Ruminations on Telecom and the Economy

You've Got Mail

Remember the kind voice that greeted (and probably still greets) every AOL subscriber notifying them that they have mail "You've got mail"  Audio branding.  Powerful stuff.  They even made a movie based on this simple audio brand.

I have written in the past how AOL should enter the VoIP market.  They undoubtedly will do so.  And I have written about one of my favorite new applications enabled by IP, customized ringbacks.  Well, along comes Verizon Wireless offering these customized ringbacks for their wireless customers (see ringbacks on this link).

Wouldn't it be interesting if AOL came up with a unique audio brand for their VoIP offering along the lines of "You've got mail".  Imagine the viral marketing power when you dial a friend and instead of a ring you hear something like (AOL connecting, "You've called John" or something that resembles a unique and entertaining sound (which, not being a marketing guy, I am hard pressed to do).  These audio brands are powerful.  But you get the drift.  Caller hears unique message, says "Hey that's cool and different.  What is that?" friend responds "Why that's my new AOL phone service."  Hey, add in the ability to press *AOL to sign up and you have a winner.  I'm sure that some smart marketing guy at AOL will implement this plan.  Makes sense to me.

Alternatively, one could envision the free VoIP service that has a range of promotions, selected from a package the user chooses, that provides short promotional ringbacks.  Go ahead get creative.  Its entertaining, its viral and its different than POTS.  I know the change is coming.  It's exciting to envision the services.  Lets hope the AOL's of the world get creative and unleash something truly different.

VON 2005

Like many of the VoIP faithful, I made the pilgramage to Boston for this years VON conference. Others have previously described the public events and offline activites in much detail. I wanted to share some observations that I had of VON.

First, Jeff Pulver is a solid human being. He cares for people, he is passionate about this industry, and he is genuine. Everyone in this industry should support Jeff in his various efforts. There are few people like him moving around in this world. Great job Jeff on a successful show.

While I was walking around the show floor, I kept trying to place the VoIP industry in the context of the commercialization of the Internet. I came away from Boston feeling that excited about the turnout and clear interest in the space, yet sad that the floor was virtually full with folks selling gear. It was like a flashback to the early Internet days, going to a show where all one could see were displays hawking Cisco routers, Sun boxes and an occasional telco selling T-1's. That's what I felt walking the floor. There were a ton of folks selling gear. Virtually all, save for the shining lights of vision emanating from the booths of Digium and Popular Telephony, were pitching the replication of existing services. Save for the two companies referenced above, I did not see any vision for harnessing the technology to create something radically different other than cheaper POTS. That's a shame.

On that point, the day that VON opened Lucent put out a press release touting its ability to deliver customized ringback tones. In other words, one can select the sound that a caller hears when dialing your number. Pretty cool! The mind races with ideas: AOL using this in their VoIP service to provide audio branding in the way thier ubiquitous "You've got mail" sound file did. Or, one could envision a radically different business model for VoIP whereby service is provided for free with the proviso that ringbacks are branded by companies one selects form a list of sponsors. Well, you can see the direction I am going here. Excited by this announcement, I visited the Lucent booth, where a bunch of folks who look like they are more familiar selling the 5ESS than thinking about applications development, sat around talking to eachother. I asked one of them if they could show me the ringback feature. One guy grabbed another, and yet another....you get the idea. No one could help.

VoIP needs innovation. The innovation needs to come from the development of unique features and business models. The industry needs to move beyond the stage of being proud of its ability to replicate existing features for less. The truth is that the features we have today aren't so great. We need to innovate. we need applications developers and creative entrepreneurs who can look at these capabilities and build the next EBAY, Amazon, Google or Overstock.

So my wish list for next year is to see the following:

The Dell (Apple) Pavilion: Selling a range of fixed and wireless communicators (voice and video) bringing a familiar brand and a powerful distribution channel to bear on the emerging market for IP communications gear

The VoIP Developers Pavillion: Providing a range of innovative VoIP enabled applications and services, from language translators on demand, to customized ringbacks to voice messaging applications to hyper local voice service development, to ........

