Comments: Who will really make money in VoIP?

I do not agree with OM at all. The macro trend in nearly all areas of society is that the developed economies are moving steadily from a product/production economy to a service economy. An increasing share of peoples purchasing power is spent on services, as opposed to products.

I completely agree that if one sticks with the old, very narrow, definition of the services traditionally charged for by a voice service provider (telco) - signaling and transport - then IP and VoIP is making the value of those two specific services will go to a very low level/zero.

But I do not understand why the observatioin that the value of signaling and transport as services is disappearing is an argument for the market potential for performing services - defined as an activity that in return for payment is performed for someone to make their life easier or more comfortable - will disappear from the communications industry when it is increasing in most other industries.

Posted by Espen Fjogstad at August 15, 2006 05:56 PM

I am not sure that movement to the service economy is the right model to invoke. In these countries people continue to buy and own automobiles rather than hailing cabs. :-)

The point is that now it is possible to economically build intelligent end-points that simplifies the communication, the service providers are not required. At least that is the claim and the observed trend.

Posted by Aswath at August 15, 2006 06:38 PM

Ask any average user (the silent majority who still uses their cellphone almost exclusively for calling) and they will tell you they perceive communication to have become a lot more more complex, not simpler (but cheaper and potentially richer) with IP-networks and smart, multimodal and dynamic endpoints. Their need for service - but a different service - has increased, not decreased.

As for the cabs/cars analogy. Well, actually even there you see the same trend. 30 years ago most carowners - and in developed countries nearly all owned a car even 30 years ago - would not pay for a cab even when cab was more convenient than driving own car (considered wasting money for comfort). Today, most people do not have such inhibitions about buying a "driver service" they could perform themselves (it goes without saying that people use their own car when that choise is more convenient. a service is something you buy to make life more comfortable).

As for investors. Yes, they do love recurring revenue models. And they do so for a reason. Most great fortunes have been built on recurring revenue based businesses. An example from VoIP industry : Compare Vonage (the company everyone loves to hate :-) ) and Sonus (great products :-). ) Both are regarded as leading companies within their segment of the VoIP value chain. Both has raised a bit in excess of 1 billion USD in total capital. Sonus has with this capital in 10 years built a non-recurring annual gross annual profit of appr. 150 MUSD (growing fast), while Vonage in less than half that time has built a recurring annual gross profit of 350-400 MUSD (growing faster).

Posted by Espen Fjogstad at August 15, 2006 08:40 PM