Alec Saunders SquawkBox

“It seems highly likely to me that at some point in the future we’ll all look back and say that 2008 was the year that the VoIP industry finally died.”

That’s how I started off a piece last week which kicked off a round of commentary the likes of which I haven’t seen in a long long time.

Note the very deliberate italicization, which was in the original (you can read it at 2008: The Year that VoIP died.)  You could make the points in that piece in another way – businesses which define themselves as VoIP businesses are defining themselves via a technology rather than a customer benefit.  Not only that, but they’re defining themselves via a technology which is rapidly becoming a commodity.

The last couple of days have seen some fabulous paean’s to the triumphs of VoIP past, especially from Jeff Pulver and Rich Tehrani.  I will not argue with these two giants of the industry that there have been remarkable achievements in openness, consumer pricing, and flexibility under the auspices of the VoIP revolution.  If anybody would know, having lived the entire experience, these two would.

In the spirit of Jeff’s reminiscences, I have a very old VoIP story of my own to tell.  It goes like this.

Back in early 1995, I was the product manager on the Windows 95 team at Microsoft who had been given responsibility for the launch of Internet Explorer version 1.0 and the internet features in Windows 95.  We were desperately searching for ways to differentiate ourselves from not just Netscape, but also IBM with their WebExplorer suite and Apple with the Cyberdog suite.  One day, while driving to work, I hit upon the idea that we might be able to make voice calls on the network!  What if every copy of Windows came with the ability to make no cost calls to family and loved ones?  Wouldn’t we sell a lot of Windows then, I said!

Well, I went to work and explained what I was thinking to my colleagues on the development side of the house.  After some discussion, one of the development managers (a very pragmatic guy who was trying to ship a product, and didn’t need a wild-eyed marketing guy proposing new features) offered up that “really, all you’re talking about is arbitrage.  How long do you think it will take the phone companies to figure that out?”

So we didn’t.  And about six months later, at PC Expo in New York City, I ran into IDT for the first time, and caught a glimpse of the future of PC telephony as they demonstrated their voice over IP products.

The VoIP revolution gained steam aided by Congress, the FCC, and visionaries like Jeff and Rich.  The phone companies took way longer to respond than any of us at Microsoft ever imagined they might. And by 2005, a decade later, rates had fallen, it looked as if the upstarts might actually take out a phone company or two, the phone companies were finally deploying VoIP throughout their networks, VC’s were mad crazy to fund anything that smelled like VoIP, and Skype was taking the world by storm.

It was a bubble, and anybody who could find a way to label their business a VoIP business did, whether it meant anything to the customer or not! Remember the marketing slogan “VoIP with Vonage”?  What possible consumer benefit did that offer?  It was a sign of the times.

Four years after the buzz of 2005, and 14 years after 1995, the triumph of phone calls across the internet is largely complete and the toll arbitrage play has run itself out.

So, no, VoIP itself isn’t dead. But the VoIP industry has become synonymous with cheap calling. Businesses that define themselves as VoIP businesses are having a tough go of it because they’re really call center businesses, and conferencing businesses, and PBX businesses, and telephone companies.  It’s just that they’re now cheap call centers and cheap conference services and so on.

It’s time for we in the industry to sacrifice the term VoIP and all the accompanying baggage of cheap calling, and move forward.

When we look back at 2008, and say that that was the final gasp for the VoIP industry, it will be because the old prices have fallen as low as they can go, and the old business models that supported those prices have finally died.  We’ll look at the transition that is happening now – to new business models, to integrated communications platforms, and to new applications – as a major inflection point.  And we’ll say that this was the year that was really the beginning of the new communications revolution.  Because otherwise, the alternative is…

“really, all you’re talking about is arbitrage.  How long do you think it will take the phone companies to figure that out?”

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Thank you to everyone who joined this discussion, both here and on other blogs and boards throughout the blogosphere.  Thank you especially to those who joined who have been absent from the discussion a long time.  If you’d like to join in live tonight, Sheryl Breuker will be hosting a discussion on Calliflower.  Get your Calliflower account and join tonight’s conference call.

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Yesterday’s 2008: The Year that VoIP Died generated a slew of interesting responses.

Jon Arnold and Andy Abramson wrote me in email to say that I had made the same points that they had.  While it’s true that I made many of the same points, my view of their meaning is perhaps different.  I don’t see a bright future for those who are in the “VoIP business”.  I do see a very bright future for communications innovators.

