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Sunday, December 11, 2005

Fear of Convergence

In my previous article about IPTV, I noted that very soon, revenue will be all for those who own the user content. Even though 'providers' would likely lose money on individual revenue streams (like voice, TV), business from 2007 would all be about 'service bundling'.

This week, I read three somewhat predictable articles:

a) Yahoo! offers PhoneIn and PhoneOut services - cheap voip based calling in response to Skype's SkypeIn and Out services. While that is ho-hum, what is interesting is that Y! plans to charge a measly 1cent for phone calls within 'developed countries' and 2-3cents in other countries.

b) Adding to the melee of Carriers going VoIP, BellSouth lauches VoIP calling based on 8x8 solutions

c) Update: 12/12/05: Microsoft enters a partnership with MCI to deliver PC-phone calling

Let's step back and talk about the bigger picture. It is not just an ad-hoc 'me-too' trend of people jumping into the same bandwagon. It's the sign of a trend.

But first, the infrastructure question:

Is the infrastructure ready to deliver ?

Broadband Internet is coming of age. Liechtman Research reports a very healthy growth of broadband here in the US. Relative growth trends can be seen around the word, developed and developing countries. One of the critical areas of success for voice and video over IP is the availability of high speed IP links to the user. Unless your last mile is capable of delivering a fancy service, that service will soon be written of as a loss making proposition.

As a testament to the success utilizing the Internet to deliver voice, Vonage took a plunge and a few years ago rolled out its VoIP only service. It works, and works well. This was needed for the industry. Whether Vonage eventually succeeds, gets bought out or goes under as the biggies push their way in is another matter. They proved to the community that phone over IP works rather well. And if it did not work, you would not be seeing a scramble by the larger names to deliver voip.

So lets put aside the question of is the infrastructure ready. Yes, it is ready enough to be able to deliver.

So What is going On ? What is the Trend ?

The million dollar question. First lets look at who all are diving into this battle of 'voice over IP'. This is not a comprehensive list, just a list to show a variety:
  • Search and Content - Google - a search and content delivery company. Makes their money, for the most part out of advertising. They launch google talk, and then hire Sean Egan, the lead developer for GAIM to work for them. In addition, they think great things will happen with their Google Talk program, and launch a dedicated blog to discuss their product.
  • Search and Content - Yahoo! - similar profile to Google. They lauch SIP based communication with their Y! Messenger and then launch their phoneIn and phoneOut service at ridiculous costs
  • Desktop/OS kings - Microsoft - the king of the desktop world. In the early 2000s they launched their Live Communication Server to deliver voip along with Windows, then fell silent after a while. Recently, they snatched up Teleo to accelerate their VoIP story, again. And today (12/12/05) I also read that they will also deliver PC-phone calling with MCI.
  • Online sellers - Ebay - pretty much the de-facto standard for online selling/buying purchased Skype for a ridiculously high amount.
  • Cable providers- such as Time Warner and Cablevision - traditionally playing in the TV space steadily tread forward in introducing VoIP (they are one of the most feared community, since they own some of the highest speed networks - fiber- today)
  • Traditional Voice Operators - SBC, Cingular, MCI etc. all jumped into the VoIP space for a while
What on Earth !!! These segments have been cleanly segregated for a long time. There were content providers. There were search engines. There were voice providers. There was TV.
Now that all seem to be eager to step into each others toes. Why ?

The Answer (again): Broadband IP has come of age.

Ask yourself this: Let's assume that it is a given that there is this high-speed, reliable network around the world that is essentially ready for everyone to use and you can deliver anything over it.
  • What then, stops a content company to provide a great search to their users for locating a great TV clip from all the TV stations of their world, then, for a subscription fee, delivering the TV episode over the Internet ?
  • What then, stops the cable network from adding interactive TV to the standard TV programming package while at the same time, using the TV as a great video screen for making a video call to a friend while you watch a program that you like and want to share ?
  • What then, stops a company, that never was a Telco, to partner with a hardware manufacturer that builds an IP phone that looks just like the one you have today, but just that it works over IP, while at the same time offering you a neat one-number reachability no matter where in the world you travel ?
We could go on an on. You get the picture. What do you call what happens when a common infrastructure unleashes, that can deliver voice, video and data ? It's called Fear ! Oh sorry. It's called convergence, or, triple-play, or quad-play (adding mobility) . Yes, that's what Marketing calls Fear.

Convergence is all about creating new opportunities. It's all about delivering great new things to the end user. And don't forget, its all about striking fear into the hearts of established businesses.

The message is clear: He who own's content owns the money. For several years, content has been fragmented because of the infrastructure. It was just not ready to deliver bandwidth rich content to users (we are not taking T1 enterprise links, we are talking home users).
Businesses now need to re-think what it takes for them to stay ahead of the game. They are suddenly being attacked by other segments in the battle for user co
ntent. It's not just voice. It's not just data. It's not just video. It's not just mobility. It's a service that is capable of bundling all of these attributes into a service bundle.

The writing on the wall is inevitable - since attribute providers will be wiped out by a cost game. If you are an SBC, offering only VoIP for $20 a month, a TimeWarner+Google combination will step into your space that offers 'basic cable TV + VoIP + Video Calling + a my user portal which can be set up to customize its services based on user viewing/browsing habits' all for $19.99. Oh heck, to add to it, also throw in a Music On Demand service for your new iPod Nano for a measly $2 add on per month.
A 'single stream' service provider cannot compete with price - they need to stay above the red, while VoIP is the only service they have. On the other hand, these new content combinations have the benefit of hedging their losses + profits across multiple service streams in their bundle. And on top of that, they will likely amass 3 times the customers a 'single stream' service provider can target.

Get the picture ? Get innovative. Think user content. Stop thinking only telephony.

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