Collaborative Applications Pavillion: Highlighting a range of collaboration applications, from Blogs to Notes to Istanbul which integrate voice as a feature.

I could go on, but I think its best to leave it at that. We will know that VON's time has come, when the show and the floor are dominated by applications developers, not equipment vendors. Bring on the applications developers!

As always, feel free to write back!

Some Themes Worth Tracking

Yesterday brings the news that the feds intend to closely scrutinize Microsoft's development of its next-gen operating system Longhorn. This is coupled with an announcement from Seattle that Microsoft intends to distribute some $75 billion in cash to its shareholders over the next four years. Lets see now, the feds are essentially saying "we intend to continue to stick our noses on your business, and effectivley maintain a veto power on future functionality that you intend to incorporate in your monopoly operating system." It is control over this operating system, and the API's associated with it, that has led to the huge cash flows Microsoft has generated over the last 20 years. So, realizing that the feds seem to be intent on killing the goose that laid the golden egg, Microsoft decides its investors can find better investment opportunities for its cash than the Company can, provided the current regulatory climate.

This is by no means meant to imply that the Company does not face material issues with respect to control of the OS and the associated API's. One need only read this enlightening piece about How Microsoft Lost the API War to understand the competitive challenges facing the Company today. So Bill Gates and Company have decided to take their billions and go to another playground........

I believe that we are staring to see the beginning of some fundemental shifts in market structure in the software/communications/networking markets. This news out of Microsoft is one signpost. Other signposts include:

AT&T and MCI exiting the consumer voice business. Leaving this the domain of the RBOC's and emergent VoIP providers.

DOJ taking a closer look at the AT&T Wireless acquisition, indicating a potential stumbling block to closing this deal (structural separation of wireless and wireline in the offing?) If the folks at DOJ realize that the market definition is local (spectrum is a local asset) and that the RBOC's dominate the competitive platform (wireline) this deal would be a no brainer to reject. This would also create some interesting issue woth respect to the RBOC's bundling VoIP, DSL and wireless. In terms of local markets, the RBOC's control of the consumer market is akin to Microsofts control of the OS market.

Comcast announces internet content deal with Disney, reiterating the need to control content in order to prevent price erosion in its broadband service. Does anyone still believe cable can support the high price and high margins for much longer? And incremental competition is coming....

With Craig McCaw ready to launch a low cost wireless data/VoIP service and Nextel and Flarion readying an IP based last mile solution, competition in the consumer data space should be heating up.

And there is the increasing momentum in the VoIP market with respect to intelligent endpoints (with a nod to David Isenberg, author of The Rise of the Stupid Network) in the form of cheap, wifi phones with VoIP software embedded in the handsets. Its sort of like the early nineties when a consumer could go to a store and buy a modem to connect to an ISP. The phone Company became a dumb pipe operator, with the intelligent endpoint (modem equipped comuter) connecting over the phone line to an ISP such as AOL. Dumb pipes and intelligent endpoints....

Speaking of intelligent endpoints, check out the latest from Garmin. This GPS navigation device can pinpoint you location to within several feet, provide detailed directions and even provides a comprehensive directory of local restaurants, shopping, hotels, service stations, etc. All for the cost of the device with a software update fee for the database updates. No wireless data connection required. Intelligent endpoint indeed! Verizon, can you hear me now? Seems to me that this is a better service than andy wireless provider could ever hope to deliver in thier on demand, 3g data world.

Thats more than enough for now. Lets just say that we are at the early stage of a fundemental realignment of the software/communications/networking markets. Navigating this terrain requires an understanding of the complex interplay of communications services, data networking, software applications, digital media and wireless. All this combined with a strong dose of economics, game theory and competitive strategy. There is no doubt that we live in interesting times!

