Nothing But The V-Thang


[qi:86] James Seng, a fellow VoIP blogger from Singapore, was in town last week. We met up one afternoon for coffee, and my first question to him was: Why are you blogging less about VoIP these days? He expressed dismay at the lack of excitement in the sector right now; after all, how many times can one drum up enthusiasm for a USB phone or a soft phone? We agreed that VoIP is stuck in a “cheap calling” rut, and that it doesn’t appear to be going away anytime soon.

With the consumer market saturated, venture capitalists are funding companies that are trying to cater to small- and medium-sized businesses. Redwood City, CA-based RingCentral, a provider of web-based phone and fax services for professionals and small businesses, said today that it has raised $12 million from Khosla Ventures and Sequoia Capital. (I had erroneously said they were based in Denver.)

There is nothing about RingCentral that distinguishes it from countless other firms chasing the same opportunity and as such, nothing to convince me that they will not meet the fate of dozens of other small competitive service providers. In fact, the odds are stacked against a company like RingCentral. Not only do they have to compete with the phone companies, but they also have to contend with the cable operators, whose efforts to woo the small-and medium-sized business market are even more ambitious.

“Cheap calling” is a no-win business — the volumes need to be substantial in order to turn a profit. That is one of the reasons why I happen to be hesitant about Cubic Telecom, an Irish company looking to save you money on mobile phone roaming charges by offering a special SIM card that gives you up to 50 local numbers and turns every international call into a local one.

It’s a clever idea, and it’s addressing a pain point, but the founders have to execute flawlessly or they’ll see someone else do them one better. (Markus Goebel does a great job comparing Cubic to other offers on the market.)

The problem with competing on price is that the incumbents always have the scale advantage, which lets them play the game more effectively, especially given their bigger marketing reach. That’s one of the reasons why Vonage, despite its early start, is finding itself on the wrong side of the equation.

VoIP needs to break out of its rut and do something more interesting. The recent Facebook experiments by guys like Free World Dialup and iotum give us hope, but a lot has to happen there. Surj Patel recently threw up some ideas, but there has to be more. Care to contribute?


Michael Cerda

why is anyone still talking about “VoIP”? The geeks from 1997 called and want their acronym back.

if you’re an entrepreneur and you’re still using this term in your pitch somewhere, you’re missing the forest for the trees.

Kiwi Bloke


Yep there is more coming than cheap phone calls.
Look to the Sylantro Global Summit next week and who Sylantro is partnering up with, ie Cistera Networks and Aastra.


This comes down to sunk costs. For the largest phone carriers (landline & cellular) the incremental cost of a minute is pretty close to 0. There is no big cost advantage that VoIP has over existing networks. The cost of acquiring customers and customer service on the other hand decrease as you scale. If the killer app for VoIP is a (cheaper) phone call, they will continue to struggle and die.

Yes, VoIP have hurt profitability for the big carriers but just because you hurt the big guys doesn’t mean you automatically capture the lost value.

If any of you has questions about this. Call me!

Sean O'Mahony

Let me just put the notion that Cubic Telecom is all about “cheap calling” to bed once and for all. We’re not. We never have been and we never will be.

We’re about better value. If you’re paying $1 a minute for a call now we’ll get it to you for 20 cents. If rates from the carriers come down to 20 cents we will find a way to get it to you for 4 cents and we’ll still make good margins.

We’ve made money this way for the past 5 years. We know what we’re doing and we’ll just keep doing it.

James Seng

Agreed that incumbent will always win a price war, if they choose to fight it. As such, the value in any VoIP offer must be more than price.

That is not a new idea; some of us talk about it several years ago. But till today, I havent see any interesting play.

Jesse comments about VoIP is right on the mark. Cubic telecom is interesting not because it uses VoIP but because it hides it from the user. :-)

Markus Göbel's Tech News Comments

After reading it again I think this post is too US centric. The world is bigger.

