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Often, when I get asked the same question over and over, it makes sense to share the answer in a forum such as this column, thus letting as many people as possible in on my response. The particular question that I will address here has to do with investment, and identifying the opportunities that our industry has to offer. Indeed, what are the areas that are ripe for investment? How would you position yourself to profit from the hyper-growth of the VoIP market?
I purposely stayed away from obvious companies such as Net2Phone, VocalTec, Avaya, Cisco, Nortel, etc. I stayed away because there is already tremendous analyst coverage or the company does much more than just VoIP. I am really focusing more on areas of VoIP that I believe will do better than average.
Each of the following ideas will be augmented with supporting reasons as well as potential pitfalls. It also should be noted that I have some sort of business relationship with most of the companies mentioned as they are all potential/actual customers, etc. Some of these companies are private and some public and some private ones mentioned below aren’t looking for capital.
Furthermore, we need to realize that communications costs are plummeting and products such as Skype are getting millions of people accustomed to “free” telephony. In such an environment, it is obvious that the price of VoIP service will continue to fall as more people get used to downloading software from the Internet, buying a headset or any number of other VoIP capable products and then making calls.
Peer To Peer
In such an environment, service providers will have to differentiate themselves with sticky features such as distinctive ring tone, second and third lines, virtual numbers, conference calling and more. A war of differentiation and services will have to occur because if we continue to have a price war until no one pays for telephony, no one will be left.
Peer to peer products from companies such as Skype, Nimcat Networks, and Popular Telephony are in a great position to benefit from the interest being paid to this space. The latter two companies focus on the enterprise and work with phone vendors to embed their technology into phones that eliminate the need for a central PBX. Both the consumer and enterprise model make great sense.
The downside to this technology is the potential for ILEC and Cable companies to intentionally disable the quality of VoIP calls. This is a very real threat to our industry and the FCC needs to do their part to ensure an adequately competitive landscape so the VoIP market can flourish.
VoIP Peering
Many people get peering mixed up with peer-to-peer. They are not the same or even similar but can work together. Peer-to-peer products communicate with one another without the need for a central server while peering is the interconnection of networks. Companies that are strong in VoIP peering are Stealth Communications, telx, Terremark, and Infiniroute Networks.
Open Source Telephony
Two of the more visible companies in this space are Digium, the maker of Asterisk open PBX, and PingTel. Digium was first to go open source and Pingtel has been around longer but went from focusing on making IP phones to IP PBXs to now open-source software. The business models for these companies is similar to Red Hat in that they give you a free product and you choose to pay for support, consulting, some ancillary equipment (if needed), etc.
The downside here is if there is a move towards more hacking attacks on Linux servers. These products would be at risk and as we all know it is much worse to have your phone system go down than your e-mail system. This last statement is not true at TMC anymore but for many other companies phone systems continue to be more important than e-mail servers.
Government Suppliers
The government is spending on VoIP like never before. Each year, more conferees sign up to our Internet Telephony Conference & EXPO. When you talk with these conferees they tell you that VoIP is becoming more and more critical in the government and military sectors. A number of companies sell to this market including Net.com and Telecommunications Systems.
Triple-Play
The companies in this space are doing a great job coming out with products that are compelling for service providers to install and sell services with. Surveys tell us consumers want a single bill. Bundling is a great way to reduce churn. All service providers need to consider the triple-play opportunity and see if they can offer it in the future or be part of a broader offering.
Cable companies have the easiest time with this as they have already mastered TV and broadband, and VoIP is an easy addition. ILECs are going to have a tough time gaining share in the TV market in my opinion. It will take a while for them to get their systems up and running so it is premature to rule them out. There is the possibility that WiMAX providers will appear as well offering triple-play service. WiMAX is potentially the cheapest way to provide triple-play services.
The question is, will we even need triple-play providers in the future? A concern is that sooner or later TV will be streamed to users over broadband connections that can be viewed on any TV. In other words, TV may not be TV in the future… Or at least not the way we look at it today. You may just subscribe to Yahoo! TV and stream your channels. This would make the triple-play a double play as you don’t need a TV provider if you have Yahoo!
The incumbent providers have pretty much blocked access to the fiber they are laying down and they may block access or reduce the quality of streaming video as well. We will have to wait on this one.
This is where the tight relationship between SBC and Yahoo! comes in. Imagine if Yahoo! were to work a deal with SBC so you need SBC service to access Yahoo! TV. Watch this area closely. By the way both www.yahootv.com and www.yahoo.tv are already taken by Yahoo!
One final note: it is possible that the company with arguably the best wireless network, Verizon, will just clean house by providing a superior quadruple-play offering and continuing to market their strength in the wireless market.
Consumer Electronics
You may not need to read this column to know that this market is hot but what you may have missed is how every product is becoming VoIP enabled. All telephony devices will have to support VoIP whether they are wired or not. I predict MP3 players, mobile video games, and 10 other categories of products I can’t even imagine will somehow integrate and leverage VoIP.
There will be a continual worldwide upgrade of all wireless phones whether they be cellular or the 2.4 GHZ cordless kind found in our homes. They will all need to support WiFi, Bluetooth and WiMAX and in that order. The cordless phone in your home will be thrown away as often as your cell phone. This of course assumes you don’t just have a single device.
There will also be a tremendous need for ATA devices that convert analog to VoIP. As the VoIP market grows, these devices are necessary. Eventually the phone itself will deal with the conversion.
HMP or host media processing will eventually be standard in all equipment, meaning specialized DSPs won’t be needed. Phones and cameras will continue to merge and we won’t need tapes, disks, etc. Everything is going to plain old flash memory.
VoIP Chips
These chips are finding their way into everything from routers to hubs to cell phones to PDAs. You name it, there is a reason to put a VoIP chip in it. Please note HMP comments from above.
Hosted Communications
This market has finally arrived. The worst is behind us and there was an extensive weeding out process that left the strongest providers. The value of hosted providers will only increase. I don’t see a downside here unless major players such as Salesforce.com have a disastrous financial problem.
SIP
SIP is good. It is becoming great as more companies and service providers support this open standard. Anything SIP has potential to do very well. The market for SIP products is still young and there is ample opportunity for many players.
Downside to this one is a new standard or protocol eclipsing SIP. It happens all the time. It happened to H.323. So far this is the standard. Let’s see what happens next. Also Skype could become the defacto standard for VoIP in the future. It is possible and at the pace of downloads they are receiving so far (over 50 million so far) they may just be on everyone’s desktop and make SIP irrelevant. Niklas Zennstrom basically mentioned this in his keynote at a recent Internet Telephony Conference and EXPO.
The VoIP space is ripe for investment. I have identified several technology areas that should serve as a starting point for those looking for the next big thing in VoIP. But keep your eyes and ears open, the market landscape is constantly changing, and the next great opportunity in Internet telephony might be waiting just around the corner. Good luck!
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