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Rich Tehrani

[October 4, 2004]

VoIP Service Providers: Think iPod, not Wal-Mart


The barrier to entry for starting a VoIP (news - alert - define) -based service provider has come down and this is part of the reason we are seeing tre mendous pricing pressure between the latest generation of these providers. As everyone knows (and I especially hope the VCs are reading), you can’t make any money in a business where your basic differentiation is the ability to lower your prices more quickly than the next guy.

Enter services. Yes, I am finally blue in the face. After talking about them for nearly a decade, service providers are starting to listen. Vonage did a great job by allowing us to retrieve voicemail via e-mail as well as adding soft-client support. AT&T CallVantage (news - quote) went further, allowing conference calls with up to 9 users. Z-Tel (news) has the ability to upload your outlook contacts and dial by na me using voice recognition built into the network. Vonage recently started allowing you to have a VoIP 800 number. I am very impressed with the services being offered by the latest providers.

The question is will these services be free or paid in he future. Vonage has a great mix of free and paid services. For $4.95 a month you can have the 800 number or a number in a separate area code. CallVantage recently added the latter service and calls it Simple Reach and also charges $4.95/month.

Let’s face it; we need to add features to VoIP service because telecommunications is a commodity. We have reenergized the market by using the Internet as a transport mechanism but when the excitement fades, who will be left standing?

The leader in the race is definitely Vonage as they have tre mendous share of mind while CallVantage co mes in second. After that there are about half a dozen other strong players and from there it gets cloudy. The smaller players will have to differentiate themselves to play this ga me and adding services more quickly than others is the best way to generate word of mouth and the buzz needed to compete against colossal marketing budgets from the likes of AT&T and Vonage.

So beyond a host of services such as distinctive ring tones, the ability to turn off your kid’s phone (except for emergencies) after bed time and other software based services, what else can today’s service providers do? They can start thinking about music. I am not talking about turning on the radio, I mean look at Apple.

What they have done over in Cupertino is no less than pure genius. Invent a chic mp3 player, add a unique music download service, and use the service to sell the devices - and vice versa. Are you with me? Who would have thought such a thing was possible 5 years or so ago when potential music buyers were downloading free music by the gigabyte via Napster?

Apple (quote) took a chance, had a vision, and executed it. The VoIP market should be watching closely. If you want to make it big in this market, start thinking about devices. There are a host of companies that OEM WiFi phones for example. So me of the designs are truly gorgeous. Partner with these companies and start selling these phones via retailers with two months of free VoIP service. At the end of the term… guess what? You’ll likely have a new custo mer.

Of course there is more to it. Make sure your WiFi (news - alert - define) phone has IM and SMS built into it so that it is so compelling that parents will have more pressure on them to buy a WiFi phone than an Xbox at Christmas. We as an industry need to start thinking inside the box: the consu mer electronics box that is. Selling services is great but no one is excited about iTunes, they are excited by the iPod.

What’s next? Why reinvent the wheel? Let’s borrow from the cellular providers. They buy you a new device every few years if you sign a 2-year contract (at least this is how Verizon Wireless works). Compelling, isn’t it? Once again use the consu mer electronics device to sell your service. Hook your device into your service so tightly that no one else can break your stranglehold on consu mers.

Lowering price is fine and this Wal-Mart mentality makes sense for the short-term. Rest assured that if you aren’t investing in new services and working to get really interesting phones on the market, you won’t be around to enjoy the party. I proclaim 2005 the year that consumer electronics and VoIP intersect and in the end, we will see the iPod/iTunes synergy continuing to push VoIP forward.

Are you seeing signs of growth in the services market as well? Are you implementing VoIP in your company, government agency or as a service provider? Please talk back to me in our forums.

Rich Tehrani is TMC's president. He welcomes your comments. Participate in our forums.

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