I have been an early adopter of VOIP and have been generally satisfied with the Vonage package that I embraced a little less than a year ago. It has turned out to be much cheaper than AT&T, particularly for international calls. However, I have not yet said goodbye to AT&T (and I still continue to pay about $10 a month to AT&T just to be able to make long-distance phone calls), because VOIP is not 100% reliable yet. International calls don't always go through when I want and the sound quality is not good enough to make a business call.
Vonage appears to be the leader among the VOIP companies, but believe it or not, it has just 215,000 active lines after being in business since January 2001. Other companies in this space are far behind.
Why is paid VOIP telephony doomed?
If you speak to any telecom company, they might not see any threat from VOIP, but that is because it is best to downplay any such threats. In fact, during next one to two years, while adoption rates will pick up, we still have a long way to go (with broadband connections in only 50% of the homes and even fewer homes with routers). But it wasn't too long ago that we paid for long-distance by the minute (and now you can simply choose unlimited long-distance for a fixed price). So it wouldn't be long before we have a whole bunch of companies offering VOIP telephony and the price war will be brutal. This is not a business I want to be in. No matter what you do, it is a perfect commodity.
But a strategic question is why should a consumer pay for VOIP telephony when there is no need to pay for any amount of data transfer over the Internet? That is the question, the founders of Skype have tried to answer, only partly, by essentially making VOIP telephony free for their users (companies like Vonage also allow free, unlimited calls among their users but you have to be a paying Vonage customer to be able to do so). No wonder then that Skype has the financial backing of such powerhouses as Tim Draper, Draper Fisher Jurvetson ePlanet, Index Ventures, Bessemer Venture Partners and Mangrove Capital Partners. Skype may literally make phone calls as free as instant messaging or email is.
Yesterday, Skype launched its new service that allows users to pre-pay and call any phone number in the world at "highly competitive local rates". I couldn't get the information on rates from their website but my expectation is that they should be much lower than those of Vonage and other VOIP telephony companies (and a fraction of what AT&T charges).
It might take time before the world moves to a system in which calls made over the Internet are completed without the local phone company demanding a fee to complete the call, but I do not think that the day is too far off when the bandwidth speeds will reach a point that two users connected to their computers will be able to make phone calls with no phone company needed. Or in other words, Vonage and Skype might provide a software (unless Microsoft decides to include one in the OS) to enable us to do so, but other than that, we don't need an intermediary. But, in the meantime, it is not a bad idea for Vonage and Skype to milk the cow as long as they can.
Vonage appears to be the leader among the VOIP companies, but believe it or not, it has just 215,000 active lines after being in business since January 2001. Other companies in this space are far behind.
Why is paid VOIP telephony doomed?
If you speak to any telecom company, they might not see any threat from VOIP, but that is because it is best to downplay any such threats. In fact, during next one to two years, while adoption rates will pick up, we still have a long way to go (with broadband connections in only 50% of the homes and even fewer homes with routers). But it wasn't too long ago that we paid for long-distance by the minute (and now you can simply choose unlimited long-distance for a fixed price). So it wouldn't be long before we have a whole bunch of companies offering VOIP telephony and the price war will be brutal. This is not a business I want to be in. No matter what you do, it is a perfect commodity.
But a strategic question is why should a consumer pay for VOIP telephony when there is no need to pay for any amount of data transfer over the Internet? That is the question, the founders of Skype have tried to answer, only partly, by essentially making VOIP telephony free for their users (companies like Vonage also allow free, unlimited calls among their users but you have to be a paying Vonage customer to be able to do so). No wonder then that Skype has the financial backing of such powerhouses as Tim Draper, Draper Fisher Jurvetson ePlanet, Index Ventures, Bessemer Venture Partners and Mangrove Capital Partners. Skype may literally make phone calls as free as instant messaging or email is.
Yesterday, Skype launched its new service that allows users to pre-pay and call any phone number in the world at "highly competitive local rates". I couldn't get the information on rates from their website but my expectation is that they should be much lower than those of Vonage and other VOIP telephony companies (and a fraction of what AT&T charges).
It might take time before the world moves to a system in which calls made over the Internet are completed without the local phone company demanding a fee to complete the call, but I do not think that the day is too far off when the bandwidth speeds will reach a point that two users connected to their computers will be able to make phone calls with no phone company needed. Or in other words, Vonage and Skype might provide a software (unless Microsoft decides to include one in the OS) to enable us to do so, but other than that, we don't need an intermediary. But, in the meantime, it is not a bad idea for Vonage and Skype to milk the cow as long as they can.