Structural Separation: RBOCS and Microsoft

We are certainly living in very interesting times. Over the next few years, we will witness a fundamental realignment of the structure for the global communications market. I sense that some large players may begin to make some radical changes leading to some surprising outcomes. Some data points/observations to consider:

1) Ofcom is currently exploring the issue of structural separation of BT, separating the physical network from the services provided over the network, 2) The EU has come down hard on Microsoft with respect to the bundling of features with its operating system, 3) Qwest Communications is leading the charge for wholesaling access to its network by selling naked dsl, 4) There is a movement in Washington towards providing true facilities based competition by providing open access to the local loop, 5) VoIP is capturing the imagination of investors, communications providers and the market, 6) MCI is struggling under the increasing pressure in its enterprise, consumer and wholesale markets and is is likely to be sold in pieces, 7) Virtual IP Network Operators (including AT&T) of all sizes are emerging as platform providers, enabling new entrants to offer a range of voice services without the cost and burden of control of the network.

In the early 1980's, AT&T CEO Charlie Brown made the decision to lead the break-up of AT&T into separate entities. From Mr. Browns obituary:

In 1982, it was Brown who made the decision to divest all of the Bell Telephone Cos. as a means of settling government antitrust litigation. The result was the biggest corporate reorganization in history. The breakup unleashed a wave of deregulation in the telecommunications industry.

We could use a moden day Charlie Brown to revitalize the communications business!

The optimist in me holds out hope that Ivan Seidenberg will wake up one day to the reality that it is in Verizon's best interests, and the interests of the communications sector and its employees and investors, to separate the network layer from the applications layer. Let Verizon split its local network from its voice and data services business. Let service providers have equal access to the local loop infrastructure, which provides the true monopoly constraint which impedes true competition.

Mircosoft appears to be setting itself up to do something interesting, as it has recently settled many outstanding legal issues, with Intertrust and others. However, it seems to me that the Company is still tentative with respect to its role in the evolving IP communications market. This is a natural reaction to the overhang the regulatory issues in both the EU and the US provides. Any market entry and product development strategy must include a "regulatroy impact' analysis. This has got to be limiting product innovation in Redmond. Just as Verizon should separate the network from the services, Microsoft should similarly separate the OS from the applications group. Then MSFT could aggressively go after the communications market, leveraging their significant installed base of instant messaging users and applications expertise, without the fear of regulators bringing them under attack.

Charles Ferguson, one of my favorite telecom thinkers and internet entrepreneurs, made a compelling case for exactly this type of structural separation at a recent Senate hearing. Lets hope this message starts to sink in. We need this type of structural change to unleash the significant opportunities provided by IP communications.

You were indeed a good man Charlie Brown!

Doc Searls has an interesting post entitled The Soylent Web talking about the link between social networks and information exchange. The post links to a comment about the need for a Web of People.

When you can go to a people-web search engine, type in a keyword, and everyone in the world associated with that keyword comes up, complete with a means to contact them (if they wish to be contacted) then the people-web will have arrived.

This is the type of social communciations networks we foresee developing over the coming years. Perhaps it is my background in the collaboration space that continually leads me back to the integration of voice in other forms of collaboration applications. Social networks and VoIP are two powerful trends which will align at some point. This will just be one of the interesting new communications applications we can expect to see in the VoIP world.

I recently observed that one of the original product managers on Microsoft's Internet Explorer is now the CEO of a stealth start-up called Iota, which hopes to create the "Google of Voice". Observers might want to read The Secret of Google's Power to get a better sense about the real true power of the Google platform. The following excerpt cuts to the heart of the matter:

Google is a company that has built a single very large, custom computer. It's running their own cluster operating system. They make their big computer even bigger and faster each month, while lowering the cost of CPU cycles. It's looking more like a general purpose platform than a cluster optimized for a single application.

While competitors are targeting the individual applications Google has deployed, Google is building a massive, general purpose computing platform for web-scale programming.

This computer is running the world's top search engine, a social networking service, a shopping price comparison engine, a new email service, and a local search/yellow pages engine. What will they do next with the world's biggest computer and most advanced operating system?

I have been pondering the idea of gPhone, delivered by Google. Perhaps others have as well.

