December 09, 2004

Service Provider Model is Faulty

Yesterday, Vonage announced that they will be soon unveiling video service. Almost immediately, VoicePulse announced their intention to add video capability as well. Many bloggers have discussed this set of announcements, some expressing their reservations. I do not know whether these offering will be successful in the marketplace or not. But it is clear for me that these are products and not services and expecting to charge for it on a monthly basis is either pure evil or sheer foolishness. This note puts forward the rationale for such a damaging claim.

First let us state the facts uncluttered with personal opinions. The plan is to offer a videophone that the subscribers need to buy from the service provider. Then for a monthly fee (Packet8 charges $10, not free as erroneously stated by Voxilla; Vonage and VoicePulse will not reveal the fee structure – that means it is not free), the subscribers can setup sessions to exchange video images between themselves.

Now let us analyze this scheme a bit critically. The first question is whether they are offering a service and if so what is the nature of the service. There are three functions a service provider can potentially perform:

  • Directory service: the service provider informs the caller of the callee’s reachability address.
  • NAT traversal: the service provider facilitates NAT/Firewall traversal either by using UDP hole punching technique or by forcing the traffic pass through a network node.
  • The service provider carries the traffic on a QoS enabled network that is appropriate for the service. In this case, keep in mind that the service provider network should start as close to the end-users as possible. This requires the service provider to deploy the needed network nodes much widely and this they have to do on day one, when they have only limited number of customers.
  • The directory service is independent of whether the service is for voice or video session. If they use UDP hole punching technique for NAT/Firewall traversal, then again the level of service they offer is same for both voice and video session. But if they carry the traffic through a network node or if they offer QoS, then they offer a higher grade of service for video compared to voice. But still I will not call it a video service; they are offering a different level of transport service that happens to be suitable for a video session. You might dismiss this to be nitpicking. I am suggesting that it is critical if you happen to believe in the Stupid Networks.

    Now let us consider the specific case of Packet8, which charges an additional $10 for video service. In their FAQ, they provide the rationale for the extra charge:

    “In addition to providing you with a next-generation communication device to make video calls over the Internet, Packet8 VideoPhone functions as a regular telephone as well, able to accept and receive audio POTS (plain old telephone service) calls. Along with this capability is the luxury of being able to make UNLIMITED regular calls to any phone anywhere in the US and Canada as well as international calls for rock bottom prices. Our low monthly fee for UNLIMITED video calls, let alone audio-only calls, is a great deal compared to regular telephone companies as well as our competitors in broadband telephone service.”
    This explains why they are charging $20 per month for basic plan but not the extra $10. I feel that $10 is not sufficient to support unlimited QoS enabled bandwidth. So I am tempted to conclude that the only things they are offering is the directory service and NAT/Firewall traversal using UDP hole punching technique.

    This demonstrates that what they are offering is a product and not a service. If so, one should ask one self whether it is worth paying extra to the service provider. The answer is not straight forward. I am of the opinion that TiVO is a product and not a service; but people are perfectly willing to pay a monthly fee in the guise of downloading the program guide that is freely available. On the other hand, D-Link offers a video over IP product called i2Eye that comes with free directory service and the customer has to provision the NAT/Firewall. But there are no recurring service charges. Once more, IP Communications is a “product” and not a “service”. We are better off to keep this in mind. Not just PSTN service providers can be evil.

    On a lighter note compare the pictures of the phones from Packet8 and Vonage and then read Citron’s quote: “…[videophone] will be more than just a phone with a camera slapped on it. It will have features never before available to consumers.”

    Posted by aswath at December 9, 2004 05:20 PM
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    I don't believe they offer QoS, since they don't operate the access networks to their customers. So maybe QoS in their minds is between their servers, but who cares. The bottleneck is on the access network (DSL or Cable Modem) and that is where you need QoS for video calls IMHO.

    Posted by: VoIP Dude at December 10, 2004 02:05 PM

    OK. OK. So, we're all in for the Stupid Network. And, you're absolutely right on about product versus service differentiation. But, does marketing ever tie to actual product technology definition. Not necessarily, and it's up in the air whether the rich IP media industry defines (and educates the consumer on) a new set product definition metrics. Time will tell.

    Posted by: Charlie Kemper at December 11, 2004 09:15 PM

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