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Summary:

If you took things at face value, then the recent fad of adding voice to the “instant messaging” clients is nothing but Silicon Valley’s version of keeping up with Jones. Yahoo (via DialPad acquisition), Microsoft (via Teleo acquisition), AIM, Google Talk and Apple’s iChat are taking […]

If you took things at face value, then the recent fad of adding voice to the “instant messaging” clients is nothing but Silicon Valley’s version of keeping up with Jones. Yahoo (via DialPad acquisition), Microsoft (via Teleo acquisition), AIM, Google Talk and Apple’s iChat are taking a cue from Skype and giving their users to have free PC-to-PC calls.

Over a long term, these announcements add to what is continuing trend that is commoditization of voice. If Vonage introduced the phone world to flat rate plans, then Skype was largely responsible for micro-slicing the phone revenues. Voice over IM takes it one step further. Makes voice free! Yahoo and MSN hope this translates into consumer stickiness, while Google, one day hopes to attack contextual advertising to their voice. (And some day they want the voice IP stream to be searchable just like text.)

Sure for now only the PC owners, that is largely the developed world which already enjoys some of the lowest telecom tariffs gets to reap the benefits of this trend. However, in the longer term, the evolution of newer “thin clients” that fit into the emerging economy lifestyles will also start to use voice for free. As a word of caution, it is not going to be today, or tomorrow or even two years from now. This is a long drawn out process, that should take somewhere between five to ten years. But like a big lumbering boxer, who has taken many a few punches, its going to slowly slide before hitting the deck.

There are a handful of reasons for that. If you took into account the current user patterns, no one except Skype is getting meaningful “voice” traffic. (That’s because Skype is viewed as a free voice service with IM features, and not the other way around.) However, as many of the younger users start to get comfortable with Voice over IM, the voice traffic over IM networks is going to increase. Microsoft’s XBox Live, where trash-talking over the network using headsets while playing Halo (and/or other games) has gone through a similar slow-but-steady growth curve. I think we are going to see similar adoption and usage patterns for the Voice-over-IM services.

When that happens, these Voice-over-IM services will start to siphon off minutes away from what is the traditional telephony – be it fixed line telephony or wireless/cellular telephony. This siphoning away of minutes is a bigger threat to the per-minute business models that say Vonage. It attacks the incumbents where it hurts the most – on ARPU. They can easily counter by reducing their spending on cap-ex, adopting IP-technologies, but they will be tilting at the windmills. Even new voice gods, Skype, is feeling the heat, and is slowly seeing its growth slow down.

Over a longer term, what this trend of constant commoditization of voice, will manifest itself in a whole new meaning of “voice.” Last year, in my Business 2.0 article, Voice over the Internet, I had pointed out that voice would soon become an embedded feature in most applications. We are simply starting out with the “instant messaging clients.”

Related:
+ Incredible Importance of Instant Message Clients
+ Telecom’s continuing death spiral.
+ Skype’s Numbers Game

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  1. Jonathan Tregear Wednesday, August 31, 2005

    The reason that Skype is getting “meaningful” voice traffic has little to do with the fact that Skype is a voice service with IM features, rather than the other way around. Users aren’t that stupid.

    It has everything to do with the fact that Skype offers PSTN connectivity, which gives Skype users access to more than the isolated island of other Skype users. The value (and the use) of a communications system is proportional to the number of people you can talk to. It was the PSTN connectivity infrastructure Microsoft was buying when they bought Teleo.

  2. Is my memory going or did Yahoo have voice in their IM *way* before Skype ever existed. That’s why I thought Skype was nothing much when it first launched. It seemed like a minor feature that Yahoo already had… However, now everyone seems to suggest that Skype was first. Is my memory screwed up?

  3. Your memory is correct. Yahoo, Microsoft, and AOL all had client to client voice in their IM clients long before Skype existed.

    From a user’s perspective, Skype made two major improvements: they added security so all voice and IM are secure and they added the use of wideband codecs and the high quality Global IP Sound (GIPS) VoiceEngine. Whereas the prior voice implementations seemed to use the traditional ITU (G.x) codecs and emphasized bandwidth conservation, Skype eschewed that for quality over broadband.

    Many of the prior implementations did work with home routers and NATs, though Skype may have made some incremental improvements there. I’m assuming that most users don’t really care how much infrastructure Skype may or may not have.

  4. Skype Not for Sale?

    Is Skype for sale or not? Is it considering an IPO or not? It’s hard to tell what’s what given the speculation about talks with Rupert Murdoch and the hiring of Morgan Stanley as a financial advisor. According to TechWeb News, the company is now clai…

  5. Odyssey » Pixar, Bloggers, and End of Telecom Companies Wednesday, August 31, 2005

    [...] to eat into Skype’s market. Is it going to be the end of telecom companies? Om Malik raises a few interesting questions today. animation pixar bloggers voip [...]

  6. Om, can you please provide an updated link to your original Microsoft and Voip article. It appears to be out of date and I can’t get to it. Thanks.

  7. For the record — AIM and AOL Chat (previously seperate) have both had VoIP capability starting with trials at least as early as 1998….

    It’s hard to call that “keeping up.” It was more likely waiting for consumer adoption — acceptance…

    -Victor

  8. any idea who will buy XTEN NETWORKS and how soon?

  9. Digital Media Review Wednesday, August 31, 2005

    [...] ger platform. That is keeping in line with what I had speculated. He also talks about the commoditization of voice as a free add-on feature, starting with instant messagin [...]

  10. Om, is it commoditization of voice OR commoditization of the “network” itself? voice is the only application that (via PSTN), has ‘intelligence’ in the network and not the end-devices and allows the carriers to continue making money as the gatekeepers of the PSTN. if i could get to everyone i wanted via their SIP-locator (URI), there is no need to go through the PSTN-gate anymore. infact, that happens for every other application online today. if i spend $100 at amazon or ebay or any other web/net based service provider, the carriers don’t make any additional cent from me on the bits i sent/received to/from amazon. i.e. DUMB pipes. so in a way, Services-over-IP already behave in a way that commoditizes the network because the end-points (clients, webservers) contain the required inteliigence. SIP/XMPP and IPv6 (eventually) don’t need the network to provide any inteliigence other than interfacing to the PSTN because a vast majority of the population has PSTN-locators (phone numbers).

    skype unfortunately has chosen to emulate the carrier model by making their service a proprietary take on SIP. weirdly enough, only Microsoft, the supposedly evil one, and Google, on its way to doing some evil according to some media, are the only two big ones sticking to standards (SIP/SIMPLE and XMPP respectively). Yahoo and AOL’s VoIM is proprietary as well. if these were open, or were to become open/standards based, there will be faster commoditization of network-pipes which is great for the user/consumer in the long run. it is the applications that need to get smarter, the network can/will stay dumb for everything but voice/PSTN.

    -r

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