Not sure if you’ve
seen Gartner’s technology adoption curve, but it’s a great model for
how we treat technological innovations. It describes a ‘peak of
inflated expectations’ followed by a ‘trough of disillusionment’ and
finally a ‘plateau of productivity’. It’s a good lens to look at what
has happened to Voice over Internet Protocol (VoIP).
I
first experienced VoIP back in the mid ‘90’s and as the dot-com bubble
expanded, VoIP became both the bogeyman of every telecom executive and
every journalist’s nail in telecom’s coffin. The ‘peak of inflated
expectations’ was that VoIP would kill off the telecom business, and
their world would come to a crushing end.
Clearly,
somewhat inflated predictions and the great promise VoIP once held
seems to be waning. A recent article in the (London) Times
quoted a report by British communications regulator Ofcom stating that
the percentage of adults using VoIP was just 14 percent in the first
quarter of 2008, down from a peak of 20 percent in 2006.
To
add further insult to injury, there are rumors floating around that
eBay is looking to unload VoIP giant Skype, which it purchased just 4
years ago for somewhere in the $2 billion range. A recent quote from
Skype’s CEO said that “it’s a great standalone business” - a huge clue
about what’s about to come.
The Empire Strikes Back
This interesting turn of events is pretty unexpected in my opinion.
Back in the ‘90s when VoIP was being touted as the next big thing, we
imagined it would make significant inroads among multinational
businesses and even among individuals who want to call far-off places
where circuit-switched calling was cost-prohibitive.
So,
did the evil empire strike back or what? It looks like telcos have put
a nail into VoIP’s coffin rather than the other way round. How did they
do that? After all, as every school boy and girl knows, the Internet is
free and a birthright of every citizen! First, rather than being about
technology, it’s all about where telcos are in the capital depreciation
cycle. Since most circuit-switched voice traffic is running on
platforms that are long since fully depreciated, they can price calls
how they want because other than using a bit of electricity and labor
to run them, the capital costs of these switches have largely been
written off.
On the Internet side,
however, providers are still paying to put in technology. The end
result is that circuit-switched voice providers have been able to price
calls very aggressively – mostly at a flat rate these days – so there
actually isn’t a huge margin between the cost of traditional calls and
Internet calls.
Then we get into
issues of quality, which is still a concern with VoIP even after all
this time. With a circuit switched approach, you get your very own path
end-to-end, but with VoIP, your call is going into this big cloud with
no packet priority whatsoever. That’s just fine for email or
downloading a video, but on a real-time call, delay and jitter can
really screw things up.
And then there’s
the convenience factor - with VoIP just not there yet. When you do
PC-to-PC calling you’re anchored to your desk. And if one party is
coming into the call over a raw IP connection, or there’s a mix of
people on the traditional voice network and IP, all bets are off on
what kind of call quality you’ll end up with.
Put
simply, the key things for VoIP to take off just haven’t happened. VoIP
does not have the price advantage over traditional calling,
particularly when to save a few dollars you have to compromise on sound
quality and the inconvenience of being stuck at your PC.
So What Happened to VoIP?
There’s an interesting bit of Darwinian Theory that dinosaurs evolved
into birds. I think that’s what happened to VoIP. Digitizing and
packetizing voice calls, just like any other traffic – video, e-mail
and so on is just fine provided you know what you are doing. The
digital backbones of virtually every telco are based on IP these days–
even circuit-switched calls. The core of those calls is all fiber-based
packetized technology, but managed and dimensioned in a way that
retains call quality.
It’s
really only the last mile where there’s a discrepancy and where analog
still holds sway. Most mobile calls and the vast majority of fixed line
calls still get to their central office in an analog format before
getting digitized to get to the other side of the world, and then
reconstituted on the phone at the other end. Using VoIP as a bypass
means that although the call is digital from end-to-end, it also gets
routed in with all of the other Internet traffic and takes it chances
on getting delayed with all of those video downloads that your neighbor
is doing.
What it comes down to is
that quality does make a difference despite all of those pundits who
say ‘it’s a new paradigm grandpa”. I liken it to the adoption curve for
cell phones. When they first came out, the quality of the calls was
appalling. You’d have dropped calls left and right, and sometimes it
sounded like the other party was in a tunnel or deep underground
somewhere. It was truly awful. But, as with most new technology, the
novelty and utility outweighed the annoyance of bad calls, but after a
while that shine wears off. Today, cell phones work from just about
anywhere, and dropped calls are thankfully few and far between.
Consumers
have demanded – and received – higher quality, but that’s exactly what
the Internet hasn’t been able to achieve for voice. They simply cannot
match price with quality.
It blows apart
the myth that people don’t care about quality if something is free.
According to that Ofcom report, 73 percent of broadband users are aware
of Internet phone service, yet only a small fraction is actually using
it.
And in case you suspect I’m a
secret Luddite, I’m actually a big fan of Skype. Skype-to-Skype is not
only free but is hi-fi quality, which is great and something way ahead
of telcos. And because its uses a peer-to-peer approach, the quality
isn’t bad either, unlike some other VoIP services I could mention. But
I have to wonder how much eBay can get for selling this business -
probably nowhere near the hefty price they paid – but what a great
bolt-on to Facebook!
So what happened to
VoIP? Just like Gartner’s curve, it’s alive and well as a plateau of
productivity in the core of (grown up) networks and will soon be
happily running end-to-end once Mr. Obama’s billions have put fiber to
American homes and 4G wireless takes to the air.
As I said, dinosaurs become birds!