Friday, February 29, 2008

Ike Elliott's Update on the VoIP Market

Been trying to get to this one all afternoon.

Ike Elliott had a really great post earlier today about the state of the US residential VoIP market. He's provided keen insights around a few sets of data points showing how the market shares break down. He and I follow this space quite a bit, so it's great to share his thoughts with my readers.

Basically, Ike is showing how the cablecos have strengthened their grip on this market since last year, and at this point, Vonage is a distant #3 with 15%. That's still a very respectable position, but aside from the cablecos, there's nobody else other that Skype. I'm glad Ike has listed them, even though Skype is not competing with the others in terms of providing a landline replacement service. Still, it's interesting to see where they stand, especially for revenues, which track at 8% of the market.

My only question is this - is this US or global revenues for Skype? I'm pretty sure that most of Skype's revenues are outside North America, and it's not clear to me what's being reported here. Regardless, as popular as Skype is, the revenues don't add up to much when compared on an absolute basis to the network-based competitors. On the other hand, of course, Skype's infrastructure, operating and marketing costs are next to nothing, so their margins are much healthier.

So, which do you prefer - high revenues/decent margins, or low revenues/high margins - or in Vonage's case, high revenues/decent margins, but huge OTHER costs? One thing is clear to me - it's tough to make a go selling just landline VoIP. Ike shows the ARPUs, which come in higher for the cablecos than Vonage, but that can be trickier territory. When you're selling the bundle, you can be more arbitrary allocating where that $99/month goes from each subscriber. It's very easy to bury voice in the mix as a loss leader, but with Vonage, you can't hide anything.

Lots of angles to explore here, and it's great that Ike has taken the time to put these numbers together. I also find his post to be a nice reprise to my recent Service Provider Views article about Vonage and their recent Q4 numbers. Ike was nice enough to start some dialog with me about this, and now that he's posted his views, you're welcome to jump in and join the conversation.

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