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ACT Venture Partners Inc.
ACT Venture Partners Inc.
Consumer VoIP: Ready for Prime Time?
Recently I attended Jeff Pulver’s bi-annual Voice over Networks (VON) Shin-dig/schmooze fest in
Boston which I have been attending on and off since 1998. You had to literally dodge press releases
with Ebay’s acquisition of Skype, Microsoft buying soft-phone vendor Teleo, Vonage hitting their
1,000,000th subscriber while registering for their IPO, and Yahoo/SBC, Google, and AOL all
making significant consumer voice service announcements. The VON theme this year should have
been “Consumer VoIP… it’s happening this year (Really)!” Ahh…the euphoria…finally a market!!
I should share with you my personal background in VoIP which started in 1996 via an internet
gaming company called Mpath whose Mplayer gaming network allowed hard core geek gamers to
use half-duplex voice/video CB radio-style chat before, during and after playing on-line video games.
Mpath eventually morphed into a VoIP ASP and soft-phone vendor (HearMe), went public and then
died shortly thereafter (along with many early VoIP application vendors who were simply just too
early). At ACT Venture Partners, I have had the pleasure to continue to work in the consumer and
enterprise VoIP space with such companies as Soundpipe (SMB IP-PBX/802.11b wireless IP
phones which was sold to Comdial), SJ Labs (consumer voice/video IP soft phone for the Internet
Telephony Service Provider (ITSP) market), Xelor Software (Voice QoS management software) and
even a few large publicly traded infrastructure companies that have sought my advice on interesting
VoIP start-ups that may compliment their product offerings.
Despite almost a decade of exposure to the VoIP industry, this Musing is mainly about my
experience as a consumer. I have used Skype for well over a year and joined Vonage about nine
months ago. I am not going to comment on Vonage as a business nor analyze the market
implications of the hefty war chest they had to raise (over $400M) and the widely reported customer
acquisition costs ($453) to find early adopters like me. Hey! TV jingles are expensive! Meg Whitman
claims voice will be free, and I can only conjecture that Ebay’s $2.6B acquisition of Skype is to make
sure that those 50 million Skype users have a place to hold virtual garage sales.
My Skype experience was somewhat limited because when I joined the service you could not “Skype-
out” and call PSTN phones (which you can do now). Basically, you could only call other Skype users
who were on your Skype buddies list who had successfully downloaded the Skype software AND
who were on line when you wanted to call them….in my opinion pretty lame. For me, that universe
was exactly two people who were both employees of our firm. Frankly, picking up my cell phone
and calling them was a lot easier than waiting for them to be present on line and willing to chat. To
me, Skype was analogous to AT&T’s ill fated 1960’s video phone that could only make calls to
recipients who had the same CPE device on the other end.
Installation, Set Up
One of the areas that really impressed me about Vonage was the initial ease of installation. After
ordering on the web, Vonage handled all of the administrative issues of transferring over my home
office number from my local and long distance carriers. A Linksys router showed up within days
that replaced my existing router, and I literally plugged it in and picked up the phone and
presto…dial tone! Very impressive.
Admittedly, I am not the average Vonage customer. Since I deployed a wireless network in my
home five years ago, I was concerned that swapping routers was going to impact my wireless
configuration, but it worked perfectly.
I was so impressed with Vonage that within a month I convinced my skeptical wife that she just didn’
t get it and that VoIP was going to change our lives. I convinced her we just had to switch our PSTN
personal phone line and fax line to VoIP. This was a little more tricky. Adding an additional fax
and voice line required daisy chaining an additional Linksys router because all of the Ethernet ports
and voice ports were consumed. Nonetheless, it worked, and I felt that same tingling feeling as the
first VC on Sand Hill Road to read his email on his new Blackberry (probably during an entrepreneur’
s pitch).
The few times that I had to call Vonage tech support I found them very knowledgeable, sincere, and
their follow up was far better than any other technology vendor including HP, Dell, and
Linksys/Cisco.
