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Who Killed the VoIP Revolution?

[qi:090] “VoIP is dead,” Skype General Manager of Voice and Video Jonathan Christensen declared at an industry conference a few weeks ago. He spoke figuratively, of course, but he may well have been right. While Voice-Over-Internet Protocol proponents had long promised a decade of creative destruction, they themselves appear to have become the victims.

The full potential of a technology is not always realized once it converges with market forces. In this case, the gravitational pull of the incumbent local exchange carriers (ILECs) has always proven difficult to resist. Most of the VoIP industry, while loudly proclaiming the SIP era as the beginning of the end for monopoly communications, secretly courted the incumbents in hopes of profiting from replacing their long-amortized investments in the fixed-line business. By tying their fortunes to the whimsy of the ILECs, many of the upstarts suffered, destroying billions of dollars in shareholder value in the process.

Recently PulverMedia, which spurred the VoIP crowd and rode its financial crest, shut its doors amid a swirl of controversy. As of this writing, Sonus Networks (s SONS), once a high flier at $95 per share in 2000, trades at about $2.29. Even Cisco (s CSCO) has thrown in the towel, discontinuing its BTS series of softswitches (which provide the routing logic for VoIP networks). These dismal stories perfectly mirror the ride of the VoIP industry in general.

The outlook was once a lot better.  In 1999, with the ratification of the SIP protocol specification by the IETF, advocates who wanted to tear apart the monopolies that dominated telecom started to beat their war drums.  Following conventional wisdom that the Internet democratizes and deleverages any market into which it enters, it was easy to convince investors to pour billions into VoIP products and companies.  Regulators seemed to support that theory, too, sealing the deal with the FCC’s so-called “Pulver Order,” which defended the VoIP industry from over-reaching regulation and tarifing.

The anticipated period of “creative destruction” came, all right. It began in 2001 with the smiting of the competitive local exchange carriers (CLECs) and long-distance competitors, who had not yet even had time to embrace VoIP, by predatory pricing from the incumbents.  It continued with the shift from fixed voice lines to wireless phones, as evidenced by the drop in landlines . More recently, the guns have been turned toward the VoIP equipment vendors that begat the revolution in the first place.

So what happened? What clipped the wings of so many VoIP hopefuls can be boiled down to five things:

  • Death by Deliberation: The incumbents and cablecos were identified as early targets for the equipment vendors, however their engineers quibbled about curbside protocols and QOS and fiddled with VoIP in the labs, delaying launches by years — far outside of the fundraising cycle of most of the VoIP startups.
  • Competition Attrition: The implosion and autopsy of WorldCom signaled to most of the industry that being a competitor in telecom is not a healthy business. Those high prices were largely arbitrary, and as soon as the market pressured incumbents to reduce them, they did.
  • Evolution vs. Revolution: Companies like Nortel (s NT), Siemens (s SI) and Ericsson (s ERIC) rank among the top VoIP equipment vendors today, not startups. Technologists completely underestimated the sway and leverage that the traditional vendors held over their customers.
  • SIP in a Box: SIP might be an open protocol, but networks were built proprietarily and have not been bridged together. Most telecom services still communicate with each other via public switching, meaning that the wonderful possibilities that SIP might enable are limited by the capabilities of the plain old telephone system.
  • Landline Decline: Even as networks were evolving, the number of landlines around the globe was shrinking. People found more convenient ways to communicate via wireless, SMS, instant messaging or pervasive email.
  • VoIP technology has clearly been successful in making inroads into traditional telecom networks, but in doing so, the revolution that SIP in particular, and VoIP in general, enables has been largely cast aside and the entire industry has coalesced in a race to the bottom. With this revolution went the volume of equipment and software sales that could have revitalized the supplier business and stimulated more innovation.

    Of course, while the telecom industry was eating itself alive, a plucky little company from Luxembourg called Skype delivered on VoIP’s promise by almost completely ignoring the Public Switched Telephone Network, not to mention the pundits and experts that cling desperately to SIP’s potential. The point of Christensen’s superpoke at what’s left of the telecom business is that Skype has been successful because it threw away the playbook, ignoring the obsessions of so-called telecom experts and focusing instead on solving the practical needs of everyday users.

    Tens of millions of people use Skype’s network today for text messaging, file-sharing, videoconferencing — and, yes, voice calling. All of these services are made decidedly more convenient because of presence — you can see who’s there before you contact them and use that information to choose what the most appropriate means of communication should be. And with less than a $40 million investment (prior to eBay’s rather more substantial buy-in), Skype’s user growth has outpaced the entire rest of the consumer VoIP business combined.