While not much is known about Iota at this point, it appears that they are developing an applications development platform for the VoIP market. This is exactly what the VoIP market needs -- a platform that provides the underlying building blocks of VoIP, while enabling the applications developers to focus on the application specific features, integration and user interface. Remember, Mirabilis was able to leverage the existing Internet platform to create the hugely successful instant messaging application, ICQ.

VoIP as Narrowband Application

Many market analysts have been pointing to VoIP as the "Killer Application" to drive demand for broadband. I agree that VoIP, and the value-add features enabled by the platform, provide compelling value for the always on connection of broadband. However, what I find interesting is that in the scheme of broadband, VoIP is really a narrowband application. By narrowband, I mean that the application places a relatively light burden on the network connection.

The following excert from a recent article on 8x8 highlights the capacity requirements for VoIP:

The second difference is invisible, but perhaps more important. It seems that the Packet 8 service uses up less of your internet connection's bandwidth than does the Vonage service. Packet 8 say that the phone uses about 17kb of bandwidth in both directions, and suggest not using it on lines slower than 64kb for best quality. Vonage recommend a minimum line speed of 128kb.

Which brings me back to the difference between cable and DSL. The cable guys continue to to push their capacity advantage over DSL as the major selling point of their clearly higher priced service. So, if VoIP is the "Killer Application" for broadband, and VoIP is really a narrowband application, then do the cable companies truly have an advantage in the short-term? Lower priced broadband combined with feature rich VoIP seems like a pretty compelling value proposition to me.

Further, todays news indicates that the cable operators continue to push content as a key differentiator for their broadband platform with a new programming agreement with Major League Baseball. Seems to me that we have a split in the market between companies that believe the future of broadband is entertainment and companies that see the future as being driven by communications.

Provided the tremendous success of email, instant messaging, discussion groups and mobile telephony, I'll put my money on communications as the real value driver.

Ch-ch-ch-ch-Changes

I have written previously about my personal favorite new voice application - voice messaging. Ztel now has a service they call the Personal Voice Assistant (PVA). I strongly encourage anyone interested in this space to review the demo to get a sense for the direction the VoIP value-add service market will take. And to think that the markets believe that voice is a mature segment ;)

Platform Emerging

Leaving aside the heartburn that the EU regulators are causing for Microsoft, I firmly believe that over time Microsoft will emerge as a dominant player in the VoIP arena. If one views voice as merely a feature tied into some other application, then Microsoft, as the dominant player in the applications space, will likely extend this domination into voice. IT vendors have been aligning to deliver integrated solutions to address the workflow requirements for cross-application integration(see the Microsoft-Siebel alliance for example).

It is clear that voice is an element of much of the workflow process the Microsoft-Siebel alliance seeks to address. Think about the workflow associated with claims processing for example, with myriad forms, database access needs, inbound and outbound customer contact and call centers. It will only bve a matter of time before voice is another element integrated in this type of solution.

Now, along comes a small comapny called Interactive Intelligence. These folks have the audacity to offer a free version of thier IP-PBX. I found this quote interesting.

"Most phone systems on the market take a hardware approach to their products. We are a software application that sits on Microsoft and is pre integrated into Microsoft Business Solutions on the company's network."

Also, the Company announced that they were offfering a free version of their software. Microsoft might find this application interesting.

Interactive Intelligence's EIC system runs on the Windows operating system and supports Microsoft Business Solutions applications, such as Great Plains, Solomon and MS CRM. "We are a good solution for a company that has a lot of Microsoft in their environment," says Peggy Gritt, director of product marketing.

Which got me thinking.....what if Microsoft decided that it wanted to provide IP-PBX software for free as an inducement to buy more productivity applications. Hey, Walmart can't be making much on those DVD's, but it sure does keep people coming back for more stuff form Walmart. Now, you don't think that Microsoft would want to leverage thier extensive platform to change the rules of telecom, do you?

