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Vonage’s woes and “better telephony”

The hot VoIP gossip at the end of last week was the departure of the Vonage CEO following a legal assault by Verizon over patent infringement, as well as some disappointing financial results (increasing customer acquisition cost, stagnating customer revenues).

Any pundit loves to point to correct predictions (whilst quietly letting the duds slide into the memory hole), and we’re no exception. Over three years ago, we forecast that Vonage’s business model was a dodo and wouldn’t fly. If your sole value proposition is access arbitrage and low price, you will lack differentiation from landline voice, and be subject to regulatory attack that raises your cost base to comparable (or even higher) levels to incumbent operators.

So, what could they have done differently? Here’s a sneak preview from our forthcoming report - Consumer Voice and Messaging 2.0:

Well, given the whole point of an end-to-end IP network is unbounded flexibility not offered by switched intelligent networks, they needed to differentiate the Vonage telephony experience. Vonage has to overcome the downsides of their fixed line substitution approach: weaker emergency calling support than landline, VoIP’s uneven quality, need to change phone number, and no line power. This better telephony experience has to be more than skin-deep and generate significant value to beat the pain of adoption.

Furthermore, for DSL customers forced into buying bundled POTS service, there has to be a reason to put Vonage at the heart of your communications experience. Otherwise, why not just save yourself a ton of heartache and simply buy a prepaid calling card for those high-cost international calls?

Is there a market for “better telephony”? It’s hard to tell given the few examples (Verizon’s iobi does OK but doesn’t set the world alight, and Skype gives away the product without charge). The Apple iPhone may raise user expectations with its Visual Voicemail feature. As the iPhone suggests, a differentiated telephony experience is likely to need different devices. Allow use with installed handsets via an analogue adapter, but if you really believe you’re the broadband phone company, could we suggest offering some broadband phones? Taking a Gillette analogy, perhaps the telephony service is the margin-free handle, and the devices are the razor blades (which also provide churn-busting lock-in)?

Still, if you want to go for the differentiated telephony experience, here’s our eight-part recipe:

  • Available everywhere, for everyone, in any situation. You might think that mobile telephony is the last word in spreading talk into every corner of our lives, but it’s not. Vonage need to make their experience:
    • Reach new outlets. You should be able to initiate a Vonage click-to-call from any web site, do callback from any phone (as with Jajah, for example) and avoid bill international calls to your Vonage account.
    • Reach new users. Vonage could have offered high-margin devices for kids, who are today excluded from telephony because you’re afraid what will happen when your three year old starts pressing the buttons. Why can’t my kids call their grandparents whenever the latter are online?
  • Socially aware. This means allowing users to have roles and multiple personas — the “business” me, the “personal” me and the “private” me. The last may offer anonymous calling, for example, with disposable time-limited numbers for dating or auction site use. Another example might be iotum’s smart routing that understands the difference between a client calling you and a colleague.
  • The ultimate directory. Use caller name databases, automatically fill in my address book, let me search my social network as well as “friends of friends”.
  • Presence-enhanced to help users time their calls. If you knew someone was on a call already, would you have called? If you knew they were on a business trip to China and it’s 3am there, would you have called? If you knew they were in a meeting… you get the idea.
  • Enhanced privacy and security. Encrypt on-net calls. Gather data on rejected calls, unreturned voicemails, and work out who needs to be excluded from bothering users and when.
  • Improved media experience. We’re seeing BT position themselves here as the “premium audio” player with their hi-ds branding. Other examples might include audio tones (whacky noises to play during calls), ringback tones, and enhanced conference calling where you can tell who is speaking (Skype does this). Build cameras into every Vonage phone, and make “see what I see” a core feature. Press the shutter button briefly, it shares the snapshot; hold it down, we’ve got shared video. Just don’t call it a video call — let the users add or subtract pictures and video as appropriate during the conversation.
  • Integrated payment and data transfer. Partner with merchants to make the “Vonage-enhanced” calling experience a truly wonderful one, free from annoying IVRs and dictation of personal profile and payment details. (eBay might be able to execute on this with Skype and Paypal, Vonage alone would need partners). It’s like Adobe’s acrobat and your tax return: you can print it out and manually fill it in, or you can enter the details electonically into the form. Make Vonage telephony multi-modal from the start, keep the devices with a common, simple UI that avoids the fragmentation of Java mobile handsets.
  • Perfect the user interface. Make voicemail as easy to use as the iPod is. Make conference calling simple and intuitive.

We’ve by no means exhausted the ideas and possibilities. You’d steal plenty more ideas from the “Voice 2.0” startups. There are some other parallel activities you’d want to undertake, such as offering an API set and “mashup” applications and services from partners.

PhoneGnome was profiled on this blog last autumn, and their product allows you to preserve and extend the value proposition of traditional fixed telephony. Vonage offers fewer user benefits with higher cost. There’s no shortage of user dissatisfaction from incumbent telephony, and once they’ve experienced something better they won’t go back. You just have to offer something that’s clearly better.

You can read more about the future of voice and messaging services in our forthcoming report: Consumer Voice and Messaging 2.0

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