In the early days of WiFi, it was common wisdom to bet on service providers and aggregators to make money as the technology became popular. Somehow that did not work out as planned. Who even remembers names like Cometa that burnt through millions before becoming part of the great technology garbage dump.
In the end, the profits from WiFi, however miniscule ended up in the pockets of device makers such as Linksys, D-Link, Netgear. A step lower down the food chain, chip makers such as Broadcom, Atheros, Texas Instruments, and Marvell have profited from WiFi in varying degrees.
We are seeing similar patterns emerge in the VoIP, or at least consumer facing VoIP business. Service providers (the equivalents of Cometa) such as Vonage, Sun Rocket and even Skype are struggling to make money with their offerings. At the same time, you have folks such as Linksys, Netgear and Logitech who are offering devices that range anywhere from $100-to-$300 for making VoIP calls.
They look to be packed with profits for these companies. Logitech, for instance introduced three new VoIP related products – a desktop set that includes keyboard, mouse and headset, a Bluetooth headset and a speakerphone. These are not very expensive products to make and are going to find buyers amongst many PC-VoIP users.
Logitech, most certainly will make money on these devices. Just like Netgear which will profit handsomely from its $250 wireless Skype phone. Just like WiFi, the profits are going to fly to the chip makers including the usual suspects, Broadcom and Texas Instruments, something we had noted earlier.
I just wonder if this is the new model – a model of limited profitability – in the post-PSTN standards based world. If that is indeed true, does that mean we are seeing an end of an era of specialized chip maker, and larger “index-fund” like approach is going to be the way for chip companies to survive and earn a living? And what do venture capitalists do in these times of reduced profitability cycle? Unfortunately, I don’t have answers, just questions. Hopefully you will fill in the blanks.