In Europe often there is no option to “call your local phone company and cable company” and “see how low prices have gotten”. Pure VoIP still undercuts every phone or cable company offer, especially when it comes to international calls. The incumbents still don’t use their scale advantage which leaves room for VoIP players.

The Sun Rocket debacle is no example for the entire world but just a case from the particular country USA where phone calls are cheap anyway.

Jesse Kopelman

I’ve always though that VoIP is a feature, not a standalone service. Maybe the right metaphor is ingredient. If VoIP can make your product better, good, but otherwise who cares? Vanilla extract is crucial to many a tasty cookie, but I’m not too keen on sucking it straight from the little brown bottle.

Raymond Padilla

Om, for international calls VoIP is still a significantly better deal. For domestic calls, the Skype flat rate for US and Canda beats AT&T and Comcast.


You are right on the money Om. We were all so excited about the prospect of voip changing the whole game plan and replacing the circuit switch network. It’s never going to happen. The recent sun rocket debacle and vonage struggle clearly shows pure voip services companies will struggle to survive. I was very upbeat about the prospect of VOIP innovation happening in web 2.0 space. I believed that innovative VOIP services rather than pure voip services are going to make it big. Off late, I have started to loose that hope. I couldn’t recollect any VOIP innovation in the web 2.0 space that is revolutionary. Look at jaxtr, they started as VOIP widgets for social networking, Later changed their business strategy to focus on international voice calling. Having said that, I still feel we could achieve lot more using IP has a platform. I see great potential in Services Over IP ( SOIP ).

Om Malik


you should call your local phone company and cable company. see how low prices have gotten and if you are a non-geek consumer, you are getting a pretty good bargain.

i think we forget that in the end, cheap calls are done best by the big players. that is one of the reasons why low cost flat rate plans from incumbents are quite popular.

Raymond Padilla

From a journalist’s and technology enthusiast’s point of view, maybe VoIP is a little dull, but you need to think about the consumer’s point of view. If the market is so stagnant then why do I have to keep looking for the best solution to make all the calls I need? As it is, I’m still splitting my dollars between Skype, Y! Messenger, one of Pat’s services, and VoIP Cheap. In a perfect world, I’d use one service to make all the calls I need, but there isn’t a solution that provides everything I want. Until one is created (or an existing one evolves), I’ll be following all the “cheap call” news with great interest.

pat phelan

We will have to prove you wrong then OM,after all you did vote us the company most likely to be around in 5 years time.
Our major interest is in developing markets, I totally agree with you on your post today that me and you don’t need to know how to make calls any cheaper but there are millions of people globally who are trapped in a cycle of expensive calls still.


James is right .. VoIP is dead. We are old friends from the ENUM days. Signaling over IP aka ENUM/SIP is starting to permit VoIP interconnection across domain boundaries which is interesting but the real story of why no one hears that much about VoIP is that the global voice service itself is all going to mobile platforms. Landline VoIP simply does not make sense to anyone under the age of 25. Adding voice to social networks is interesting but hardly revolutionary.


The reason the industry is in a rut because it is focused on VoIP – it is immaterial whether voice is carried over IP or circuit switched network. The real breakthrough is Signaling over IP (SoIP). So what we need to do is focus on developing products and services that take advantage of SoIP.

Markus Göbel's Tech News Comments

Hello Om,

thank you for quoting my blog post in your article.

Another fact to keep in mind is that the European regulators (after having cut in july 2007 the roaming prices for European MNOs up to 70 per cent) are now dealing with the termination fees which MNOs charge for incoming calls.

EU commissioner Viviane Reding said last week that she wants to reduce these tariffs drastically. This touches the Holy Grail of the European telecommunications industry since it’s a main source of income, especially for Behemoths like Vodafone.

In Cyprus the national cap for calls to other networks is at 2,25 cents, in Poland 16,49 cents. The real cost should be about 1 cent or less.

That’s why regulation is on the agenda. I guess, at least in Europe, mobile phone calls will soon come down to very modest prices after years of rip off. Let’s see where this leaves Cubic Telecom and the like.


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