You have probably heard all of the ruckus about E911. What is it? E911 is the internet equivalent
of regular 911 which is to allow the first responder network (police, fire, ambulance etc..) to quickly
locate a caller in trouble who dialed 9-1-1. E911 is controversial because with the added benefit of
VoIP phone number portability, it creates a problem that first responders may think you are at home
when in reality you may actually be at the local pub and have suffered a coronary watching our 2-9
San Francisco 49ers. Whoops! The media has made such a big deal about E911, but frankly it is a
non-event for most people right now. Sure… once in a blue moon I may take my CPE device some
place else, but since Vonage does a required E911 registration locality check, I know if the Saratoga
police need to find me I am comfortable that Vonage can point them to our house. Too bad they
couldn’t do that with the pizza delivery guy. However, E911 will be a bigger issue when WiMAX and
mesh networks will allow mobile users to take their Vonage number on their SJ Labs soft phone
residing on their Windows CE or Blackberry devices when WiFi VoIP becomes a cellular avoidance
strategy.
Features
At first, dial tone is the killer feature. The latency, jitter, voice clipping and low bandwidth co-decs of
early VoIP calls made cellular phones in the subway sound like the MCI pin drop commercials. I was
very impressed at the Vonage voice quality and took pride telling my fellow Silicon Valley digerati…"
you know this is a Voice over IP phone call” -- almost like I was the first one to try the Salk Vaccine.
Vonage and other ITSPs do a good job of bundling value added services into the base product
offering. You will no longer feel “nickled and dimed” by the phone company who programmed us to
get used to paying $4.99 for every single additional feature like voice mail, call waiting, caller ID
etc… Who cares that AT&T is now at 4 cents a minute when your fixed monthly incremental
feature charges are $25!
I am fundamentally a cheapskate. Other than voice mail, I would never turn on any of those extra
charge PSTN features. After going to VoIP, suddenly I could go to my web dash board and
experiment with these features by simply turning on or off any of these free features instantly. This
is what made my relationship with the phone fundamentally change forever.
All of a sudden I got exposed to features that I never would have experienced and now can’t live
without! Features that include unified messaging of actual voice mail files sent to me via email to
any device, caller ID screening, call forwarding my office phone to my cellular phone when I am
traveling and even the ability to take my CPE device with me on the annual 2 week grandparents’
pilgrimage back east that will actually ring my (408) office number in a New York City (212) area
code. Although I haven’t had to do this, if I wanted to expand my geographical presence beyond
the Silicon Valley and expose my business to entrepreneurs in other local areas (Dallas Telecom
corridor, Research Park, NC or perhaps Boston), I could purchase local numbers in those areas for
$4.99 a month and appear to have a local presence.
Pricing
Another excellent feature enabled through the dashboard is that my billing can be viewed in real
time. Much to the chagrin of my wife, at the end of the every month I routinely root through her
monthly pile of bills to find our local and long distance bills to submit my expense report. With
Vonage, I no longer have to forage for data since I can print out statements daily from the web if I
want to (Vonage does not send paper bills). Also, Vonage deducts from my credit card directly on
the first of the month for the upcoming month (nice of them to bill you in advance).
Anyway…small productivity gains to compliment significant cost savings.
The only economic tweak going to Vonage is that we had to pay an additional monthly fee for a fax
line for our home office fax number that was previously shared with our office line, effectively
making it free. That configuration is not possible with Vonage, so you have to pay an additional
$9.99 per month for a fax line which is almost never used. If you want a soft phone option like SJ
Labs Premium video phone for your PDA or laptop, you can get that for an additional $9.99 per
month from Vonage.
There are a number of service plans, but I chose the “All you can eat plan” with unlimited local and
long distance minutes in the US for $24.99 (international per minute calls are available and are very
reasonably priced). When we added our home number to Vonage, it was an additional $24.99 per
month for another line with additional unlimited minutes. Unfortunately, there is no concept of
combined plans like many cellular providers offer for families sharing a pool of minutes across a
number of extensions. As you can see from the chart below there are significant cost savings from
VoIP compared to the PSTN. In some months, my cumulative bill went down as much as 57%
after switching to VoIP.
Network Availability
I should note that as I am writing this Musing, I am without email, internet access, and worst of all,
without phone service as I am waiting for the Comcast Cable Guy to tell me why my home network
is down. He/she is rumored to be here sometime between 9 a.m. and midnight on Tuesday or
Thursday. Ahh….the misery!