UNE-P, Naked DSL and VoIP

Le me try to provide a simple and clear approach to a complicated issue: In 1996 the effort to provide competition in the local loop necessitated providing access to not only the network elements but also the service elements to provide local choice for dial-tone. In 2004, local choice in voice services can be provided by providing equal access to DSL. The competitor can create their own voice services by providing a piece of software that rides over the data pipe.

With the strong support of Intel and others, at some future date, a wireless last mile solution will become feasible. Until that time, the RBOC's and the cable companies control the only data access points to the consumer. The powers that be in DC should let the RBOC's keep their circuit switched network and ensure that voice competitors can get access to the data portion of their network. Qwest's recent offer of naked DSL provides a pointer to the direction this debate should take. And Dick Notebaert's willingness to wholesale this naked DSL indicates his understanding that his business should evolve to be that of a network wholesaler.

Today's WSJ editorial gets this issue all wrong. Perhaps someone (Jeff Pulver take note) should give the WSJ editorial staff a lesson in VoIP and the separation of the network form the application. And while you're at it, let them know that the RBOC's (save for the encouraging signals out of Qwest) are not exactly innovators.

Social communications networks

Geekzone.com has an interesting article today on an Australian company that has combined mobile phones with social networking in an application it calls Fonetango. Fonetango integrates buddy lists with contact lists and provides network based back-up and storage.

Now tie in VoIP with this service and one can begin to imagine the new market for social communications networks. Provided the attention that social networking applications are getting at industry gatherings such as PC Forum (see Big dogs talking social networks) one can imagine that in the mind of some creative venture investor, these two powerful trends will merge, creating an exciting new communications application.

IP Mobility: Now we're talking!

News.com has an interesting story this morning about the integration of VoIP and mobile networks. This quote caught my atention:

"My executives told me they think 'IP mobility' could be a $1 billion market in three to five years," Cisco CEO John Chambers said. "I challenged them to think of it in bigger terms."

IP Mobility, linking the intelligence of the mobile endpoint with the flexibility of the VoIP architecture, will provide a strong engine for future growth and differentiation for the wirelss operators. I have long believed that the mobile operators should be the ones to integrate VoIP offerings. Forget Vonage, if Verizon Wireless offered a VoIP service (over my DSL or cable modem) that integrates with my wireless device, enabling me to synchronize my phone book (on my phone and via outlook on my desktop) I would sign up right away. And with the integration with at home VoIP with my mobile phone, I would be less likely to churn from Verizon when Cingular comes up with a better pricing plan. Now, add in further market segmentation (such as calling plans for the Indian, Chinese and Hispanic markets coupled with web-based information and native language help desks) I'm confident there will plenty of opportunities for carrier differentiation. And a lot more to get excited about in Telecom.

Collaboration Software and VoIP

More signposts that there are exciting new life forms developing from the VoIP ecosystem. Clay Shirky comments in Many-to-Many a weblog on social software, that voice conferencing as we know it is quite cumbersome and ripe for innovation. Establishing multiparty communications channels should be a whole lot more user friendly and dynamic.

Now that the FCC has established a clear unregulated framework around pc-to-pc communication with the Pulver decision we can expect to see a new wave of voice features embedded in collaboration and social network applications.

I continue to believe that the value in VoIP will largely be captured by the applications developers. I believe that the integrated network operators (meaning companies that develop, manage and integrate data trasport with applications) will find it very challenging to match the feature set and perfromance of the pure applications developers. Its only logical that we move to a market structure which separates data transport and applications. Techies like to talk about the OSI Model and the protocol stack.

Another way to think about this issue of market structure is to look at the market for electricity. Imagine a world in which the electric utilities were the dominant providers of appliances. Afterall, one way to think about an appliance is an application of electrical power. So if data (broadband) is like electricity (a subject upon which I will expand on in another post), then should we look to the utilities (RBOC's and Cable Companies) to create and control the applications (VoIP for example) as well? Seems to me that we need a regulatory policy and market structure which promotes ubiquitous, low cost data transport and an open application platform.

