This article originally appeared in the August issue of INTERNET TELEPHONY
As INTERNET TELEPHONY’s cover story this month about 8x8 (News - Alert), and our Vonage feature in June, demonstrate, the voice over IP is alive and thriving despite the recent recession and slow economic recovery.
This issue’s piece on 8x8 notes that the company has been profitable 13 of the past 14 quarters and added more new businesses in the March quarter than it’s ever added before. That has garnered the company acclaim by such financial watchers as The Motley Fool, which in April 2011 named 8x8 as one of Wall Street’s best hidden stocks.
Our June cover story, meanwhile, spotlighted Vonage. As we all know, Vonage has ridden a rollercoaster of highs and lows over the years. But it has found its footing, having successfully turned around its financial fortunes. In fact, in April, BESPOKE Investment Group noted that Vonage (which at $5.15 per share was up 129.91 percent at the time) ranked No. 4 among the top performing Russell 3000 stocks.
These are not isolated incidents.
As a May story in The Wall Street Journal reports, a new study from IBIS World includes VoIP as among the top 10 fastest growing industries. According to this data, VoIP providers saw 2010 revenue of nearly $12.5 billion, which is up 194 percent during the decade. The space is forecast to grow 17.4 percent from there by 2016.
“While wired telecom carriers dominated the dying list, voice over Internet protocol leads the list of thriving industries, illustrating the shift from one technology to another,” notes Phil Izzo, who authored The Wall Street Journal piece.
Indeed, in 2007 the Pew (News - Alert) Research Center's Internet & American Life Project found that just 8 percent of Internet users had placed an IP-based phone call online ever, and only two percent were doing so on any given day. Today, however, 24 percent of American Internet users make phone calls using such services as Skype (News - Alert) and Vonage.
TMC’s own Tom Keating recently added to the VoIP good news story, by noting in his blog that voice over IP now has more than 120 million subscribers worldwide and its growth looks set to accelerate, as predictions indicate a $40 billion annual VoIP market by 2015. The blog draws from new data from Point Topic, which reveals global growth in VoIP of 12.6 percent during 2010 and shows – as Mr. Keating put it – that there is plenty of headroom left for VoIP around the world. “The growth of VoIP has been bumpy but shows signs of acceleration,” says John Bosnell, senior analyst at Point Topic. “VoIP has all the hallmarks of a classic substitution commodity. This is where customers look at the service that is delivered by a new product and decide that it meets, or exceeds, the service they are currently receiving and when it is appropriately priced they will switch from one to the other.”
Therein lies the problem with VoIP services from a how-do-you-continue-to-grow-the-business-while-retaining-reasonable-margins standpoint. 8x8 CEO Bryan Martin (News - Alert) says repositioning VoIP and its other services as value-added solutions instead of simply low-cost ones is something on which the company is working. That’s a bit of a tough sell, given the current economic climate and the fact that lower price is an easy way to make the sale. But Martin, for one, seems to believe this is the way to go, and the company continues to enhance its product portfolio to bring more value into the mix.
One way 8x8 and others are doing this is by moving into cloud-based hosted services. No big surprise there.
Using cloud services, of course, is a way for businesses to outsource the human resources costs and investment risks of networking gear. That helps explain why 60 percent of 3,000 global CIOs that IBM recently surveyed said their organizations are ready to embrace cloud computing over the next five years as a means of growing their businesses and achieving competitive advantage. That’s nearly twice the number of CIOs who pledged their allegiance to cloud computing two years ago.
Meanwhile, Microsoft (News - Alert) reveals that about 39 percent of small and medium-sized organizations expect to adopt cloud services – such as collaboration, data storage and backup or business class e-mail – within the next three years, compared to the 29 percent that are paying for such services today. Gartner forecasts that by the end of this year cloud-based services will account for almost a quarter of the overall hosting market, excluding co-location and mass market hosting.
And new research from International Data Corp. indicates that spending on public IT cloud services will reach $72.9 billion by 2015, rising from $21.5 billion in 2010.
Edited by Stefania Viscusi