There is no doubt that I have added complexity to my home network by going to VoIP. Before
Vonage, my cable modem was connected to a single router/wireless access point for my 4 computers
on our home network. The network never seemed to go down, and if it did go down, I did not
notice.
Since Vonage, my network has been down a lot and that is a huge problem. Coincidental? Maybe…
or maybe not.
I sympathize with many of the enterprise network administrators I talk to on a regular basis. I have
become the Garland family network admin, and I am also responsible for adding complexity to the
network. There are a number of network elements that need to fit together and actually work. What
is indescribably frustrating is when the Comcast cable guy comes in and sees multiple downstream
Vonage routers and a Linksys wireless access point connected to the cable modem. He slyly grins for
a second because he knows this will be a short call. Without hesitation, he shows me that he has
Vonage and Linksys’s tech support phone numbers tattooed to his forehead. Conversely, the minor
IP address change that the Linksys tech support engineer in India had me modify caused smoke to
come out of the back of the Comcast cable modem, and no surprise, everyone points their finger at
each other!
Now these antics have been happening for 10 years in the enterprise VoIP market as the Cisco
networking field engineer sheepishly points his finger at the Avaya IP-PBX as the culprit that brought
the data network down. These vendors may have conditioned corporate IT to expect the finger
pointing, but this can’t happen in the consumer market!! There is no way that consumer VoIP
market will cross the chasm to the 100 million households in the US if this continues to happen!! I
am a technology guy, so I consume this for a living, but the other 98% of the market living outside
the Silicon Valley and Banglore, India won’t tolerate it.
Today’s reality is that the consequences of my network going down are a hundred times worse than
ever before. Not only am I cut off from email and the internet, I no longer have voice access except
for cellular. To add insult to injury, Verizon’s cell coverage in Saratoga is not too great. I admit it. I
was too enamored with features and cost savings and may have jumped the gun converting over
100% to VoIP in our home and office, leaving us without alternatives during a service outage.
Network availability is one issue, but contention is another. Comcast’s cable internet service
promises to give 4 Mbps up and 768 kbps down. A few years ago, I was the only one in the house
using the pipe mainly for email and the world wide web. Now as my three kids get older and enter
their teen years, I am actually having conversations about why Daddy’s Board presentation needs to
get priority over my son’s “All you can eat Yahoo MP3” subscription service, or contending with my
wife’s uploading 400 pictures of the scarf she just knitted to Kodak’s Photo Gallery while I am on a
conference call and getting every third word.
Will I some day need to set TOS bits on my Linksys router to prioritize my voice traffic over my
daughter’s IM and son’s Runescape gaming packets? I sure hope not. Growing pains that I accept
but will everyone?
Come a long way baby…..
In ten years, the telecom industry has undergone unprecedented change and created some new
players while bringing down some old established players. VoIP will likely catch on much faster in
the enterprise market which is projected to be at parity with TDM penetration this year. Despite the
early hype, consumer VoIP penetration did not happen overnight, but I think it will happen if the
service providers don’t forget the lowest common denominator capabilities of the customer.
Consumer VoIP economics and bundled features are just too compelling to leave on the shelf. You
can’t ignore Skype’s viral growth. Analysts are projecting near vertical growth for the consumer VoIP
market with as many as 20 million subscribers in the US and five billion dollars a year in subscription
revenue within the next three years.
For this growth to be realized, technologists need to remember that when dealing with the consumer
market, ease of use, installation and support are more important than some new wiz bang features.
Successful companies will have an eco-system or architectural approach to delivering end-to-end
supported solutions to the consumer. Companies that fail will have myopic product centric world
views and frustrating support experiences. Although the industry has come a long way, there still is
more work to do. Wake up Comcast!
All in all … my consumer VoIP experience has met and exceeded my expectations in terms of
features and price. When the support and integration of disparate devices becomes more seamless,
the market will be poised for explosive growth. Stay tuned.
Maybe VON 2006’s tag-line might be, “Consumer VoIP 2006…the pieces really work all together!”
