Michigan Telephone, VoIP and Broadband blog

You may wonder what inspired me to break my long, self-imposed hiatus on posting to this blog. Part of it was technical difficulties – for a time, Blogger was a very hard platform to work with, so in a way this is a test to see if things have gotten any better.

But the thing that inspired me to write was a post by Russell Shaw on his ZDnet blog, wherein he quotes from another article that in turn quotes Sally Cohen of Forrester Research:

Sally Cohen, an analyst who covers consumer VoIP and broadband for Forrester Research, says consumers are not really interested in a pure-play solution. Despite the mountains of money Vonage has spent on advertising to evangelize VoIP services to the nation, Cohen’s recently released report, “VoIP Marketers: Price And Features Slowly Win Over Consumers,” finds 3 percent of online consumers in 2004 paid for pure-play VoIP and that’s only risen two percentage points since then. That slow growth illustrates Cohen’s opinion that Vonage is “marketing to a disinterested public.”

Now in the first place, even if we assume that Forrester Research is a totally disinterested party (that is, that they have not been hired by any incumbent telephone company that would like to wish VoIP out of existence), I’d like to know what makes them think that 3% of the population is a negligible market?

There no law that says that a VoIP company has to have the market share of an incumbent telephone company to survive. In fact, some might argue that smaller is better, if it means you can give your customers exceptional service. It may not be possible for a commercial VoIP company to survive with only a few hundred customers (though I believe there may be some smaller ones that only serve that many) but I think it’s definitely possible to run a viable VoIP business with only a few hundred thousand customers, and perhaps fewer (a lot fewer if you’re basically reselling someone else’s wholesale VoIP service).

The other mistake is to look at the current market share and assume that percentage is fixed. A lot of folks still don’t know much about VoIP. What percentage of the population used the Internet in, say, 1990? I remember all the predictions about how commercial Internet service would be a flop during that period of time just before the Internet really started to catch on. All it took was the invention of the World Wide Web, and web browsers, and within a few short years the commercial Internet was off and running.

The thing that VoIP has going for it, potentially, is unlimited bandwidth. What surprises me a bit is that most current VoIP equipment still limits itself to the bandwidth of a regular PSTN telephone circuit. Why aren’t we using codecs that give us, say, 11 kHz bandwidth rather than the 3 kHz or so we have now? Yes, we’d need new phone instruments and new VoIP adapters (or maybe just new firmware) to support the wider bandwidth, but finally it would allow people to feel as though they’re really there. To get an idea of the difference this would make, imagine radio talk shows where all the callers sound nearly as good as the host (I say “nearly” because there’s no way the microphone in a telephone instrument will ever rival the quality of a broadcast studio microphone, but the difference would still be quite noticeable).

But at present, nobody’s exploiting that advantage (except Skype perhaps, and their problem is that they force you to use the computer to make calls, rather than a telephone instrument – and as long as they do that, they aren’t going to catch on with the typical computer user. At best, they will be thought of as “the software I use to talk to uncle Joe in Italy”, not as “the phone service I use when I need to call my kids’ school”). Yet customers do want quality. If I asked you to recall what distinguished Sprint from their competitors back in the early days of long distance competition, you might recall their “pin drop” commercials, and the fact that their long distance network was all fiber optics (actually, all digital) at a time when most of their competitors were still using hissy analog microwave circuits. By selling quality, they made a name for themselves, and forced competitors like MCI and AT&T to upgrade their networks.

Of course, the other advantage of VoIP is that it’s easier to piggyback other types of data signals onto the voice. Certainly, video is an obvious option, but not everyone wants video (there are times when I frankly don’t WANT others to see me). But let’s think outside the box. Suppose, just for example, that we had voice and browser sync? That is, I could place a call to someone and for the duration of the call, every time I browsed to a web site, I could click a button on my browser and their browser would automatically go to the same site. Think that might be useful? Very simple, would add very little data overhead to the call, but nobody’s doing it – yet.

My point is that just as the Internet had rather lackluster appeal to most people before the invention of the Web browser, VoIP will not have great appeal as long as it only mimics a traditional voice telephone. But there is so much more that could be done using VoIP, as long as we aren’t locked into existing codecs and protocols. Just as HTTP was a new protocol on the Internet, maybe we need something with more capabilities than those offered by SIP – or maybe we just need to exploit SIP to its fullest.

As I see it, there is only one true recipe for failure in VoIP. That is to lock yourself into your current product, fail to innovate, but at the same time spend a boatload of money on advertising and other customer acquisition costs. Oh, and give mediocre customer service while you’re at it. If any company does that, I’d be surprised if they do not fail sooner or later. Any resemblance between that description of a VoIP company doomed to failure, and any existing VoIP company, is purely coincidental.