What Happened to the VoIP Market?

By Gary Kim, Contributing Editor

VoIP continues to grow, virtually every survey suggests. But some might question the significance of the growth. Indeed, it probably is worth asking the question, “What will VoIP transform, and will those changes be significant?”

Global paid VoIP subscriptions had grown to more than 110 million users by early March 2009, according to Point Topic, up from about 100 million in September 2009. There were 22.7 million U.S. subscribers, 21.4 million in Japan, 16 million in France and eight million in Germany. About 38 percent of all voice lines in France use VoIP, while 16 percent of Korean voice lines use VoIP.

Compare those figures to the 4.6 billion mobile subscriptions in use at the end of 2009, and the additional billion or so fixed line voice accounts, for a total of more than 5.6 billion. Paid VoIP subscriptions account for about 1.7 percent of total voice accounts in use, not counting PC-to-PC voice services such as Skype (News - Alert).

In the third quarter of 2009, Skype reported 27.7 billion PC-to-PC minutes, in addition to 3.1 billion Skype Out minutes that terminate on normal phone lines or mobiles.

Skype’s annual revenues in 2009 were about $653 million, while global telecom revenues were in the $1.3 trillion range. The point is that VoIP remains insignificant globally, though it is an important financial factor in some countries.

“VoIP has taken longer to take hold than many had first expected,” says John Bosnell, Point Topic senior analyst. There are lots of reasons, among them the fact that communications behavior is dynamic, on both the end user and provider dimensions.

When offered lower prices, consumers switched. But providers also lowered prices in many cases, often using disguised discounting, such as product bundles, or through outright lower tariffs, as typically is the approach taken by cable operators and independent VoIP providers.

There also are regulatory barriers, as VoIP remains illegal in some countries. But consumer demand arguably has been less robust than many would have anticipated, either on the value or price dimensions. New features have sometimes been confusing to potential buyers, or the application and value have not been so clear. Price has been an attraction, but the user experience often has to change, raising a barrier to seamless substitution.

At the same time, consumer demand has shifted, with increasing interest in mobile services and a shift towards text messaging being obvious examples. At the same time, more communications now occur in a one-to-many format than in a real-time one-to-one format. Blogs, micro-blogs, multi-party emails, video posts and social networks are primary examples.

The point is that there simply are other ways to communicate, and that, to the extent real-time voice communications are used, those sessions tend to take place in a mobile context. Mobile VoIP remains nascent, and one can predict that if service providers simply keep dropping voice prices, demand for mobile VoIP will be blunted.

That isn’t to say VoIP features that many find useful, such as conferencing or instant messaging will not grow. But there often is no revenue attached to those operations, and the growth rate will still vastly lag basic mobile subscription volume.

The prediction that, someday, VoIP will simply be the next generation of voice remains true. What also is true is that the next generation of voice will not be the driver of most service revenues, as important as voice communications will remain.

The irony is that, someday, VoIP will be nearly ubiquitous. It also will be a modest revenue generator, though. Nor, under such conditions, will VoIP be getting nearly the attention from developers one might once have supposed.

Consumer and producer behavior is dynamic in the communications space, just as it is elsewhere in life. As it turns out, the terrain essentially has shifted under us over the last 10 years. VoIP arguably is a better way to use voice, in terms of features, and often in terms of price.

But, what has happened is that price-driven adoption has been blunted by lower overall calling prices as well as a shift to mobility.  Some mobiles can take advantage of VoIP, but usage remains more difficult than the typical user wants to deal with, uneven in terms of quality, and except for international calling, largely unnecessary. At the same time, text messaging has replaced much voice activity. Add in mobile instant messaging and Web access and additional communications load is displaced from voice to other modes.

VoIP will grow. But its overall impact, in terms of provider revenue or even end user value, has diminished. Nobody predicted that a decade ago. 

(source: http://news.tmcnet.com/news/2010/04/02/4707386.htm)