__________________________________
*Also the theme for VON in 1998, 1999, 2000, 2001, 2002, 2003, 2004.
Boston which I have been attending on and off since 1998. You had to literally dodge press releases
with Ebay’s acquisition of Skype, Microsoft buying soft-phone vendor Teleo, Vonage hitting their
1,000,000th subscriber while registering for their IPO, and Yahoo/SBC, Google, and AOL all
making significant consumer voice service announcements. The VON theme this year should have
been “Consumer VoIP… it’s happening this year (Really)!” Ahh…the euphoria…finally a market!!
I should share with you my personal background in VoIP which started in 1996 via an internet
gaming company called Mpath whose Mplayer gaming network allowed hard core geek gamers to
use half-duplex voice/video CB radio-style chat before, during and after playing on-line video games.
Mpath eventually morphed into a VoIP ASP and soft-phone vendor (HearMe), went public and then
died shortly thereafter (along with many early VoIP application vendors who were simply just too
early). At ACT Venture Partners, I have had the pleasure to continue to work in the consumer and
enterprise VoIP space with such companies as Soundpipe (SMB IP-PBX/802.11b wireless IP
phones which was sold to Comdial), SJ Labs (consumer voice/video IP soft phone for the Internet
Telephony Service Provider (ITSP) market), Xelor Software (Voice QoS management software) and
even a few large publicly traded infrastructure companies that have sought my advice on interesting
VoIP start-ups that may compliment their product offerings.
Despite almost a decade of exposure to the VoIP industry, this Musing is mainly about my
experience as a consumer. I have used Skype for well over a year and joined Vonage about nine
months ago. I am not going to comment on Vonage as a business nor analyze the market
implications of the hefty war chest they had to raise (over $400M) and the widely reported customer
acquisition costs ($453) to find early adopters like me. Hey! TV jingles are expensive! Meg Whitman
claims voice will be free, and I can only conjecture that Ebay’s $2.6B acquisition of Skype is to make
sure that those 50 million Skype users have a place to hold virtual garage sales.
My Skype experience was somewhat limited because when I joined the service you could not “Skype-
out” and call PSTN phones (which you can do now). Basically, you could only call other Skype users
who were on your Skype buddies list who had successfully downloaded the Skype software AND
who were on line when you wanted to call them….in my opinion pretty lame. For me, that universe
was exactly two people who were both employees of our firm. Frankly, picking up my cell phone
and calling them was a lot easier than waiting for them to be present on line and willing to chat. To
me, Skype was analogous to AT&T’s ill fated 1960’s video phone that could only make calls to
recipients who had the same CPE device on the other end.
Installation, Set Up
One of the areas that really impressed me about Vonage was the initial ease of installation. After
ordering on the web, Vonage handled all of the administrative issues of transferring over my home
office number from my local and long distance carriers. A Linksys router showed up within days
that replaced my existing router, and I literally plugged it in and picked up the phone and
presto…dial tone! Very impressive.
Admittedly, I am not the average Vonage customer. Since I deployed a wireless network in my
home five years ago, I was concerned that swapping routers was going to impact my wireless
configuration, but it worked perfectly.
I was so impressed with Vonage that within a month I convinced my skeptical wife that she just didn’
t get it and that VoIP was going to change our lives. I convinced her we just had to switch our PSTN
personal phone line and fax line to VoIP. This was a little more tricky. Adding an additional fax
and voice line required daisy chaining an additional Linksys router because all of the Ethernet ports
and voice ports were consumed. Nonetheless, it worked, and I felt that same tingling feeling as the
first VC on Sand Hill Road to read his email on his new Blackberry (probably during an entrepreneur’
s pitch).
The few times that I had to call Vonage tech support I found them very knowledgeable, sincere, and
their follow up was far better than any other technology vendor including HP, Dell, and
Linksys/Cisco.