    The bottleneck for innovation appears to have been Alexander Graham Bell’s (no relation) PTSN — the plain old telephone system. By going after low-hanging fruit and forcing their innovations to be defined within the walls of the PSTN, the vast majority of VoIP companies voluntarily muzzled their own revolution and ultimately cost their investors billions.

    Ian Andrew Bell is a reformed telecom executive, and creator of the team management service

    This article also appeared on

    55 Responses to “Who Killed the VoIP Revolution?”

    1. Who killed it? I didn’t know it was dead. Hard to debate this… allegedly there was going to be a revolution called “VoIP”, and the comments herein reference “VoIP” as a PC client to talk to others with, as local phone service delivered via a cable line, as a femtocell, and so on. If an obfuscating and misleading acronym is predefining it’s application for uses, and especially so in the case where it is put into the frame of reference of widely understood entrenched products like phone service, the only thing assured is that there will be no revolution.

      When the internal combustion engine was introduced, we don’t look back and think about a horse revolution, but look at everything which uses that enabling technology today in automobiles/transportation, power generation, construction, mining, lawn care, and so forth.

      IMHO, “VoIP” as a set of enabling technologies is doing just fine and if you ask everyday people using cable phone service or playing games and talking via headset on XBox Live what they think of VoIP, they probably won’t have much of an answer but that doesn’t mean they are not reaping the benefits and enjoying new services they did not previously have access to. It just means that someone was smart enough to hold out their product with a clear value proposition for everyday people which talks about a product for what it is and what it does, and not how it was built.

      The fact that today you can download a piece of software and talk with virtually anyone in the world at no cost, or play a video game with a distant friend and enjoy hearing their voice, or host your own online talk show to bring together people that share your passions… these things seem pretty revolutionary to me based on what was available to us just a few years ago. The revolution is not dead by any stretch, but only if we stop looking for technical acronyms and start looking at markets and products where revolutions are possible as a matter of practicality and not as a matter of technology.

    2. I totally agree that SIP was a hype. This is why the softswitch/PBX my company develops has put a lot of effort into Jabber/Jingle.
      SIP in the end is yet another telecom protocol with not so many ways to develop. The only way for VoIP to grow is to provide more than TDM and that means fixed and mobile providers.
      Since SIP can’t do that is normal until people will find different ways to see a slowdown on the VoIP market.
      Cisco saw that opportunity when it spent his money on Jabber Inc. So i believe we are at the beginning of a new era rather than at the end.

    3. I think this must just be the joke of the decade. How can we say VoIP is dead. It was not dead, it is not dead and it will not be dead. Maybe in other countries it is dead but in developing countries, VoIP is the way forward. It’s just a matter of time.

    4. Today is Election Day in the US. This is best example of honoring a difference of opinion that I can think of that exists in the world. So in the spirit of Election Day I submit that we have a difference of opinion. VoIP isn’t dead. As many other posters have noted we are well beyond the point where it is important to know that Voice is being carried over IP. The cable companies wisely market digital voice because people presume all things digital to be superior. Enterprise VoIP deployments continue to grow. Large scale migration of carrier backbones from TDM to VoIP continues at a brisk pace. Outside of the US carriers like France Telecom, British Telecom and Free lead with VoIP offerings to residential users. Within the US, cable VoIP services offered as part of a triple play bundle are doing quite well. What is on life support is the business model that offers marginally reduced prices for voice service, and only voice service when compared to a facilities based carrier.

    5. Bob Seitz

      The article looks at VoIP narrowly. The percent of calls completed on VoIP continues to grow, through cable companies now, and eventually through Fem-to-Cell devices that bring home-originated wireless calls over VoIP. What about the rest of the story? Not dead; morphing in an unexpected direction.

    6. What you say sounds so much like Gartner’s hype Cycle ( We must be now in phase 3 of 5: „Trough of Disillusionment“. If VoIP goes on developing as it is, being used for upgrades and new deployments, it will automatically arrive at phase 5: „Plateau of Productivity“.

      That’s what it has reached for me as a consumer. The days are over that I daily checked out a new VoIP technology. I basically know them all, and use some of them. The latest innovations where no real novelties that I didn’t have yet. ATA, callback, callthrough, click-to-call, calls from a website, … Been there, done that. I stayed with the best fitting services, now I save a lot on calls and my friends from abroad can call me for local prices – which costs me nothig.

