I get this question a lot. Where would you invest in the VoIP space? How would you position yourself to profit from the hyper-growth of the voice over IP market? I figured a column on the topic made senses so I could share my thoughts with hundreds of thousands of people instead of just a few at a time.
I purposely stayed away from obvious companies such as Net2Phone, Vocaltec, Avaya, Cisco, Nortel, etc. I stayed away because there is already tremendous analyst coverage or the company does much more than just VoIP. I am really focusing more on areas of VoIP that I believe will do better than average.
Each of the following ideas will be augmented with supporting reasons as well as potential pitfalls. It also should be noted that I have some sort of business relationship with most of the companies mentioned as they are all potential/actual customers, etc. Some of these companies are private and some public and some private ones mentioned below aren’t looking for capital.
Furthermore, for the sake of being responsible, we need to realize that communications costs are plummeting and products such as Skype are getting millions of people used to free telephony. In such an environment, it is obvious that the price for VoIP service will continue to fall as more people get used to downloading software from the Internet, buying a headset or a number of other VoIP compatible products and then making free calls.
In such an environment, service providers will have to differentiate themselves with sticky features such as distinctive ringtones, second and third lines, virtual numbers, conference calling and more. A war of differentiation and services will have to occur because if we continue to have a price war until no one pays for telephony, no one will be left.
Peer to Peer
Peer to peer products from companies such as Skype, Nimcat Networks and Popular Telephony are in a great position to benefit from the interest being paid to p2p. The latter two companies focus on the enterprise and work with phone vendors to embed their technology into phones that eliminate the need for a central PBX. Both the consumer and enterprise model make great sense. Skype makes its money with management features, as well as at the intersection between VoIP and the PSTN.
The downside to this technology is the potential for ILEC and cable companies to intentionally damage the quality of VoIP calls. This is a very real threat to our industry and the FCC needs to provide a free and fair market for adequate broadband competition so the VoIP market can flourish.
Many people get peering mixed up with peer-to-peer. They are not the same or even similar but can work together. Peer-to-peer products communicate with one another without the need for a central server while peering is the interconnection of networks. Companies that are strong in VoIP peering are Stealth Communications, Telx, Terremark, and Infiniroute networks.
Open Source Telephony
Two of the more visible companies in this space are Digium the maker of Asterisk open PBX and Pingtel. Digium was first to go open source and Pingtel has been around longer but went from focusing on making IP phones to IP PBXs to now open-source software. The business models for these companies is similar to Red Hat in that they give you a free product and you choose to pay for support, consulting, some ancillary equipment (if needed), etc.
The downside here is if there is a move towards more hacking attacks on Linux servers. These products would be at risk and as we all know it is much worse to have your phone system go down than your e-mail system. This last statement is not true at TMC anymore but for many other companies phone systems are more important than e-mail servers.
The government is spending on VoIP like never before. Each year, more conferees sign up to our Internet Telephony Conference & Expo. When you talk with these conferees they tell you that VoIP is becoming more and more critical in the government and military sectors. A number of companies sell to this market including Net.com and Telecommunications Systems.
The companies in this space (too many to mention – see triple-play coverage in this issue) are doing a great job coming out with products that are compelling for service providers to install and sell services with. Surveys tell us consumers want a single bill. Bundling is a great way to reduce churn. All service providers need to consider the triple-play opportunity and see if they can offer it in the future or be part of a broader offering.
Cable companies have the easiest time with this as they have already mastered TV and broadband and VoIP is an easy addition. ILECS are going to have a tough time gaining share in the TV market in my opinion. It will take a while for them to get their systems up and running so it is premature to rule them out. There is the possibility that WiMAX providers will appear as well offering triple-play service. WiMAX is the cheapest way to provide triple-play meaning lower costs to whoever uses wireless to deploy triple-play service.
The question is, will we need triple-play providers in the future? A concern is that sooner or later TV will be streamed to users over broadband connections that can be viewed on any TV. In other words, TV may not be TV in the future… Or at least not the way we look at it today. You may just subscribe to Yahoo! TV and stream your channels. This would make the triple-play a double play as you don’t need a TV provider if you have Yahoo!
The incumbent providers have pretty much blocked access to the fiber they are laying down and they may block access or reduce the quality of streaming video as well. We will have to wait on this one.
This is where the tight relationship between SBC and Yahoo! Comes in. Imagine if Yahoo! were to work a deal with SBC so you need SBC service to access Yahoo! TV. Watch this area closely. By the way both www.yahootv.com and www.yahoo.tv are already taken by Yahoo.
One final note: it is possible that the company with the best wireless network, Verizon will just clean house by providing a superior quadruple-play offering and continuing to market their strength in the wireless market.
You may not need to read this column to know that this market is hot but what you may have missed is how every product is becoming VoIP enabled. All telephony devices will have to support VoIP whether they are wired or not. I predict MP3 players, mobile video games and 10 other categories of products I can’t even imagine will somehow integrate and leverage VoIP.
There will be a continual worldwide upgrade of all wireless phones whether they be cellular or the 2.4 GHZ cordless kind found in our homes. They will all need to support WiFi, bluetooth and WiMAX and in that order. The cordless phone in your home will be thrown away as often as your cell phone. This of course assumes you don’t just have a single device.
There will also be a tremendous need for ATA devices that convert analog to VoIP. As the VoIP market grows, these devices are necessary. Eventually the phone itself will deal with the conversion.
HMP or host media processing will eventually be standard in all equipment meaning specialized DSPs won’t be needed. Phones and cameras will continue to merge and we won’t need tapes, disks, etc. Everything is going to plain old flash memory.
These chips are finding there way into everything from routers to hubs to cell phones to PDAs. You name it there is a reason to put a VoIP chip in it. Please note HMP comments from above.
This market has finally arrived. The worst is behind us and there was an extensive weeding out process that left the strongest providers. The value of hosted providers will only increase. I don’t se a downside here unless major players such as Saleforce.com have a disastrous financial problem.
SIP is good. It is becoming great as more companies and service providers support this open standard. Anything SIP has potential to do very well. The market for SIP products is still young and there is ample opportunity for many players.
Downside to this one is a new standard or protocol eclipsing SIP. It happens all the time. It happened to H.323. So far this is the standard. Let’s see what happens next. Also Skype could become the defacto standard for VoIP in the future. It is possible and at the pace of downloads they are receiving so far (over 50 million so far) they may just be on everyone’s desktop and make SIP irrelevant. Niklas Zennstrom basically mentioned this in his keynote at a recent Internet Telephony Conference.