Aswath Weblog

Lucrative VoIP Business

You should be wary when I talk business. Nonetheless, after reading the recent analysis of Vonage’s IPO filing by Cynthia Brumfield, I wanted to highlight what we should be doing in VoIP.

First let me highlight some of the observations Brumfield makes, either explicitly or implicitly:

1. The average revenue per line, the average direct cost of telephony services per line and the churn rate are flat since 2004.
2. But the churn rate is very high.
3. The gross additions and the net additions are growing at a good rate.
4. But they come at a significant cost. The break even point is almost a year and by that time there is a 25% chance that the customer would have left.

My conclusion: A VoIP service provider must focus on reducing the churn and also increasing the average revenue. I am of the opinion that a simple way of doing this is by adding features and distinguishing the user experience from that of PSTN. We have to recognize that we are placing a computer (let us stop saying that ATA is not a PC, for IT IS) and also a Class 5 switch. This means all IN features and the objectives of TAPI can be realized. Indeed we can do more, because we can now add web to the mix. PhoneGnome and iotum recognize that and yesterday’s partnership announcement is an indication of that. More on that later. Today’s point is though that one can do a lot with that little computer VoIP service providers are giving away and not using it to benefit their subscriber.