Straegies for VoIP companies in competitive cheap calling market

We recently posted about Future of FREE VOIP on VOIP Guide and discussed about various ways and models about FREE VOIP we might see in the future. Alok, our in-house VOIP news editor wrote a follow-up article.

The other day I read the post by Vinay about the strategies for VoIP companies. While I agree with some of the comments, I have a little different perspective on this topic. Like any industry, VoIP will have its own life cycle. The VOIP industry is probably at the fag end of the “takeoff” stage and is showing some aspects of “high turnover” stage.

Telecom or VOIP in general is a capital intensive business and is difficult to make money in the short run. Network externalities play a big role, as more and more users become a part of a network the more everybody benefits from being a part of the network. For instance, if the number of VoIP users grows enough, the cost of hardware and services will drop significantly (due to economies of scale) and this would further motivate non-users to adopt VoIP due to reduced costs. Also, at this stage of the industry life cycle it is important for the players to create a significant presence in the market place. The free or cheap calls being offered by companies is just an effort to create a significant presence in the market and mindshare among the consumers.

So what should VOIP firms do? During the “takeoff” and the early “high turnover” stage VOIP companies must ensure survival. If firms survive this phase then they will be very strong to reap the benefits in the future. This, however, assumes that they have a “sensible” business model in place and deep pockets. Once the industry enters the consolidation phase, the customer base and the brand value will be a huge asset. Firms can use different models depending on the customer segment they are targeting. Ad-based, price based, quality or reliability based are all viable models. It just depends on how the firms are looking to reap the benefits.

VCs surely seem to agree with this point of view. The amount of money being poured in this sector is not trivial. Let me know your thoughts on this.

This article has been written by our VoIP news editor Alok Saboo. Alok is pursuing his PhD in Marketing at the Pennsylvania State University.