Now, if data transport is cheap and ubiquitous, and applications were unbundled from the network, then the existing integrated network operators (RBOC-which integrates voice and cable which integrates video programming) would find there core franchises threatened. Now think about why Comcast wants to acquire Disney. Seems to me they see this future unfolding and want to hedge their bets with more control of the application (video programming). Does anyone still belive that the integrated cable model is not vulnerable? Afterall, Brian Roberts is certainly one smart guy. He may just be seeing this shift a bit ahead of the rest of the investing pack.

Wifi, Open Networks and My Children

Someday we will be able to harness the wireless networks in our homes, neighborhoods and larger communities to continuously communicate with those we love. Communicating will likely be more seamless than "placing a call" in the way we do it today. It will be more like a regular connection which we can utilize at any time. One can get a sense for this by using the push to talk feature on mobile phones.

Wifi, open applications platforms and ubiquitous, low cost VoIP networks will take us there. Just take a look at Vocera, one of my favorite innovators in the voice market. Forbes online has an interesting story about Vocera. As always, the key to success is harnessing the technology to solve a real point of pain for the customer. In this instance, the point of pain is the relatively poor state of communication within the health care system.

For me, I look forward to the time when my children all have a Vocera-like communicators. I'll always be able to see how they are and let them know I'm thinking about them. I remain convinced that there is a great deal to be excited about with regard to new voice applications. I long for industry leaders to start painting a positive picture of the future of communicating. From my perspective, if one pays attention to the signposts, there's a great deal to be excited about.

Talk About Intelligent Endpoints

Geekzone reports today that Seimens and Skype are partnering to embed the Skype VoIP application with Seimens phones. As David Isenberg pointed out in The Rise of the Stupid Network intelligence will increasingly be pushed out to the edge of the network (and endpoints). We are beginning to see the true disruptive power of VoIP.

Can you say Dell. I can imagine Dell leveraging their powerful platform to distrubute VoIP communications devices.

And you know who else has a pretty good installed base of endpoints, Microsoft. VoIP will rock the incumbents. If you thought the last few years were volitile, wait to see what VoIP will do to the communications landscape.

Voice: Value Add Features

So, I have had a long standing point of view that voice remains an under-exploited applications market. If we have learned anything over the last decade, it is this: Give people more flexibility around communicating and they will communicate more often. E-mail, Instant Messaging, Chat, Mobile Phones, Blackberry's, Push-to-Talk. Each one of these is about communicating, person to person, person to group.

Now, my personal favorite new voice application is voice messaging. I have long envisioned a service, much like a buddy list, that would enable a user to send a voice message to not only an individual, but a group. So, say I am the soccer coach and the game has been moved from 1pm to 3pm, from field A to field C. Instead of calling around to all the parents, or beginning the team phone tree, the coach simply records the message on his mobile phone and sends the message to the Soccer team phone buddy list. Seems like a nice value-add feature from my perspective. And remember, consumers spend more than $10 billion today of enhanced voice services such as voice mail and caller ID. My guess is that people would pay for such services.

Today, it appears that Nextel is further demonstrating its lead in continuing to push the envelope on differentiated voice features. Today's New.com story Nextel announces a new product called NextelMail. From today's report:

Nextel also intends to soon introduce NextMail, a wireless e-mail service that lets people attach sound recordings so anyone can listen to them using a personal computer, Barry West, chief technology officer at the company, said at the conference. "It's pretty cool. We are just getting it to market."

I firmly believe there is fertile ground for additional value-add voice applications. What we need is an open platform and a set of common standards to unleash the creativity of the world's applications developers. This is the great lesson of the Internet. Instant messaging was not popularized by AT&T. Think of the entrepreneurial group of developers at Mirabilis (ICQ) in Israel who really unleashed what remains one of the most succussful consumer communicatiosn applications of our time, instant messaging. Lets hope that the promise of VoIP is not to replicate the feature set of standard telephony. Instead, lets hope that VoIp provides an open voice applications platform that lets 1,000 Mirabilis' bloom.