      Whether companies make money on VoIP matters to me, as a consumer, only inasmuch they shouldn’t go bankrupt and dissappear. But still I am prepared to dump most of them if they start to charge. I use about 20 VoIP services, typical for Gartner’s „Peak of Inflated Expectations“, but I pay for only one.

      That’s the one I’d probably stay with.

    7. It may be more accurate to say, VoIP proprietary equipment business is dead. VoIP as software/service is alive and well with wifi and the internet as the carrier.

      Skype and Vonage are all about software/service businesses. The PSTN land line companies will continue to lose 8% of customers each year to wireless phones that can also run wifi and VoIP.

      VoIP was always about open software and not about closed equipment. When the VoIP/software transformation is complete, the telecom world will be 20th the size it is today. Communications may not be free but it is going to be really cheap.

    8. Hi Jean-Marc;

      You’re right! VoIP is everywhere, however few of the benefits of using IP in VoIP have been realized because it’s locked in proprietary networks. So while it’s made some people a significant amount of money it has failed to benefit innovation, and thus growth. Somebody always makes a killing in the race to the bottom.


      Skype, according to its founding concept, is an island. And whenever someone wants to leave the island (by calling the PSTN or by using a mobile phone or 3rd-party hardware device) Skype will make money. A logjam in back-end systems development has inhibited this so far, but I have fait that it’s a model that will work.


      You’re also correct: VoIP did have an effect on mainstream telco pricing models, thus the race to the bottom. But this illustrates the problem: if all you’re doing is the same thing for cheaper, how does the technology really benefit anyone?

      Equipment that leverages VoIP is everywhere. But VoIP as an open system for innovation, which is the original vision of folks like Jeff Pulver and anyone who understands the internet, is truly dead. Even Skype is a closed loop, but as this article states — at least it’s innovative.

    9. VOIP is everywhere – you just don’t see it. The telcos have widely appropriated the technological evolution to lower their costs and therefore deprive the new entrants of a massive cost advantage. Now with the IMS architecture, we are finally seeing the telcos make IP based services the core of their infrastructure… We were talking about it ten years ago (myself as a naïve starry eyed beginner consultant…) and it is now about to become reality. IMS will let the telcos use VOIP to match the feature set of services in the open world and supplement them with proprietary network-related capabilities that will set the apart. With the mobile network as a barrier to entry, the strong are only growing stronger.

    10. Have *static* you ever *zzzzzzt* used VoIP before?

      It sounds horrible, and you wonder why the US won’t adopt it? Maybe if we all had a low latency ISP (iow not cable modems) US citizens would love it, but fiber optic internet is not coming fast enough.

      VoIP isn’t dead, we’re just not ready for it yet.

    11. Ernest Nova

      “VOIP” as a technology is no more or less dead than “TCP/IP” is dead. It is getting embedded throughout. There used to be a time where companies were able to make money selling TCP/IP stacks too. It is an “incremental” technology over an TCP/IP framework and will be sold the same way. No wonder then that the usual suspects are the leaders in selling VOIP equipment and services as well.

      Cost of long distance have been dropping anyway, down to a penny per minute in bulk, and the cost savings as part of an overall budget of a person or company are minuscule. I have a land line today and it works just fine – not something I lose sleep over. Yes, I save $15/mo, say with Vonage, than an all you can eat plan with AT&T – but as part of my overall spending on rent and salaries and so on – that is not the first place I look at to save some money.

      As an enterprise, if it is easy to move to VOIP, I will go for it but if it requires me to do a massive transition and/or a forklift upgrade then I wont see any payback for 2-3 years compared to my already paid for legacy PBX infrastructure.

      The best case for VOIP as a replacement technology is in (1) Greenfield deployments – people making choices for new deployments now and (2) Upgrades – companies who are due for retiring old equipment. Some speculate that this happens every 7-8 years and after the Y2K replacements it is overdue. However, with the current economy every one is going to be looking to stretch out their capital investments as long as they can.

      So as a pure replacement strategy, VOIP is in for a tough time.

      However, the true value of VOIP is as part of a unified communication strategy that is integrated with business processes that are communication dependent (customer support, work flow etc). There it is doing well, just not as visible to a lay caller.

    12. Yeah, you’re right in the sense “VOIP” is a term that old, fusty telcom people use, but Skype isn’t so hot either. It is hard to make money off Skype, and I don’t see them ever really monetizing their client base. The most I’d pay for Skype is $30 a year.

