"VoIP isn’t a business category anymore"

...says Alec Saunders in his latest post on http://saunderslog.com/2007/04/05/voip-isnt-a-business-category-anymore/.

"VoIP isn't the reinvention of the telephone which we all foresaw five years ago. At least, not the VoIP peddled by the likes of Vonage. It's ordinary telephone service… delivered on IP. While popular, it has failed to deliver the revolution industry types envisioned. "Innovations" like web-based dashboards are long in the tooth, and the truly revolutionary applications which could have been delivered have never seen the light of day.

It's time to stop talking about VoIP as a business category, or an industry. Companies using VoIP to deliver service to customers are really just one more instance of a competitive service provider, albeit with different tarrifing and competition rules. Viewed from that vantage point, it's no wonder that this "industry" is struggling."

One might add that IP also is simply the way application and service providers--including incumbents of all stripes--are going to deliver features and make money in the future. All of which is simply the latest evidence of a trend underway for a couple years now: VoIP is voice; voice is communications; no more, no less.

Unfortunately, FTTX Doesn't Tell You Much

At some point, there will be a pretty compelling business difference between a fiber to neighborhood, fiber to a node of 16 to 32 homes and fiber directly to the customer. Standard definition TV may persist for awhile in closed environments. Cable operators might even see some business advantage there, as customers can continue to use their analog TVs without any new decoders to receive at least some programming. Of course, the counterweight is that bandwidth taken up by analog prevents efficient use of potential digital bandwidth to provide new services.

But when all terrestrial broadcasting instantly converts to HDTV in a couple years, and cable programmers match the move to avoid being seen as inferior in quality, most linear programming will be in HDTV format (the issue is what cablers will want to do about "standard definition" NTSC signals).

The assumption that just one concurrent HDTV stream will be required by any single home has to be suspect. To some extent, the access network has to be built to the level required by the most demanding user. And while it still makes sense to retain the ability to "spot upgrade" on an incremental capital basis as more demanding customers are signed up, the access network has to support such incremental and spot upgrades. Whether or not all the theoretical bandwidth is presently required, the ability to provide it on demand is something the access network must be built to support.

The option to deploy a "thin fiber" network saves capital investment for the moment, to be sure. Planned properly, fiber then can be incrementally extended deeper into the network. Such rework remains a non-trivial exercise, though.

Also, keep in mind that all discussions about what video might do the backbone of a network is a separate matter from what might be required in the access network. The reason is satellite delivery, regional server farms and other ways of substituting storage for bandwidth, processing for bandwidth, non-real-time delivery (store and forward) and alternate networks. All of these forms of substitution allow for easing the stress on backbone networks. The amount of stress on access networks typically is the real pinch point.

It Will Take Video to Change This

Some 29 percent of U.S. homes--31 million--do not buy any form of Internet access, and 44 percent of the "resisters" says they don't buy service because they are not interested in anything on the Internet, say researchers at Parks Associates. About 22 percent of resisters say they don't buy because they do not own a PC. The U.S. Internet "resister" homes also say they don't plan to buy access for the next year either, say Parks Associates.

Parks researchers also find that most new broadband access subscriptions are coming from dial-up customers who are upgrading, not "newbies." Some 17 percent say they use the Internet at work, and therefore don't need it at home. Of course, if we are to get to universal broadband, it will be driven by entertainment video. You don't find many people objecting to ownership of TVs and TV service for any reason. As the broadband connection becomes the way to get TV, resistance will crumble.

Buying Decisions Hinge on Marginal Value

There's a curious paradox about user perception of value and the actual triggers that push a buyer towards one offering, compared to another. Consider all of the value any user gets from a mobile or fixed line phone, VoIP service, a broadband connection or Web service. When you get right down to it, a phone has to reliably make and receive calls. Perhaps half to 90 percent of the total value is there. The incremental value is provided by all the other attributes of the phone and its features, the calling plan and so forth.

To the extent that "voice" consumed as a standalone subscription service is a commodity, the discrete buying decision still will hinge on other differentiators at the margin. The point is that even a commodity service is not sold as a commodity.

Yes, all phones need to work. But then there's phone color, fit and finish, form factor, keyboard support, push or pull email functions, ease of navigation, screen size, multimedia support and so forth. Some brands are worth more to some buyers. Some users prefer candy bar form factors, others clam shells. Ability to customize is important to some users, not at all to others.

