This week I've been exploring over-the-top business models for residential (Vonage) and business (8x8) markets. Over-the-top residential VoIP services are really hurting right now, so it made me wonder whether over-the-top business VoIP services would follow suit. The answer: yes and no.
As commenters on this blog have pointed out, Vonage is hurting for several reasons:
- Vonage offers only VoIP service, and generally can't compete with the triple-play of VoIP, Internet Access, and cable TV services offered by the cable companies.
- Also, the cable guys do piggy-back marketing, where a single mailer sells all three services in the triple-play, which can reduce the cost of sales for the cable companies.
- Vonage doesn't own the network so they can't control the quality of the network, and the cable guys do, so Vonage VoIP services are sometimes lower quality than competing cable services.
Vonage has had a few other mis-steps (patent lawsuits, bungled IPO, etc.), but I think the three bullets above capture the biggest causes of their troubles.
How many of these troubles transfer to 8x8, who is betting on the over-the-top business VoIP market? Well, for one thing, the video part of the triple play isn't of interest to many businesses. Yes, some businesses could use cable TV services, but not as many as Comcast would like. I paid a visit to the Cablelabs campus recently, and yes, they had a half-dozen TVs in their lobby, but consider the context. Having a TV blaring in your lobby just isn't a requirement for many of your larger businesses. Restaurants? yes. Barber shops? yes. Law offices? not so much.
So, cable's triple-play assault on the business market will appeal to some market segments, but the attaction will not be universal. My guess is that the triple play will get the most traction on the small end of the small-to-medium business segment, as measured by site size.
However, businesses will be very interested in the double-play of Internet access and phone service. That bundle has been finding traction for a good while now, as demonstrated by Cbeyond. (In fact, Cbeyond has created a triple play of their own, adding wireless phone service to the traditional double play bundle).
8x8, on the other hand, doesn't offer the Internet access piece. Nor does 8x8 offer wireless phone service, though they do have a way for you to save money on international wireless calls with an 8x8 plug-in on some phones. (The software notices that you dialed internationally, and places a call to an 8x8 VoIP gateway instead of calling the destination directly, siphoning the minutes off to a cheaper network). So, 8x8 doesn't offer the complete bundle like Comcast or a Cbeyond, and as a result they are at a disadvantage, but not as deep a disadvantage as Vonage, since many business customers don't care about video.
The second big disadvantage for 8x8 is that they don't own their own network and don't manage the quality of the voice packets on the network. That will be a problem for customers with skinny or congested Internet access services. The inconsistent audio quality will cause some customers to be dissatisfied with the service, which will contribute to customer churn rates.
Net-net, once 8x8's subscriber base comes to be dominated by business customers instead of residential customers, I expect their churn rate to be lower than Vonage's but higher than Cbeyond's. Churn will be lower than Vonage because business customers churn less by nature, and because the video part of the triple play doesn't have universal appeal in the business segment. Churn will be higher than Cbeyond because Cbeyond manages quality and offers a broader bundle, while 8x8 does not manage quality. The long-term prospects for 8x8's business VoIP service depend on how low they can drive their churn rate. The lower churn goes, the higher 8x8's subscriber base will be.
Productivity is definitely the biggest benefit of VoIP for businesses. Our research shows that most small business (less than 50 users) do not save much, if any money by moving to Voice over IP, although cost savings is the primary reason why most companies decided to make the move.
It is only after making the move to VoIP that a company begins to understand the potential of their new systems. Managers see the flexibility, ease of administration and ability to incorporate phone system changes quickly and inexpensively, do companies actually begin to reap the productivity of VoIP.
Posted by: Dan Roberts | October 31, 2008 at 05:52 AM
Productivity is definitely the biggest benefit of VoIP for businesses. Our research shows that most small business (less than 50 users) do not save much, if any money by moving to Voice over IP, although cost savings is the primary reason why most companies decided to make the move.
It is only after making the move to VoIP that a company begins to understand the potential of their new systems. Managers see the flexibility, ease of administration and ability to incorporate phone system changes quickly and inexpensively, do companies actually begin to reap the productivity of VoIP.
Posted by: Dan Roberts | October 31, 2008 at 05:52 AM
What about the triple play of voice, bband and video surveillance?
Posted by: Thomas | August 26, 2008 at 03:17 PM