You have probably heard all of the ruckus about E911. What is it? E911 is the internet equivalent
of regular 911 which is to allow the first responder network (police, fire, ambulance etc..) to quickly
locate a caller in trouble who dialed 9-1-1. E911 is controversial because with the added benefit of
VoIP phone number portability, it creates a problem that first responders may think you are at home
when in reality you may actually be at the local pub and have suffered a coronary watching our 2-9
San Francisco 49ers. Whoops! The media has made such a big deal about E911, but frankly it is a
non-event for most people right now. Sure… once in a blue moon I may take my CPE device some
place else, but since Vonage does a required E911 registration locality check, I know if the Saratoga
police need to find me I am comfortable that Vonage can point them to our house. Too bad they
couldn’t do that with the pizza delivery guy. However, E911 will be a bigger issue when WiMAX and
mesh networks will allow mobile users to take their Vonage number on their SJ Labs soft phone
residing on their Windows CE or Blackberry devices when WiFi VoIP becomes a cellular avoidance
strategy.
Features
At first, dial tone is the killer feature. The latency, jitter, voice clipping and low bandwidth co-decs of
early VoIP calls made cellular phones in the subway sound like the MCI pin drop commercials. I was
very impressed at the Vonage voice quality and took pride telling my fellow Silicon Valley digerati…"
you know this is a Voice over IP phone call” -- almost like I was the first one to try the Salk Vaccine.
Vonage and other ITSPs do a good job of bundling value added services into the base product
offering. You will no longer feel “nickled and dimed” by the phone company who programmed us to
get used to paying $4.99 for every single additional feature like voice mail, call waiting, caller ID
etc… Who cares that AT&T is now at 4 cents a minute when your fixed monthly incremental
feature charges are $25!
I am fundamentally a cheapskate. Other than voice mail, I would never turn on any of those extra
charge PSTN features. After going to VoIP, suddenly I could go to my web dash board and
experiment with these features by simply turning on or off any of these free features instantly. This
is what made my relationship with the phone fundamentally change forever.
All of a sudden I got exposed to features that I never would have experienced and now can’t live
without! Features that include unified messaging of actual voice mail files sent to me via email to
any device, caller ID screening, call forwarding my office phone to my cellular phone when I am
traveling and even the ability to take my CPE device with me on the annual 2 week grandparents’
pilgrimage back east that will actually ring my (408) office number in a New York City (212) area
code. Although I haven’t had to do this, if I wanted to expand my geographical presence beyond
the Silicon Valley and expose my business to entrepreneurs in other local areas (Dallas Telecom
corridor, Research Park, NC or perhaps Boston), I could purchase local numbers in those areas for
$4.99 a month and appear to have a local presence.
Pricing
Another excellent feature enabled through the dashboard is that my billing can be viewed in real
time. Much to the chagrin of my wife, at the end of the every month I routinely root through her
monthly pile of bills to find our local and long distance bills to submit my expense report. With
Vonage, I no longer have to forage for data since I can print out statements daily from the web if I
want to (Vonage does not send paper bills). Also, Vonage deducts from my credit card directly on
the first of the month for the upcoming month (nice of them to bill you in advance).
Anyway…small productivity gains to compliment significant cost savings.
The only economic tweak going to Vonage is that we had to pay an additional monthly fee for a fax
line for our home office fax number that was previously shared with our office line, effectively
making it free. That configuration is not possible with Vonage, so you have to pay an additional
$9.99 per month for a fax line which is almost never used. If you want a soft phone option like SJ
Labs Premium video phone for your PDA or laptop, you can get that for an additional $9.99 per
month from Vonage.
There are a number of service plans, but I chose the “All you can eat plan” with unlimited local and
long distance minutes in the US for $24.99 (international per minute calls are available and are very
reasonably priced). When we added our home number to Vonage, it was an additional $24.99 per
month for another line with additional unlimited minutes. Unfortunately, there is no concept of
combined plans like many cellular providers offer for families sharing a pool of minutes across a
number of extensions. As you can see from the chart below there are significant cost savings from
VoIP compared to the PSTN. In some months, my cumulative bill went down as much as 57%
after switching to VoIP.
Network Availability
I should note that as I am writing this Musing, I am without email, internet access, and worst of all,
without phone service as I am waiting for the Comcast Cable Guy to tell me why my home network
is down. He/she is rumored to be here sometime between 9 a.m. and midnight on Tuesday or
Thursday. Ahh….the misery!
