Unified Communications Almost Free

When Avaya started pushing $99/user unified communications solutions, I knew that there would be a price war in the UC space. In my opinion price wars are bad. Nobody wins in a price war because in order to deliver low prices, margins are cut to the bone and inevitably service suffers.

The implication here is not that any single vendor is providing inferior service at the moment mind you but price wars generally don’t end well for anyone.

Having said that, we have the opposite end of the spectrum in open source where the price is actually zero. Companies like Digium and Fonality have found ways to add value to free and in doing so have generated solid revenue. We aren’t talking billions of dollars but these two companies seem to be generating solid revenues for small to medium sized organizations.

I got to thinking about pricing and communications when I read Objectworld has a new UC offering for 7 cents per day per user. This comes out to $2.10/month or $25.20/year.

Objectworld seems to have solid products and I am unsure as to whether this move is smart in the long term or not. On the one hand it takes prices out of the equation for a company considering a UC solution. On the other hand it gets potential customers wondering if the company can make enough money at these price points to be around in a few years.

What are your thoughts?

For more on Objectworld check out my podcast with CEO David Levy.

Dirk Puslich
July 23, 2008 at 2:49 pm
Seems like a great product at great price – half the cost of a Starbucks latte per month.
Get 500 customers with 500 employees each that’s $525,000 per month!
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Torsten Leibbrand
July 24, 2008 at 2:19 am
I agree with you, that this price wars come to the cost of good service which causes the (content pre-price-wars) customers to become disappointed customers that have a high potential to switch the provider. So on a long term, no good.
But, if you plan on doing these price-wars only for a “small” period of time. Say 5 years or so, just to get your company known to everyone and achieving a bigger customer crowd. This might actually work.
But you would have to consider the quality of your service. This should never fall beneath a certain standard.
But if you can achieve both low pricing and an at least acceptable support and/or service, you might boost your customer base.
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Rich Tehrani
July 24, 2008 at 5:29 am
Dirk thanks for the feedback and Torsten, good points. Would the challenge be raising prices at some point? After all, branding is branding and in the US, Volkswagen is known for making entry level cars. About six years back they invested over a billion dollars to bring a high-end luxury car to the US called the Phaeton.
The car was similar to the Audi A8 (Volkswagen owns Audi) and it failed because people didn’t want to spend $70k on an entry level brand. Ironically many of the components in the Phaeton ended up in Bentley’s cars (Cost $150k+) because people would spend that kind of money on a high-end brand.
My concerns also have to do with branding. Volkswagen makes great cars but is not considered a top brand. Price implies more than we realize. We are often blinded by matter-of-fact reasoning in the technology space and forget customer perceptions of our actions.
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Torsten Leibbrand
July 24, 2008 at 8:12 am
Yes, the challenge would definately be rising the prices at some point.
Your expample with Volkswagen is quite a good one. In Germany VW (Volkswagen) is both a entry level manufacturer, but also delivery high-end and very expensive cars. Although the Phaeton also seems to be a flop here in Germany as well. Although it has the same quality like an Audi A8, for example.
One example from Germany to underline that theory about brands is the “Deutsche Telekom” which is the by far biggest telecommunications provider in Germany. The Deutsche Telekom has moderate pricing and quite good support/service. But compared to the competition, they are higher in price and really better in service/support.
So, instead of lowering their prices, and going into quite soem risks with that, they just simply founded a daughter.
“Congstar” is now the “cheap-brand” of the Deutsche Telekom. Competing with its mother, but at much lower pricing. And they seem to go very good with this.
Bottom line, you are absolutely right about the meaning of brands and how people react to them. But just the same are the companys smart enough to circle these behaivours by selling their part to other manufacturers ( e.g. VW to Bentley and Audi) or they just simply found a daughter that most people don’t know that it is a daughter and have their revenue this way 🙂
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Rich Tehrani
July 24, 2008 at 5:43 pm
I agree 100%. Tech executives should all hire you to help them understand branding and how to position and price their products. Perception is not something the typical engineer understands as it is too intangible for them. If it is not a one or a zero it doesn’t seem to exist in the engineering world
As an engineer myself I feel comfortable making these statements btw and no offense intended.
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David Levy
July 25, 2008 at 3:56 pm
Rich,
Thanks for the mention! A lot of people have asked about our pricing as a result of our recent release, and I just posted a blog entry on this very question (and about pricing in general. The entry specifically addresses how software approaches like Objectworld’s are fundamentally reshaping the price of unified communications.
Cheers,
David
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