INGATE

From The Sip Trunking Experts

[October 23, 2006]

Skype and Other Voice over IM Services: Explosive and Disruptive Platforms

By TMCnet Special Guest
 

The Skype (News - Alert) Phenomenon


VoIM (Voice over Instant Messenger) is still an evolving and ill-defined category which encompasses what used to be called PC-based voice services and includes the services offered by eBay (News - Alert)/Skype, MSN (MSN Voice), Yahoo! (Yahoo! Messenger with voice), Google (News - Alert) (GoogleTalk), AOL (AIM), SIPphone (Gizmo) and several others.

The adoption and usage of these services is nothing short of a major and historical disruption in the technology market. It is estimated that Skype, the leader in this category, is signing over two million users per week. The 100 million Skype users today dwarf the combined user base of all other hardware-based VoIP providers on the planet including Vonage and Multiple System Operators (MSOs).

While usage patterns differ between the two categories (today, Skype is used more as a secondary voice service which, in part, explains why there are approximately “only” six million users online at any one time), there is ample evidence suggesting Skype is where the VoIP action is today.

VoIM Battle is About to Take Place

Interestingly, the VoIM battle has barely begun. Global Internet brands are only gearing up to sign-up new VoIM users and to increase usage of existing ones. Currently, Microsoft (News - Alert) enjoys a massive user base of some 185 million Instant Messaging users (text chat) across the globe with competitors Yahoo! at nearly 100 million and AOL with nearly 50 million users mainly in the US. Additionally, Google has recently started to build its own user base through GoogleTalk, which is, for now, a very distant fourth.

As will be explained, it is paramount for these players to i) transform existing IM chat users into voice users and to ii) capture growth at the edge of this explosive market by being the top choice for non-IM users. Evidence from Skype’s adoption rate is that the quality and richness of the voice experience (as opposed to the text chat or video experience) has become the dominant factor to sign-up new users. Many are now becoming text chat users after they become VoIM users.

Recent announcements in the market will further intensify the VoIM battle and accelerate market adoption. As of mid-May, Skype now offers free long distance (SkypeOut) to any telephone in North America and AOL is offering a free phone number with e911 (News - Alert) to every AIM user. In essence, highly recognized brands are now offering entirely free local and long distance service (to any phone).. The comparable service (albeit voice only) delivered by a telco will set you back between $600 and $800 per year.

Why is VoIM Important to Top Internet Brands?

Talking on the phone is a very personal and core human behavior in industrialized societies. The average broadband user spends around 25 per cent of their communication time sending emails and Instant Messages so PC-based communications have also become a core behavior. Nonetheless, the remaining communication time (other than face-to-face) is voice through mobile and fixed phones (75 percent of total communication time representing a staggering 12 to 15 hours per month).

For Internet brands, capturing a share of the voice market offers a powerful means to increase “time spent”, to lock-in users and to expand the relationship with users. The sheer inconvenience of switching providers when a VoIM user has given out a phone number and an address/handle to his contacts is massive. The barrier to switching becomes almost insurmountable when the user also manages his address book and buddy list on the same personalized online space.

Other loyalty and usage drivers will come as the user habit becomes entrenched; when the user is accustomed to a specific calling service interface and when they ultimately use that same service’s vocal search and content services. By way of example, if a user goes through Yahoo! voice 10 times a day to initiate calls from a mobile phone using a Yahoo! address book, the user will naturally be compelled to try Yahoo! Go (mobile content) and expand their voice habit to Yahoo! content and search (and less likely to adopt Google on their mobile phone).

Becoming a user’s preferred VoIM client is also strategic for leading Internet brands since the IM client is a community platform and voice increases the gravitational force of that community. AOL recently launched AIM pages indicating it recognizes the potential for a voice-enabled IM client to become tomorrow’s preferred personal online space and identity for their users. Voice and IM communications are both powerful community-building tools. Their integration with other community building tools and user-content could enable the formation of new types of social networks and further accelerate the growth of existing online social networks.

Signing up users quickly is even more important for Internet giants considering that VoIM is one of the most extreme viral applications (for as long as communities are separate) and that every user of a community is motivated to bring friends and business contacts onto the same network (if only to access presence information and to have seamless communications between text and voice chats).

Furthermore, rapidly capturing market share and gaining VoIM users as the market grows is critical because switching will be difficult and acquiring a competitor’s users will be expensive after the hyper growth phase. eBay’s experience in Japan is a case in point. It is the uncontested worldwide leader in online auctions yet is still a distant second in Japan where Yahoo! established itself in this business before eBay and offered more aggressive pricing models early on.