There is no doubt that I have added complexity to my home network by going to VoIP. Before
Vonage, my cable modem was connected to a single router/wireless access point for my 4 computers
on our home network. The network never seemed to go down, and if it did go down, I did not
notice.
Since Vonage, my network has been down a lot and that is a huge problem. Coincidental? Maybe…
or maybe not.
I sympathize with many of the enterprise network administrators I talk to on a regular basis. I have
become the Garland family network admin, and I am also responsible for adding complexity to the
network. There are a number of network elements that need to fit together and actually work. What
is indescribably frustrating is when the Comcast cable guy comes in and sees multiple downstream
Vonage routers and a Linksys wireless access point connected to the cable modem. He slyly grins for
a second because he knows this will be a short call. Without hesitation, he shows me that he has
Vonage and Linksys’s tech support phone numbers tattooed to his forehead. Conversely, the minor
IP address change that the Linksys tech support engineer in India had me modify caused smoke to
come out of the back of the Comcast cable modem, and no surprise, everyone points their finger at
each other!
Now these antics have been happening for 10 years in the enterprise VoIP market as the Cisco
networking field engineer sheepishly points his finger at the Avaya IP-PBX as the culprit that brought
the data network down. These vendors may have conditioned corporate IT to expect the finger
pointing, but this can’t happen in the consumer market!! There is no way that consumer VoIP
market will cross the chasm to the 100 million households in the US if this continues to happen!! I
am a technology guy, so I consume this for a living, but the other 98% of the market living outside
the Silicon Valley and Banglore, India won’t tolerate it.
Today’s reality is that the consequences of my network going down are a hundred times worse than
ever before. Not only am I cut off from email and the internet, I no longer have voice access except
for cellular. To add insult to injury, Verizon’s cell coverage in Saratoga is not too great. I admit it. I
was too enamored with features and cost savings and may have jumped the gun converting over
100% to VoIP in our home and office, leaving us without alternatives during a service outage.
Network availability is one issue, but contention is another. Comcast’s cable internet service
promises to give 4 Mbps up and 768 kbps down. A few years ago, I was the only one in the house
using the pipe mainly for email and the world wide web. Now as my three kids get older and enter
their teen years, I am actually having conversations about why Daddy’s Board presentation needs to
get priority over my son’s “All you can eat Yahoo MP3” subscription service, or contending with my
wife’s uploading 400 pictures of the scarf she just knitted to Kodak’s Photo Gallery while I am on a
conference call and getting every third word.
Will I some day need to set TOS bits on my Linksys router to prioritize my voice traffic over my
daughter’s IM and son’s Runescape gaming packets? I sure hope not. Growing pains that I accept
but will everyone?
Come a long way baby…..
In ten years, the telecom industry has undergone unprecedented change and created some new
players while bringing down some old established players. VoIP will likely catch on much faster in
the enterprise market which is projected to be at parity with TDM penetration this year. Despite the
early hype, consumer VoIP penetration did not happen overnight, but I think it will happen if the
service providers don’t forget the lowest common denominator capabilities of the customer.
Consumer VoIP economics and bundled features are just too compelling to leave on the shelf. You
can’t ignore Skype’s viral growth. Analysts are projecting near vertical growth for the consumer VoIP
market with as many as 20 million subscribers in the US and five billion dollars a year in subscription
revenue within the next three years.
For this growth to be realized, technologists need to remember that when dealing with the consumer
market, ease of use, installation and support are more important than some new wiz bang features.
Successful companies will have an eco-system or architectural approach to delivering end-to-end
supported solutions to the consumer. Companies that fail will have myopic product centric world
views and frustrating support experiences. Although the industry has come a long way, there still is
more work to do. Wake up Comcast!
All in all … my consumer VoIP experience has met and exceeded my expectations in terms of
features and price. When the support and integration of disparate devices becomes more seamless,
the market will be poised for explosive growth. Stay tuned.
Maybe VON 2006’s tag-line might be, “Consumer VoIP 2006…the pieces really work all together!”
__________________________________
*Also the theme for VON in 1998, 1999, 2000, 2001, 2002, 2003, 2004.