The presence or absence of just one feature can tip a decision for or against a particular service, provider or device.

Part of the buying decision may be based on relative strengths of a family plan, or the way text messages are billed (flat fee, by the message) or packaged (unlimited use, fixed number of messages or a la carte).

So consider commodity broadband access. Comcast is rolling out its upstream Powerboost feature now in Denver, and expects to have it available in all markets in May. The service offers 6M bps cable broadband customers 1 Mbps upstream speeds for the first 5 megabytes of a large upload, and 8 Mbps customers 2 Mbps upstream speeds for the first 10 megabytes of a large upload.

The point is that Powerboost is one way to differentiate what would otherwise be a plain vanilla access service. Raw bandwidth matters. The degree of bandwidth sharing therefore matters. But so does pricing, packaging and features such as Powerboost. Lots of mass market end users I talk to really believe cable modem service is superior to Digital Subscriber Line. Some even question the value of fiber to home access services such as Verizon's FiOS, which seems to be experiencing at least some deployment glitches.

Communications might be a commodity in many ways. Its purchase almost never seems to resemble a true commodity, though.

100 Gig Backbones Needed by 2010

Simon Zelingher, AT&T Research Labs VP says his company will need to upgrade to a 100-Gbit/s backbone by the end of the decade in order to keep up with bandwidth demand driven by video and multimedia applications. AT&T recently quadrupled capacity by moving to one global OC-768 (40 Gbit/s) core, but that bandwidth is being eaten up more quickly than the telco expected.

One 40-Gbit/s DWDM system in one point of presence, capable of carrying 80 wavelengths at full capacity, was already 25 percent full last fall. Verizon this week issued a press release saying that they were in the process of upgrading key backbone routes from 10 Gbps to 40 Gbps.

Access bandwidth required for Internet access at 6 Mbps to 24 Mbps by 2010 is one reason. Access at 100 Mbps in a decade is another.

Vilfredo Pareto, Mobile Apps

Vilfredo Pareto, an Italian economist, around 1906 coined the Pareto Principle, popularly referred to as the 80-20 rule, "the law of the vital few" or "the principle of factor sparsity." It states that, for many phenomena, 80 percent of the consequences stem from 20 percent of the causes. As applied to any sphere of business or life, it means that a disproportionate share of the results come from 20 percent of the decisions, actions, people, partners, employees or just about anything else you can think of. The rule should therefore apply to virtually any part of the Internet or communications business, because it applies in any business.

If one looks at what is being bought out of the Handango catalog of more than 190,000 titles, across mobile platforms, and aggregating apps by type, you can see that no single category dominates. You might initially conclude that Pareto doesn't apply to the purchase of mobile apps. A different presentation of sales data--ranking sales or discrete items by volume or revenue--would clear that matter up.

Still, there's an important business implication here. It always is true that a small number of drivers (applications) account for a disproportionate share of sales. It also is true that as much as 80 percent of the actual apps sold represent niches important enough to users that they pay money to get them.

So fashion your business around the relatively small number of high volume items, or around the huge number of small and smallish volume items. Either way, it works. You just can't build the same sort of company to chase niches as you would build to chase the high volume segments of the market, if you want to succeed.

You might also be surprised at where the niches are. Handango says that in 2006, the top two selling apps for BlackBerry were "Ringtone Megaplex" and "Ringphonic Lite." Ringtones in a segment dominated by business users. The top two titles bought by Palm OS users in 2006? Quite different. "Agendus Professional Edition" and "Treo Voice Dialing" were tops there.

Still, across every major operating system, "business and professional" apps were the top category, followed by "productivity", then "entertainment," "games," "travel," "utilities," "communications" and "multimedia."

Can You Survive the IP Shift?

A few of you are familiar with a story I’m fond of telling. Once upon a time my market research company started to get asked what would happen if Congress passed a new telecom act. This was 1994 and 1995. The truth was, we weren’t sure. To make a long story short I embarked on a personal research program to figure that out, and ultimately boiled my findings down to about a dozen bullet points.

Roughly at the same time, I started getting asked what the actual cost of a phone call was, and where that all would sort out. To make a long story short, I wound up with a concept I have called “near zero pricing” ever since. And, ever since, I have urged everyone to build their business models on that premise.

