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Summary:

If you are a consumer going shopping for VoIP-related product/service, welcome to land of confusion. And if you are looking at CES for help, well you are out-of-luck pardner! You can walk into Radio Shack and look hard for the much vaunted Skype kit; you can […]

If you are a consumer going shopping for VoIP-related product/service, welcome to land of confusion. And if you are looking at CES for help, well you are out-of-luck pardner!

You can walk into Radio Shack and look hard for the much vaunted Skype kit; you can go to Fry’s and assaulted by scores of phones and networking products that work with either one phone service or the other. An ATA for Vonage, another one for AT&T and on and on. All these choices, that work with one service at a time. Time to switch? Well, perhaps its time to go and buy more gear. Dano is right…every VoIP is a silo!

This boneheaded approach is on display at CES 2006, again.


Over past few days, we have been bombarded with one announcement after another from handset makers who are touting WiFiphones for Vonage or some other phone service. Bunch of speaker phone and USB handsets that work exclusively for Skype. Netgear is pushing routers that work with Skype, no PC required. Even Microsoft jumped on the bandwagon, where Bill-G in his big CES keynote showed off two wireless handsets from Philips and Uniden that work only with Windows Live Messenger, and MCI powered PSTN service. Does anyone else see this as the continuing balkanization of VoIP?

This is a honey trap for the VoIP industry. Just like the cellular industry, the closed handset model popularized especially by CDMA-based carriers in the US, has forced the carriers to underwrite the handset costs, just so they can lure the consumers and restrict them to a specific service. At least, the cellular service industry has the economics to support this cost structure. In case of VoIP, the carriers will be spending like drunken sailors, forced eat the costs of the hardware, because consumers sure enough are not going to pay for every gee-gaw. (I bet chip makers like Texas Instruments are the only ones who come out winners in this madness!)

Want proof of this? Vonage is giving $100 rebate on any hardware you need to buy in order to sign-up with Vonage. When the price of voice is falling to zero, how long before this starts to cut into a company’s skin, much like a pair of trousers, three sizes too small.

Forget the financial apocalypse for a minute, just wait for the consumer anger. Anytime a new technology wants to ingratiate itself with consumers, the focus is on making things easier. Not VoIP. No Sir….no way!

Imagine mom’s confusion when she finds that here Microsoft phone only talks to Microsoft phones, or Skype phones don’t play nice with others when it comes to free phone calls. Sure you can make PSTN calls on the cheap, but hell you can do that even with your mobile phone. Just wait for the clock to turn 7 p.m. in the evening. Someday Microsoft’s Live Messenger will talk to Yahoo, Google Talk will call AIM, but don’t hold your breath.

The silos of VoIP are going to come and haunt the industry eventually, especially those who are banking on VoIM. But then it is a perfect opportunity for one smart entrepreneur, someone with a devotion to consumer and ease of use to build a “Trillian” or “Adium” of VoIP. [That should be a start, before we get to real interoperability.] All you need to do is channel your inner Steve Jobs!

  1. The fundamental problem is for all the talk about “Telepocalypse”, everyone including the high priest thinks there is money to be made by Voice 2.0 service providers. This will naturally lead silos – you have to keep all the cows in the barn.

    One time you suggested GYM-free diet. How about another resolution: anytime we write about a company that practices silo model, let us add a postscript reminding us of their behavior?

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  2. Vonage is bulding silos even internally, requiring separate accounts for the different access methods, just like the “old” telcos.

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  3. [...] Unbelievable. But a point to note – this problem doesn’t start with the DMCA – it ends there. It starts with the increasing technological complexity of all products and services – complexity that opens up myriad opportunities to specialize and differentiate. This opportunity is then exploited by manufacturers who believe that the optimal business model is built on the back of a captive customer – at heart, this model is about fear – the fear that once you’ve set the customer up for a fleecing (for example, with a cheap printer and expensive consumables, or non-standard accessory connections), a competitor will come along with a better offering (for example, cheaper toner or a universal accessory). Hence the VoIP silos that Om describes today, hence the annoyingly closed nature of Microsoft Outlook’s data file, hence the closed handset model in CDMA cel technology, etc. etc. ad infinitum. Manufacturers seem to work together on standards only when there is no opportunity for survival unless they do. [...]

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  4. This behavior is absolutely not surprising. The main leverage that these nascent VoIP providers have is their network. By making it exclusive, they compete not on price but the size of their network, much as AIM et.al. have done (programs like Trillian spoil this party, though). This (network exclusivity) is a grand old tradition in telecom … you can go back to 1892to ca. 1920, when many cities boasted competing LECs that did not interconnect.

    If you are interested in more about this, check out the book Shaping American Telecommunications.

    The more things change, the more they stay the same!

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  5. You’re missing an important facet of this, though, Om: The decent VOIP solutions also have the ability to bridge out to the rest of the telephone network. So my VOIP solution – Vbuzzer – includes a Sipura box that lets me plug my regular old telephone into my Ethernet and voila! No computer needed. If I happen to luck out and call another Vbuzzer user, it’s free. But for $10/month I can call anyone at any phone number and if they happen to have a bridge into Skype, Vonage or whatever, it’s transparent to me. No silos. See what I mean?

    I’ll be at CES tomorrow. Let’s sit down and debate this one, eh? :-)

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  6. Is it really that limited over there?

    AVM is a company which does (in Germany) the very famous Fritzbox. Nearly every DSL seller besides Telekom gives it with a new broadband account kind of for free.

    It does everything you want – dsl modem, router, firewall, lan and wlan, and in the configuration I have even voip (including traffic shaping so you can enjoy your calls). It is not restricted to any special provider but to a protocol, SIP.

    Most of the SIP networks are limited to their own customers, but we do see a little bit of connecting networks. As the box I am having ALSO has a built in telephone access, I can use my normal telefon and either receive normal phone calls or I can receive sip calls.

    I don’t need to worry about special hardware, I just can use my fritzbox and do not even need to have my pc running in order to receive voip calls. Well, I could enjoy it, if I would not be on Skype as my im/voip client of choice.

    If the fritzbox would include the possibility to go skype, that would be awesome, but as it seems, they are not interested (be it avm or skype).

    Unluckily, AVM does work with Siemens on some solutions for extending voip to the PC, which means you still need a pc running.

    So from my point of view there is only the difference between SIP and Skpye. Providers in Germany do preconfigure the Fritzbox with their SIP service, but you can have two of those SIP entries without a problem, it is just a configuration thing.

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  7. The lack of standardization and interoperability is frustrating for early adopters, but it is probably only temporary. The cable companies will probably drive standardization and interoperability by becoming the first VoIP providers that really succeed in mass markets.

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  8. [...] VoIP providers are trying to do the same thing- even though it didn’t work for the telephone companies a generation ago, it isn’t working for the IM companies now. Think about telephone service, and imagine what it would be like if you were in a silo, and could only call other Verizon customers. [...]

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  9. Still, the biggest loser so far is EBay. They purchased what others will get for free. Phones will soon be Skype-enabled, not Skype-dedicated.

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  10. So Skype’s business model goes with the interop. Where’s the advertising?

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