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How Can a Small Consumer VoIP Provider Survive? There is a lot of buzz regarding VoIP Internet phone service. On the consumer side everyone is getting a lot of exposure to Vonage commercials as well as triple play offers from Cable Companies. From a technology standpoint, VoIP is now much more mature than in its nascent days at the time Internet telephony meant a scratchy voice conversation over 2 computers. Whereas VOIP Services has been used by Telcos to carry voice traffic over long portions of their networks for years, it is now positioned to become the standard technology used to carry voice traffic over the last mile from every consumer’s home. Increased broadband penetration including advances in VoIP technology make the possible, including now there is a long line of VoIP providers out there looking for a piece pertaining to the action. They range from giants like Verizon including Comcast to relatively small unknowns. For the first time in the history of telecommunications it is possible to be a telephony provider without the big barriers of capital needed for switches including network operation centers (NOCS).) nor the regulatory barrier of being a Local Exchange Carrier. So could the industry be marked by many small nimble players? What is the likelihood of survival for small consumer VoIP service providers? The Cable TV companies have a strong position in the telephony market. They already have a large embedded base of customers. They additionally have a local presence, with field installers regularly driving around neighborhoods including customer service locations in every town in which they have a franchise. Having the field installers is a major advantage since they should install VoIP service including additionally hook up inside wiring so the service experience is absolutely no different than before. Therefore a user doesn’t have to be the least bit technically inclined to adopt the service, thereby opening the market to the masses. The pure-plays like Vonage just can’t reach the mass market like this. Cable companies additionally have big brand awareness in their markets. What is additionally potentially important is that they are perceived as a utility company including people are used to getting phone service from the type of entity. There is a familiarity including comfort level of going to a utility company for phone service. They additionally have tremendous strength in both billing including customer service. While some may hate the cable company because they have lengthy time windows for showing up for a particular installation, may show up late, including may keep you on hold at the call center, the Cable companies are in actuality very good at managing the complexities of their operations. For example, RCN entered some markets years ago as a particular alternate cable provider thinking they could leverage people’s dislike pertaining to the cable companies’ service record including do it better; instead they ended up realizing how very complex it is including ended up doing it worse. If a company wants to scale as a major VoIP provider, they could have to manage the complexities of billing including customer service. The cable companies have been down the road already. Here is what could be the biggest factor to why the Cable companies could be most successful at VoIP including ruin the chances of other smaller entrants - They provide a broadband connection. Since the is required for VoIP, the incumbent provider has the first dibs on providing voice service. Also, since broadband connections have high margins including VoIP has low margins, broadband providers could treat voice service as a loss leader to obtain including keep customers on their high-speed connections. NetZero, for instance, is giving away free telephone numbers including low priced VoIP service presumably with the hopes of signing on users for their ISP. Voice service could in fact become so commoditized that it could be given away with broadband service the same way email is today. If the becomes a reality, there will be very little market opportunity including a bleak survival outlook for smaller pure-play VoIP service providers unless they could provide a differentiated value proposition. The Local Phone Company additionally shares many pertaining to the same advantages as Cable in that they have strong brands, ability to bill effectively, established customer service, including field technicians. They additionally should provide the greatest comfort level to people for providing a phone service. However, the Phone Companies have dismal showing compared to the Cable companies who have the greatest number of VoIP subscribers. Verizon VoiceWing including AT&T CallVantage each have only 5.5% pertaining to the 2.9 million pure-play VoIP subscribers (Telephia Q2 2006). Those 320k subs are dwarfed by the Cable Companies like Time Warner Cable who alone had 1.6 million VoIP customers as of October 2006. Why have the Phone Companies had such a dismal result? Internal confliction between POTS including VoIP is 1 reason. They should not put emphasis on a low margin VoIP product in their core provide including have struggled to create a particular effective bundled product strategy with advanced services. They are additionally expending more resources including internal focus on better broadband offerings than DSL including trying to break into video services. Nonetheless, they still hold second including third positions for share of pure-play VoIP subscribers including