The Death of Over-The-Top Primary Line Residential VoIP

I fear we are witnessing the death of over-the-top primary line residential VoIP.  The largest player in the space, Vonage, is spending $65M per quarter just to keep their subscriber base from shrinking.  Another large player, 8x8, decided at the end of 2006 to focus on a business product, and while their residential subscriber counts temporarily benefitted from the 2007 SunRocket bankruptcy, 8x8's residential subscriber counts are now declining.  Could it be that in order to survive in primary line residential VoIP, you need to own your own network and offer the voice-video-Internet triple play? 

From the beginning of the residential VoIP primary-line-replacement market, upstart competitors like Vonage and 8x8 have emphasized cost savings as the primary attaction for subscribers, with a wink-wink understanding that service availability and audio quality may not match plain old telephone services.

Today, this basic value proposition is under assault:

• Cost-sensitive buyers are being siphoned off by ultra-low cost VoIP services like Skype, which don't even pretend to be a primary line replacement service. 
• Middle-market and quality-sensitive buyers are being enticed by the higher audio quality of "digital cable" voice services (which are really VoIP services), along with a total cost of service savings on a bundle of voice, video, and high-speed Internet services.

This leaves Vonage in a pickle, as they try to retain subscribers while simultaneously trying to create a new and better product suite, one capable of winning new subscribers away from the cable companies. 

The deeper question, though, is for 8x8.  The company has been successfully re-focusing on business VoIP services since 2006, making their loss of residential market share less painful.  But cable service providers are now rolling out business VoIP services of their own.  Will the cable companies come to own the small business VoIP space, much as they have come to own the residential VoIP space?  Can 8x8's Virtual Office offering compete against the cable companies?   

Comments

[David Beckemeyer]

I also do not believe owning your own network is a factor.

And while triple-play and other bundles might get some market share, I think that is a passing fad as a well - essentially a marketing gimmick.

The elephant in the room, and what didn't occur to anybody in the VoIP mania, is that for most people THE HOME PHONE IS NOT BROKEN, so it doesn't need fixing. And it's really expensive to convince people that something is broken - just ask TiVo.

As you note, there are niches in the ultra low-end and heavy international calling segments, and some tech. users that really want more features/control over their phone, for example, but in the end, replacing their home phone is not a high priority for most people. For those that don't care about 911, there is mobile. For those that do care about 911, VoIP is a bad choice - so there are not many segments left for residential replacement VoIP.

[Jake]

I don't think the key factor is owning your own network.

I think the bundle is the big factor with the cablecos - price-wise and cost-wise, the triple play is a win-win for the customer and the cableco.

Brand is another factor. While the local utilities, like the cablecos, are not necessarily loved, the brands are known and represent a constant, omnipresent entity. Yes, Vonage spent its way into being a household brand, but other providers, like 8x8, are completely unknown.