Economist VoIP Cover Story

There was a great story recently in the Economist about VoIP. The article discusses Skype, eBay, Yahoo!, Microsoft and others. Here are some excerpts:

This is every bit as audacious as it sounds. Mr Zennstrom, in general, is a modest man. But his company is only three years old, will probably make only $60m in revenues this year, and will certainly not turn a profit. So it is the fact that his ambition is not nearly as ridiculous as it sounds that should make incumbent telecoms firms everywhere break out in a cold sweat.

That is because Skype can add 150,000 users a day (its current rate) without spending anything on new equipment (users “bring” their own computers and internet connections) or marketing (users invite each other). With no marginal cost, Skype can thus afford to maximise the number of its users, knowing that if only some of them start buying its fee-based services-such as SkypeOut, SkypeIn and voicemail-Skype will make money. This adds up to a very unusual business plan.

“We want to make as little money as possible per user,” says Mr Zennstrom, because “we don’t have any cost per user, but we want a lot of them.” This is the exact opposite of the traditional business model in the telecoms industry, which is based on maximising the average revenue per user, or ARPU. And that has only one logical consequence. According to Rich Tehrani, the founder of Internet Telephony, a magazine devoted to the subject, Skype and services like it are leading inexorably to a future in which all voice communication, near or far, will be free.

There I go. I said it. Now to all the service providers out there who aren’t looking for ways to add services and increase revenue beyond providing cheap minutes… Your days are indeed numbered.

The biggest concern I would have as a VoIP service provider is software companies from AOL to eBay giving enhanced services away for free while you are trying to make a buck selling them.

This means without question that if you aren’t adding services at the speed of light you may be obliterated that fast. Nimbleness, speed and aggressiveness will be the key differentiators that will enable the next generation of service providers to not only survive but flourish.

The difference between today’s successful service provider as opposed to those in the past is that today it is the quick who will survive. Momentum, monopoly and sheer size mean little in for the future service providers.

The web is a free distribution network every service provider can take advantage of. Anyone can be a service provider today.

Which company will be the first stereophonic VoIP service provider? Who will be first to deploy surround sound conversations? These are enhanced services and are all easily achievable with technology from five years ago. Yet with all the money flowing into VoIP no one is doing these things yet – they are still focusing on price.

The price game will come to an abrupt end one day and at that point there will be a dash to differentiate.

Most service providers are up to their necks in 911 issues now but as soon as this ends, you must start working on next-gen service and VoIP 2.0. Your time is limited and the opportunity massive. Act now or say good bye. Don’t say I didn’t warn you.

  • Alec Saunders
    September 25, 2005 at 9:35 pm

    Don’t you think that the price game is coming to an end now? I think the EBay acquisitio of Skype signalled the beginning of the end of minutes. The market needs to shift to services as the chargeable unit, and Skype is driving everyone in that direction.

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