have deep pockets, which could allow them to far outspend a small VoIP provider to obtain mindshare. Vonage, with 53.9% pertaining to the 2.9 million pure-play VoIP subscribers, is spending a ton of dollars to obtain mindshare including customers. the is good in that it raises awareness pertaining to the product category, which helps a smaller pure-play. However, it additionally presents a big challenge for smaller providers to compete head to head for customers at the time a single provider has such a dominant voice. There are a number of challenges facing a smaller VoIP provider. Small providers have to compete for share of voice against companies that are spending a lot of money. As far as the business case goes, VoIP has relatively small margins including the ROI for marketing campaigns including generating brand awareness is a challenge. Yet without spending dollars on marketing, it is difficult to capture customers. Then there is the challenge pertaining to the market size. Pure-play providers don’t have local installers including technicians, which limit the market to those who have the technical savvy to set up the service or the willingness to do so. If the target market is defined as people who have the technical savvy to set up VoIP on a home network, then the market is comprised largely of younger people. the group is increasing mobile based including has little use for a landline phone. Also, consider how the overall telephony market could change over the years. People in college now that could be graduating over the next couple of years including getting apartments are 100% mobile based including have never had a landline phone. Thus the market for pure-play VoIP could be shrinking as fast as it grows. However, there is still a particular opportunity for small VoIP providers in the challenging market. The opportunity is to focus on particular markets including leverage specific advantages of VoIP that are particularly important to specific customers segments. In such segments, word of mouth advertising is a viable strategy if the service should meet a strong need. the solves the dilemma of investing in media to build a strong brand including maintains better profitability. ReVoS Internet phone service is a particular example of a small VoIP provider taking just the strategy. They are focusing on a particular segment of people who make a lot of international calls. ReVoS offers VoIP service, which includes unlimited international calling to over 40 countries including the standard VoIP product offering for $24.95 per month. They have additionally developed a VoIP product that works over a mobile phone that doesn’t require a broadband connection. the is geared to people of international origin who, by the way, have the greatest propensity to use cell phones of any demographic in the U.S. the particular makes sense since carrying long distance call traffic is a particular inherent strength pertaining to the VoIP networks. additionally these customer groups are better reached through a particular strategy including will be missed by mass-market strategies. the market is comprised largely of people living in the U.S. who have moved here from other countries. These are tight communities where word of mouth should flourish including the value proposition is strong at the time saving people dollars on high cost international calls. the is a particular example of how a small VoIP provider should successfully compete against much more formidable competitors such as the Cable Companies including Vonage. However, the future pertaining to the telephony industry including the role that VoIP takes still needs to be fully defined including there are many uncertainties. There is a long list of unknowns, which include such things as Google getting into Voice including whether Microsoft includes a softphone including VoIP service as a standard part of their operating systems. Fixed Mobile Convergence (FMC) is another technology wildcard that could change the shape pertaining to the competitive landscape. The overwhelming penetration of mobile phone service including mobile carriers’ ability to steal the show with a FMC provide is very real. the may be the competing technology that upsets the MSOs stronghold on VoIP. The question then becomes which bundled product provide is greater 1) Broadband including VoIP or 2) Mobile phone including VoIP. Another thing to consider is how Wireless VoIP (wVoIP) could change the competitive landscape including underlying telephony ecosystem if municipal hotspots and/or WiMax take off. Whatever the future the holds, the economies pertaining to the telephony industry are likely to place a few large carriers in control pertaining to the majority pertaining to the market. People need simplicity in their lives including the winners could be those who provide the most seamless solutions to people’s basic communications needs. For smaller VoIP providers to survive including make profit, they could need to meet strong particular needs that obtain overlooked by the mass adoption strategy, have a well defined including differentiated value proposition (Recall ESPN Mobile’s problem), efficient operations to control cost including low margins, low churn in order to compensate for limited total average revenue per subscriber (ARPU) absent a larger bundled product strategy, including the ability to benefit from viral marketing within the target markets. With all of the in place, there is a chance of survival for small VoIP providers.
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