From a CAT point of view, the services that carry the banner of “VoIP” to the market place, most conspicuously Vonage, Skype and AT&T CallVantage, are vying for expanded market share and ultimately revenues, while they help customers and prospective customers make a transition to converged network services.

Two out of three of the firms listed above are so wrong-headed in their approach that it is amazing that they are getting the attention that they have received already. Vonage has proven that it is better at attracting investor dollars and technology partners than it is at building its customer base. In spite of being first into the market with Jeff Citron (e*Trade’s founder) avowed goal of bringing VoIP to the masses in the top 100 U.S. markets, his company has mustered only 250,000 subscribers as of the end of August 2004 while inking equipment deals with Cisco’s Linksys subsidiary (supplanting the original deal with Motorola) and an agreement with Office Depot for selling VoIP-in-a-Box retail solutions.

But the eye-popping stat for Vonage has been its ability to garner votes of confidence from venture capitalists. If you combine the $105 million it raised at the end of August with its original $103 million and you learn that VC’s have invested close to $850 per subscriber. To be fair, investors are buying into growth (hmm, didn’t they say that Internet start-ups as the bubble inflated?) and they see 30 million households in the U.S. alone with high-speed Internet connections up-for-grabs.

That’s where AT&T comes in with CallVantage. The company just announced that it no longer sells long-distance services to its residential customers, prompting headlines like “Ma Bell Cedes Residential and Wireless Markets to Competitors.” The next step, of course, was to launch promotion of its residential VoIP services to the huge audience viewing Olympic gymnastics, diving or beach volleyball.

With a promotional message that it is “reinventing the phone” the commercials highlighted the ability to set up conferences on the fly (Personal ConferencingT) or put in a standing order to find the babysitter when available (Locate MeT) among other features. How this represents the reinvention of the telephone is left largely to the viewers’ imaginations. Instead, it leaves a lasting and decidedly nerdy image that the next generation of phone services are hardly distinguishable from a series of features and functions that have been available for some time from the voice mail systems in your office.

AT&T’s lasting impact will be that it used its last advertising dollars to raise the profile of residential VoIP. It has planted the seed of an idea that “something new is available” to those who couldn’t get up to fix a snack while contemplating the weird standards of the Australian judges in the 10mm diving. It is also raising the profile of VoIP-in-a-Box products by setting up an agreement with Best Buy. Shades of Internet-in-a-Box being sold in little kiosks at the end of the aisles at CompUSA. It is equally likely to benefit Vonage/Linksys or Vonage/NetGear sales at Office Depot or the entry of modem maker Zoom Electronics into the VoIP carrier field.

Skype is Turning out to be the Real Deal
Compare Vonage, with its 250,000 or so subscribers coming into the Q4 of 2004 and Skype, the European provider of clients for global VoIP software and support. As of September 2004, Skype says that 10 million users in 212 countries have registered as users and downloaded its software. There are an average of more than 600,000 logged on at any given time. Admittedly the original service was free (that’s always a great promotion) and required no additional hardware and works on virtually any speed of line (with real quality problems at lower speeds).

The key point of comparison is that it isn’t offering to “reinvent the telephone” nor is it trying to steal share from incumbent LECs. Skype has added voice calling to a long list of IP-based services. Its founders (like the VC’s above I guess) understand the network effect of peer-to-peer communications over the Web. They are, after all, two of the originators of Kazaa, which was once a wildly popular file-sharing infrastructure, in the vein of Napster.

It has the ability to add new features and services – like voice mail or video calling. It will do so in response to user demand. So far, they have added the ability to originate outbound calls from the Skype network to be terminated on normal phones attached to the PSTN. They use credit card-based billing systems and, for the most part just mimic being a telephone company.

Much Ado about Plumbing
Truth be told, the debate about VoIP versus TDM-based services ranks with discussions of the relative merits of PVC (polyvinylchloride) versus copper for plumbing conduit, it is an item of interest to plumbers. Today VoIP has the potential to maintain a cost advantage because it is, and should remain, free of “access charges” or taxes imposed by regulators. Transport methods are inherently boring and arcane. Advertising by a recognized brand like AT&T will begin to raise awareness of the new service, but “mass” adoption will rely on bringing along services that have self-evident value to a larger prospect base.

Today, people may be hyping VoIP, but restricting broadband IP-based telephony to mere voice services will be a mistake. There are new generations of phone and full featured handset users who would regard “voice” communications as just one building block for compelling, non-nerdy services, be it playing games, exchanging messages or making reservations for a meal or movie. VoIP isn’t the sizzle, or the steak, it’s just table stakes for more compelling, conversational services.

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