Clay Shirky on VoIP

Clay Shirky writes how the likes of Vonage and Skype are going to change the telecom industry:

The question is no longer whether voice is going to become an internet application, but when.

“When” could still be a very long time, however. The incumbent local phone companies — Verizon, SBC, BellSouth and Qwest — have various degrees of interest in VoIP, but are loathe to embrace it quickly or completely, because doing so means admitting to everyone — shareholders, regulators, customers — that both monopoly control and artificially high voice revenues are going away. (The fact that this is true does not much lessen the pain of saying so.) As a result, they will likely try to convince regulatory agencies, both the FCC and the states’, to burden competitive VoIP firms like Vonage with additional costs and rules, while delaying their own offerings.

Complicating this de facto Plan A, however, is the fact that VoIP isn’t a service, it’s just a set of protocols, meaning that competitors don’t have to set themselves up as upstart phone companies to deploy VoIP. If Plan A is “Replace the phone system slowly and from within,” Plan B is far more radical: “Replace the phone system. Period.”

Where Vonage and a number of the other VoIP startups present themselves to the customer as phone companies, emulating the incumbents they are challenging, you can think of Plan B as the Skype plan. Skype isn’t taking on the trappings of a phone company; instead, it offers free two-way voice conversations over the internet (they aren’t phone calls, for the obvious reason) between users who have downloaded and installed software onto their computer. (Other versions of Plan B include instant messaging clients that let users talk, not just type, and software like shtoom, a set of VoIP tools for the Python programming language.)

The Plan B strategy is simple: “Familiarity is the enemy of progress. Forget backwards compatibility, and concentrate on offering services the traditional phone companies can’t touch.” For example, Skype recently added user-defined conference calling, a kind of cross between call waiting and conference calling, so that when someone calls while you’re on the phone, you can simply turn it into a three-way call, a pattern more like joining a conversation at a party than today’s cumbersome conference calling.

The phone companies are overestimating the threat of Vonage (which also wants to charge users to talk to one another) and underestimating the threat of Skype (which doesn’t.) And yet if they succeed in killing off their Plan A competitors, they will strengthen the far more radical challenge from Plan B.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.