In 10 points about the death of Voice over IP Ted Wallingford lists his own reasons for believing that VoIP is done, including noting the fact that “Everywhere you look, former VoIP honchos are turning to social media applications as a focus area–from Jeff Pulver to Ken Camp to myself. It’s a trend. Social media is where the opportunity for innovation in unified communications still exists.”  There’s some truth in that statement, no doubt!

On Twitter, VoIPSupply’s Garrett Smith and I mixed it up, with Garrett asserting that “VoIP lives – just not how it was once thought of by the collective.”  I should clarify that I believe strongly that there will be a market for the VoIP communications devices and products that Garrett sells. They’ll be sold as “Unified Communications” products and platforms for businesses.  At some point in the not too distant future VoIPSupply will likely re-brand — away from VoIP.

CircleID’s Ali Farschian also contacted me and asked if he could repost the piece on CircleID.  It generated two comments, one agreeing  and one defending Vonage.  And, not to be left out, Ali also reposted Jon Arnold’s original piece. 

In VoIP is NOT Dead, Jeff Pulver wrote his rebuttal, finishing with the line “VoIP is dead.  Long live VoIP.”  Interestingly enough, in the first draft of yesterday’s piece, I alternated between using that same line as both a subtitle to the original title, and the closing line, before landing on “Ding dong, VoIP is dead”.

Andy Abramson’s one-liner in comments simply said “The real point is VOIP is NOW part of Telecom and it is now Mainstream.” Amen to that sentiment, but it doesn’t go nearly far enough.

Ken Camp declared the whole discussion boring, noting that he had written the same commentary on VoIP as plumbing at several times in the past and finished with the immortal one-liner “2009 – No bullshit. No VoIP. Be real and create real solutions for communications.” Ken then tagged the whole post “beating a dead horse“.  Lee Dryburgh agreed saying “plain VoIP is quite frankly boring. Cheap calls generally with inferior quality. Nothing to stay up on a Saturday night about.”

And we said all of this without one reference to Skype, cloud computing, or the intersection of voice and the web. More on that tomorrow. 

Keep those comments coming, and Happy New Year!

It seems highly likely to me that at some point in the future we’ll all look back and say that 2008 was the year that the VoIP industry finally died.  With all due respect to my very good friends Jon Arnold, and Andy Abramson, it’s about time.

Voice over IP is just a transport and signalling technology. It’s plumbing.  It may come as a surprise to some of you to know that in the late 1980’s and early 1990’s there was a TCP/IP industry as well. TCP/IP is inarguably plumbing.  As the IP stack became common on all computing devices, TCP/IP went from being a differentiator to a commodity.  The short lived TCP/IP industry was a footnote in the events that spawned the global web. The fact that a VoIP industry has existed is a similar historical footnote to the transformation of the communications industry as a whole.  The VoIP industry was a necessary phase in that transformation; John in the wilderness announcing that the real action is still to come.

And what is the evidence that the VoIP industry is at that turning point?

Where have all the pure play VoIP companies gone?  The last of any consequence still standing is Vonage.  The S&P is down about 40% for the year, and Vonage a whopping 70% save for a miraculous gasp in November at the point of the announcement of their debt having been refinanced.  The fact of the matter is that Vonage is in an impossible place.  Phone calls are cheap enough, Vonage is undifferentiated from any other phone service, and … the cable guys have television.

Will this be the Vonage’s last year for the zombie shuffle?  Or can they pull it off again, and come back from the dead once more?

VoIP events are suffocating too.  VON was a spectacular flameout, despite the best efforts of Jeff Pulver and his band of merry men to transform it from a voice only show into a voice, video and more show.  At least the Pulverites understood where the future was, even if unable to craft a profitable event around those varied interests.  There’ll be more of the same next year, I fear.  Initial reports from this fall were that VoiceCon was an understated and quiet affair.  Lawn bowling anyone?