Ultimately, leading Internet brands will want to bring users onto their own VoIM service. They will provide the service (or most of it) for free and will monetize a user’s “habit” through advertising and commerce related means. For providers like Microsoft, Google and eBay, VoIM offers several sources and forms of financial value including:

  • The ability to deliver ads to users while their service is being used from a PC
  • Access to contact and calling data patterns to further target ads or to enable links with relevant social groups (greater ad revenue per event)
  • To become the local search engine of choice on mobile phones (screen or voice interface) and to charge merchants for every call they get from potential customers (pay per call)
  • To simply bring users to “their own” voice-enabled services (e.g. mapping and directions, auctions, etc.) where users can search and access content or conduct commerce transactions from any device
  • To expand voice and IM behavior to video (likely to be ad supported as well)
  • To secure the carrier channels by making mobile access to their VoIM service a key purchase decision factor for mobile users (revenue split with carrier based on usage)

Unlike service providers, it is unlikely that VoIM providers will rely on direct subscription revenues from users to sustain the VoIM business. They will more likely build it into their core advertising and commerce-driven business models.

The Killer App: VoIM on Every Mobile

The full disruptive potential of Voice over IM will manifest itself only when it reaches the 2.2 billion mobile phones on the planet. While a few interesting mobile VoIM extension options are available today, they are at best “cool” features for techies and are far from addressing the mass market. These options require that users have specific handsets and download a plug-in onto their cell phone – hardly a solution for today’s average user.

However, new solutions which enable VoIM users to access services from their existing mobile (regardless of the handset model they have) are currently being developed and will be delivered to the market by the end of 2006. These solutions will enable users in industrialized and developing countries to access their buddy list and dynamically make a VoIM call from their basic cell phone without incurring any long distance or per minute mobile charges in some cases.

It does not take a big leap to imagine that mass adoption on a global scale would occur if near-free, unlimited, mobile voice came to market. These mobile solutions are indeed just about here and will offer a richer, presence-enabled user experience which is simple, seamless with the PC VoIM experience and which, most importantly, works with any handset on the planet, without handset configuration of any kind.

Telco Implications

Clearly, the explosive adoption of VoIM services could have dire implications for telcos. VoIM replacement impact of fixed lines will take place much faster than wireless substitution or replacement caused by hardware-based VoIP (e.g. Vonage type or MSO VoIP service). Free and unlimited voice brought to users on the PC and the mobile by credible global brands (e.g. eBay, Microsoft, Yahoo!, Google) has the potential to cause a lot more “telco damage” than anything we have witnessed so far.

To varying degrees, telcos rely on consumer inertia, favorable regulation, strong customer relationships, the reliability of their PSTN service and on converged fixed-mobile services (if they have a mobile arm) to slow down the erosion of their landline base. The strength of the coming VoIM wave means that telcos must be willing to work with various partners to protect against further erosion of their customer base.

Albeit counter-intuitive at first, mobile carriers and telcos with a mobile arm should embrace VoIM and focus on building VoIM into their value proposition. VoIM should not be seen as a competitive service but rather as a platform from which to derive value-added revenues. This same platform will also lead to other content and commerce related revenues over time if the telco brings value in the way it is brought to market. History has shown that Blackberry, which is a platform in its own right, turned out to be a great revenue generator for mobile carriers even if they now “share” their Blackberry customers with the Canadian company.

By way of a first step, a telco could bring Skype presence to its local service by making the two services (Skype and PSTN) seamless. Providing the ability to switch a mobile call to the Skype PC client and vice-versa would also offer meaningful value to customers. With almost a quarter of all IM chats turning into PC voice calls today; the telco would enable the second layer of escalation and transfer the PC call to the mobile. Additionally, a mobile user could seamlessly access their buddy list from their cell phone and make calls by typing or just “saying” the name of one of their contacts.

Enabling mobile users to check presence and to call people on their PC can only increase usage of mobile minutes. There are many other possibilities to define carrier-friendly service offerings, but the key notion is for the telco to ride the wave as opposed to fighting it and to offer users a simple and integrated service and bill a monthly or per event charge for a unified VoIM-Mobile service.

Most users value peace of mind that comes from a telco service. As a result, the telcos should prevent users from having to make a choice between conventional phone service and VoIM, and seamlessly offer the best of both worlds. By addressing the mobile VoIM mass market early on, telcos will have the power to ensure they are not losing customers. Carriers should also avoid asking their mobile customers to buy new handsets or download wireless clients to access VoIM networks. The competitive driver at this stage for carriers is to bring VoIM to the masses before other (new or existing) carriers do.

Summary

VoIM is a greater disruption in telephony than most realize and it is only the first round of a multi-party battle for the customers’ voice habit. Different players have different intents and business drivers and radically different starting points. The winners will be those who make it all seamless for end-users and who strike the right partnerships, and understand and align the different business models at play.

Stéphane Marceau is the president and CEO of VoxLib (www.Voxlib.com) Previously he was Vice-President –VoIP with Bell Canada. He can be reached at 1 514 667 0703 or stephane.marceau@voxlib.com


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