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Business 2.0: Every week I see at least one new company pop up and try to sell Internet-based phone service to consumers. It has gotten so ridiculous that some low-cost commodity equipment makers such as Belkin are getting into the business of selling Internet voice. According […]

Business 2.0: Every week I see at least one new company pop up and try to sell Internet-based phone service to consumers. It has gotten so ridiculous that some low-cost commodity equipment makers such as Belkin are getting into the business of selling Internet voice. According to some estimates, there are nearly 400 companies selling VOIP services in the United States. Venture capitalists are clamoring to get their money into many of these service providers. A lot of those people are going to get hurt. This reminds me of the early days of ISPs when hundreds of mom-and-pop service providers flooded the market with cheap all-you-can-eat dial-up Internet access plans. Ten years later, most of them are gone, and business has coagulated around four large players — America Online, Earthlink, Microsoft, and Net Zero. The VOIP service business is going to see a similar contraction as well. Continue reading at B2.0 website

  1. This is just the way the system works. Unless there is regulatory intervention, all industries tend towards oligopoly as they mature. We live in a fast moving world now, so this consolidation happens fast.

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  2. Difference being that ISPs were providing people with their first taste of data services. In effect these were greenfield “deployments.” This is certainly not the case for voice communications, which is an established market. As you pointed out in your post re: Covad yesterday, converting to VoIP can now be done server side (IP Centrex side), which only benefits the incumbants. Does not bode well for the start-ups if you ask me. VoIP communications is a ‘commodity’ in and of itself. Those start-ups better start innovating some community/search/advertising features fast…voice alone will not get it done.

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  3. This is inevitable and nothing new. As always the incumbants are slow to react, protecting their existing operations as best they can, while the more cost efficient and innovative start-ups develop and launch new services. The incumbents will wait until they see this as a real threat (this year) and then either develop/launch their own services, or buy out the leading start-ups.

    In the UK, BT made a half-hearted attempt to launch a VoIP service in 2004. The service had no advantage over their fixed line offering and could only be used in conjunction with it (after all why would they accelerate the demise of their cash cow?)

    The really interesting thing about VoIP services is that (currently) the customer no longer is forced to use a local provider. This means that as a UK resident I can utilise a US (or any) service provider and take advantage of currency fluctuations.

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