Another sure sign of the ill health of the VoIP industry is that the feature companies are heading to the deadpool, as well.  2008 started as a year full of VoIP companies trying to make their mark with free “products” that were features in disguise.  Needing to find a revenue model, many turned to advertising and cheap minutes and ran smack into the same wall that Vonage is heading toward at light speed.  Bye bye TalkPlus, Jangl, and so many more.  And suddenly, late in the year, Jaxtr lurched back from the dead with another free calling service…

The smart vendors have learned that consumers don’t want another telephone company built around a complicated piece of technology in their lives and those vendors have done one of three things – they have transformed themselves into a platform play (think Mobivox), into a wholesale player (think Jajah) or into a full-on competitor in the traditional telecom space (think TruPhone and the build-out of their global network).  Taking their cue from BT’s $105 million buyout of Ribbit, these companies are positioning themselves as players that are part of the communications ecosystem, rather than apart from the ecosystem. 

Why?  Well, the big VoIP stories this year were that ecosystem of applications, and platforms. 

• Irv Shapiro’s IfByPhone ingeniously connected IVR and Google Analytics, allowing deep measurement and statistical analysis of call center traffic. 
• Mashup king Thomas Howe demonstrated over and over that with the right tools, building communications applications can be as simple as building web sites. Tom stood on stages in front of audiences, built applications and won contests and plaudits by concretely showing that voice is now just software.  The subtext?  The magic of software lets you embed voice into any application that you like.
• Like Tom, we at iotum used modern platforms to release Calliflower in record time. We can turn around code on a two week cycle not because we’re smarter than everyone else, but because of the tools we use to do the job. 

Building communications applications with today’s infrastructure compared to what was available even five years ago is comparable to digging a ditch with a backhoe instead of a pickaxe. 

Most interesting, perhaps, is the fact that the service provider and the equipment manufacturer seem to be blurring at the moment.  As the equipment industry has become mired in the complexities of defining and delivering a common application standard (think IMS), carriers are starting to go their own way – BT’s acquisition of Ribbit is an obvious case, but what of Orange’s developer camps (now in their third year) and the way in which the mobile industry has rushed to imitate Apple’s success with iPhone, both platform and store.  These moves betray an understanding that the future is in software, in applications, and in building products that deliver end user value rather than shaving the corners off pennies.

And what of the companies that are failing to make that transformation?  Pity the Nortel shareholder as Nortel has seen over $250 billion in market cap erased in the last five years. 

Ding dong, VoIP is dead.  Let’s dance on its grave and get on with the business of transforming communications in the twenty-first century.

Image by wilding.andrew via Flickr

For our final daily SquawkBox, we discussed these stories:

• Reports are emerging that AT&T is developing an iPhone tethering plan, but network glitches are holding it up!
• Marlin, a digital rights technology created by Sony and Samsung, is apparently ready for prime time. An open source solution, it claims to solve the problems with DRM solutions from Microsoft and Apple. Have they solved the biggest problem, the fact that consumers hate DRM?
• Vonage dodges the bullet, and refinances their $253 million in convertible debt six weeks ahead of the December 16th due date.
• And Cox Communications… raises their VoIP pricing!

James Body also gave a short recap of the Symbian Show this week in London, and we had a discussion about the future of SquawkBox.  More on that later.

On today’s Calliflower Conference Call: Dan York, James Body, Jonathan Jensen, Jeanette Fisher, Jim Courtney, and Sheryl Breuker.

 

 Squawk Box October 24 [47:45m]: Play Now | Play in Popup | Download

Image via Wikipedia

First we dove into the Net Neutrality debate. It looks as if three of five FCC  commissioners will vote to sanction Comcast this Friday for throttling bit-torrent  traffic. Dissenter Bob McDowell wrote an op-ed for yesterday’s Washington Post arguing that engineers should figure a way out of this mess, not politicians.

I don’t think there’s any doubt that Comcast was throttling traffic. We talked about McDowell’s argument for a hands-off approach by the FCC, the issues around bandwidth shortages, and what’s happening outside North America.

We also talked about Vonage.  It’s been a while since they’ve really  been in the news, but they’ve been quietly cranking out announcements. They’ve announced a partial refinancing of their debt.  Up to  $215 million of their $253 million can be refinanced under an agreement they’ve  just struck, and $125 million has been committed. They have to do this because the  existing convertible notes expire Dec 12.

They’ve also announced their first patent — on virtual phone numbers.

Revenues are growing.  Losses are narrowing — last quarter they lost just $8  million.

And, they’re set to announce a new CEO.

We talked about what it would take to make Vonage a success and whether or not they might really make it.

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 Squawk Box July 29 [39:33m]: Play Now | Play in Popup | Download