Hosted VoIP

Most of us did not foresee the severity of the downturn we’re struggling with now, but it’s a pretty safe bet things will get worse before they get better. The impact of all this on telecom is a hot topic right now, and I’d like to take a stab at that here. There are many facets to consider, and I’ll start with some big picture themes, and then pick up on some others in my next column.

 

This is a busy time of year for telecom events, and I’ve recently attended a number of industry conferences and vendor forums. I know this isn’t the easy answer, but from my perspective, the economic impact on telecom is both black and white. There’s always lots of gray, but there are also some clear winners and losers. Everyone is feeling the pain, and the question this raises for my column is simple — how will service providers manage in a down economy?

 

My first response is this — based on what I’ve been seeing the past couple of weeks, there is no shortage of great technology and solutions for service providers to work with. If you follow my blog, you’ll know what I mean. Whether it’s the BroadWorks Xtended platform, Avaya’s array of IP communications offerings or Ericsson’s (News - Alert) wireless infrastructure and IPTV solutions, service providers are not lacking for the tools.

 

To me, it’s a given that most of this technology can deliver on its promise. There will always be exceptions, but for the most part there are plenty of carrier-grade IP-based solutions. In my mind, the challenge facing service providers is defining value that resonates with customers. When times are tough, this goes beyond the technology and even pricing. Customers of all stripes — business and consumer — need assurances of two things.

 

First, they need to know they are getting their money’s worth. For businesses, this means focusing more on the ROI and showing more clearly how IP is going to reduce the cost of communications. The business case for IP telephony is often based on soft benefits rather than hard savings, but in today’s economy, the latter is going to carry more weight. ROI models are often built around hardware investments, but I think there is room for service providers to be more creative here.

 

Customers are looking for cost savings now any way they can, and the ROI story needs to stretch right through the whole chain of expenditures. To me, this means a holistic view of cost savings, starting with hardware then all the services associated with that. This begins with the obvious things like trunking costs, LD costs, maintenance contracts, etc. However, with integrated IP solutions, this can extend to things like cutting roaming costs by using mobile VoIP, reduced costs to produce brochures and catalogs by driving shoppers to online portals, lower costs for toll free lines in call centers by using applications such as click-to-call and deep dialing, reduced travel costs by using videoconferencing, lower recruiting costs by doing remote interviewing, etc. By thinking through all the end user scenarios, service providers can turn ROI into a powerful deal-closer because it speaks to a real need for businesses today.

 

Second, customers need to feel confident that their service provider is financially viable and is able to properly support them. Again, this is less about technology and more about customer confidence in choosing the right partner for mission-critical communications services. There are many ways to convey this message, and service providers cannot afford to take their customers for granted or let support slip. There are plenty of alternatives from hungry competitors who are willing to make that extra effort to win new business.

 

Regardless of the state of the economy, people still need to communicate and businesses still need to deal with service providers. There are many choices out there for all types of customers, and people generally don’t like switching providers, especially businesses. They will if they sense instability, which is something that providers like Vonage (News - Alert) have struggled with, and that does nothing but raise the cost of doing business to ridiculous levels. Just as customers are looking to reduce costs, so are service providers.

 

As such, it’s more important than ever for service providers to provide thoughtful emphasis on assuring customers of their strengths as a business. Examples would be updating customers on positive growth metrics — new subscribers, customer satisfaction/retention, profitability, revenues, investments in new technologies or network expansion. Another approach would be to show how the company is faring relative to its peers, such as the number of new customers who have switched over from other providers, or how you are stacking up in industry rankings. Service providers can also strengthen their bond with customers by doing more basic things like training and education. The more customers can get out of their communications technologies, the better the ROI, and the more assured they’ll feel about staying with their service provider.

 

While not a service provider in the traditional sense of the term, Skype (News - Alert) is a great example of these two ideas — giving people their money’s worth, and providing assurances to their customers. On the first item, Skype has always done well, as free trumps paid. Skype is starting to generate serious revenue, but most of the usage has always been free Skype-to-Skype calling. It stands to reason that as times get tougher, Skype’s appeal will only grow. Few people are willing to give up paid telephony entirely, but there is a growing willingness to shift more and more traffic to Skype where the calls will either be free or very inexpensive.

 

A quick glance at Skype’s just released Q3 2008 metrics validates this in spades. They are posting 50%+ annual growth in revenues, registered users, minutes and SkypeOut usage. So, not only is free calling booming, but paid calling on Skype is doing just as well. The company is on track for half a billion dollars this year, so Skype is much more than free calls over the Internet. This may be minuscule in the grand scheme of telecom revenues, but these are growth metrics that would look good on any service provider, and clearly Skype is providing value and a very attractive ROI.

 

These metrics should also provide assurance that Skype is a viable — and profitable — business, and even a cursory read of their Q3 update will show how the company continues to expand its offerings for both consumers and small businesses. Granted, there are strategic issues around their fit with eBay (News - Alert), but that is not really material to the needs of end users.

 

Skype may be an exceptional example, but the numbers are real, and they are clearly doing a lot of things right, even in bad times. Most service providers face tougher challenges in keeping subscribers happy, but the underlying principals still apply — deliver value and a meaningful ROI, and wherever possible, communicate good news so customers feel confident doing business with you. Looking at Skype’s update, their story has little to do with technology and everything to do with the customer.

 

This is not the normal mindset for service providers, but these are not normal times.  Skype may be a bright light out there, and other areas are doing very well, but most service providers are having a much tougher time. By extension, when service providers struggle, so do vendors, and both their futures are increasingly dependent on how subscribers themselves are adapting to the economic downturn. There is a mixed bag here, and I’ll explore it further in the next column.