      Telecom is always about shifting money around. The real winner have been the cable companies; instead of paying $50 a month to MCI, I pay $50 a month to comcast and use Skype for free. The real question is why I pay AT&T $25 a month for very limited data services; would love to see that money flow to something more useful.

    13. My 2 cents: the main problem for VoIP acceptance has been the focus on the technology itself, not the true value it brought. The use of SIP, while theoretically opening new doors, has effectively hampered the industry with interoperability issues and the potential of new features that most customers hardly care about and most of the times never materialized.

      As pointed out above, customers want solutions that work and are better (and in some cases cheaper) than the TDM/digital switches they use. Which is why they keep on buying Nortel, Avaya, Cisco, etc, because they work. Interoperability in this market is almost never a real requirement, particularly because the standards are constantly evolving and deploying a SIP system is still not as easy as plugging an analog phone into an RJ-11 socket.

      The very same fact that suppliers are shifting their business models to providing services to ease the migration to VoIP, proves that the technology is still too complex and therefore too expensive for customers to adopt.

      I like Skype’s old logo: “VoIP that works”. That’s why they won, but in the process took the margins out of the business.

    14. FCC Chairman Martin did as much as anyone to stifle and constrain many of the innovative services that were just emerging by forcing them to be just like every other kind of phone company.

      But VoIP is a vast array of different technologies and some of the most exciting things are just emerging. They look nothing like traditional phone service. Check out It has a collection of nearly 300 innovative VoIP enabled tools that are adding voice to blogs, video games, voice activated information retrieval tools, and add ons for traditional services. These new tools have been under the radar and make clear that VoIP is far from dead. I’m betting some of the best days are still ahead.

    15. babyis60

      Let’s not underestimate the impact VoIP has had on telco pricing models. The existence of VoIP technology
      allows almost anyone to compete with the incumbents, lots of folks (far too many) did, and most lost their shirts. We, the consumers (and especially the business consumer) reaped the benefit.

      What more can “VoIP” do? Well, if you stick to the current ‘don’t scare the horses’ VoIP model (a la Vonage)
      then the answer is very little.

      If on the other hand you capitalize on the fact that VoIP is an IP protocol and therefore much more Web
      friendly, there is _lots_ to do that drives up the perceived value of the call – Tom Howe has blogged
      extensively about this (as have I). Take a look at
      the audio in for an example.

      Finally – I try to avoid calling what we do at ‘VoIP’. It’s about adding realtime audio to the web. (Or realtime web to telephony – depending on where you stand) – doing something you _can’t_ do with either medium on it’s own.

    16. Marakush

      I also think you can’t forget that many VOIP companies do not own the last mile to the customer. Combine this with the fact that the customer expects their VOIP line to sound exactly like a copper wire line. When it doesn’t, then they believe it’s the VOIP companies fault and leave. This leaves the provider in a difficult situation with attrition since they rely completely on the customer’s internet connection. These internet connections can fluctuate based time of day, or the wind pattern.

    17. ianthethird

      I had no idea there were even moves to make regular phones work over the internet. Perhaps that’s not good but to me VOIP has pretty much always meant Skype and that in itself must be telling.

    18. What can VoIP do more? Allow us to become our own phone company. The real promise is VoIP as a product, but so far the main focus has been a service provider model. Till then it will feel like VoIP is a failure.

    19. Hi.

      Yep Luca is correct, Having been selling voip to the enterprise market since late 90’s. 99% of endusers don’t care even 1% what the technology is, Just that it works. And it has to be as simple as plugging a normal phone into a Pots line. Some have got it that simple and they also dont even call it voip, They will be the survivors. Ones who make the big deal on the technology will whither and die.


    20. I couldn’t agree more with Luca.

      The question is always: “Who has the pain?” Skype enables me to call colleagues abroad for free. It saves my company a lot of money. And that is great.

      But it doesn’t enable me to do anything I wasn’t able to do before. If all you do is enable people to do what they could do before, but do it for free (or much less), then you have a problem. You want to be able to enable people to do MORE than they could do before, not just (more or less) the same at a lower cost point. MORE is usually connected to something you can charge somebody for.


      I don’t see what VOIP can do MORE.

    21. I stated many times that VoIP is now “telephony” (I already said this during VON 2006). “Normal” people don’t care of what’s behind the scenes, just want to make phone calls. And Skype is a powerful application to communicate with each other, call it VoIP or XYZ, people don’t really care. When you watch a TV channel do you care what kind of technology is used to make it available to you?

      Anyway, very good points.