as well. Most of it will not be broadly appealing, even in the niches for which it is created, for all sorts of reasons, just as the vast majority of "professionally produced" content these days, and the huge number of projects that never are produced or distributed widely, are filtered as well.

The upshot is that video services will not materially be subject to Moore's Law, and ever-decreasing retail prices. Producers and distributors are going to love that aspect of the business.

One Way Enterprise VoIP is Different From SME

The number one reason an enterprise IT manager looks at VoIP is to manage multiple phone systems at multiple locations, according to Infonetics. This is much less likely to be the top driver at a small or mid-sized business, simply because managing remote sites is typically less of a headache. Of course, some enterprises or SMEs might find a reduction in toll charges interesting, depending on where the sites are located. Still, SMEs are going to be much more worried, on average, about how well VoIP will work, and about costs of on-going support. Features still aren't paramount, but is steadily gaining importance as a decision driver, at least in the North American market. We hear this is less true in Western Europe.

This Might Mean iPod is Grabbing Even More Share

Digital music sales are stalling, according to the Wall Street Journal. It could mean all sorts of things. Apple's iTunes sales might be grabbing more share in a market that has hit a threshold of usage, as there still is no evidence iTunes sales have slowed. The market might be saturating, on at least a temporary basis, possibly because some users are pondering a change of platform and don't want to buy music in file formats that cannot be transferred to the new player. Illegal file swapping might be accelerating. Or it could be that the next group of mainstream adopters simply is discouraged from buying for all sorts of reasons, ranging from the cumbersome nature of digital rights management to the non-portability of files. Buyers who are committed to the iPod might be quite happy. More casual users might not.

LAN Certification, Monitoring for Business VoIP

We have been hearing from LAN certification and installtion companies that 30 percent or more of enterprise or small/medium business local area networks are not able to support VoIP services without modification. Others say their own experience is that half of all LANs need rework or upgrades before VoIP will work. It might well be worse. As many as 90 percent of local area networks are not completely prepared to support VoIP services, says Lawrence Trifiletti, NetStar-1 executive.

The other thing: "More than 70 percent of enterprises do not make baseline performance measurements before they deploy business VoIP", says Scott Safe, Network Physics VP. That's a problem because "data volume grows 40 to 50 percent a year," Safe says. So a network that might have been in tolerance a year ago might well not be in that state today.