More recently, new questions are being asked. Many successful providers of voice-centric services are asking whether they can remain relevant, and prosper, in an IP world where so much value and revenue conceivably shifts to application providers, and is not captured by “network services” providers.

My off-the-cuff answer has been that “100 percent of those of us who survive this shift will be providing all sorts of Web services and applications beyond basic ability to make, store, forward and retrieve voice messages.”

The inevitable next question is “what are those things and what do I do to create and deliver them.” That’s an open question, but has to be operationalized, and soon.

There’s a third question I now am set upon deciphering: what does the communications business look like after wider IP transition allows latent demand to surface. Put another way, there are lots of problems end users have that we haven’t been able to profitably address with TDM solutions.

All that is about to change. We are going to witness the emergence of all sorts of market segments and niches that we now can serve profitably, and this will happen all over the place.

The issue is to discover precisely how the process will unfold, so we’ll know where to focus our time and money to capture this newly-visible demand.

Another observation is that network services providers no longer can do everything themselves, and they know it. “MetaSwitch is at the heart of this transition of our business,” says Sylvie Couture, Télébec’s chief technology officer, about the ways MetaSwitch provided extensive professional services, not simply “a switch platform” to the Quebec-based carrier.

Other infrastructure providers also offer evidence that such things as a complete redesign of the entire IP network often cannot be done as well by carriers themselves as by their supplier partners. This understanding needs to be extended further into the application development process.

Also, the idea that voice services are a commodity needs further and serious reexamination, because it probably isn’t true at any level except in the sense of raw transmission of bits.

Consider softphone technology, to use but one example. The issue isn’t whether soft clients replace physical phones, but how and why soft clients work for people. There are many applications, and many settings, where a soft client makes more sense than a physical hand set or desk set.

Wainhouse Research surveyed enterprise end users and found that soft clients had already been purchased by 24 percent of respondents, while another 20 percent saw this as a future purchase. Obviously, there are some places where softphones make more sense than physical instruments.

In a completely superficial—but real—sense, if you can talk real-time through your PC, and you can get your voice mail there as well, and you're already comfortable using a Bluetooth headset, maybe you don't need a traditional phone.

The point is that if voice is not a commodity—and my contention is that IP is going to prove this is the case—then those who make the transition and prosper are those who can move adroitly to create voice services that aren’t commodities.

My guess is that every user of communications can point to ways that various modes of voice, on different devices, used at different times of day or week, to communicate with different people about different things, already exist. And we’ve just started to make the shift.

And my point is that these various modes of communicating are in fact not completely functional substitutes for the other modes. If they were commodities we wouldn’t bother using the various modes in different ways. Again, to use a crude example, mobile voice is not completely a functional equivalent for POTS. If it were, people wouldn’t be willing to pay so much more for the service, or use it as readily as they do.

POTS is a different product from some forms of over the top VoIP. Both are different from some forms of IM-based or soft client voice used on a PC platform. DIDs get used in different ways than they used to. People who use voice white lists and black lists are different from people who don’t know what the difference is.

Now, to answer some possible objections that might be forming, if voice is very much contextual, and not a commodity, then even when the “raw” cost of talking is very low, the value might be very high. Voice is not POTS. Voice is not simply mobile, or IM, or a soft client experience. Sometimes it is click to call. Sometimes it is enhanced with video. Sometimes it is synchronous. Sometimes it is asynchronous.

Sometimes it is a voice SMS. Sometimes it is a voice post on a Web site, rather than a text post. Sometimes it is integrated with podcasting. In the future it might be integrated with a video experience. Sometimes it flips from one device to another, mobile to fixed, or fixed to mobile. Sometimes it is personalized for friends and family. Other times it is screened and filtered for work.

At times it might be integrated with some sort of collaboration, such as review of some sort of document. It might be launched from inside an enterprise application, an email, an IM, a Word document or spreadsheet. At other times talking on a device recognizable as a phone is just fine, with no need for image or text support.

I stand by my contention: 100 percent of today’s voice practitioners who survive the IP shift will have found ways to unlock voice from the plain vanilla box it now is in. All of the survivors will have found ways to customize the voice experience for latent demand that is going to surface.

And 100 percent of those survivors will have found ways to use new IP-based tools to innovate faster than IMS or the core network protocols will permit. You want different answers? Ask different questions.