The other day I posted Where's the Money in VoIP?, driven by a question Om Malik posed. I linked to some other thoughts from other colleagues, but really wanted to come back and address the question in a bit more depth.

To start with, let me recap the thoughts I've seen so far-

Om Malik, the instigator behind the conversation in this cycle, notes that the providers like Skype and Vonage are stuggling to make money.  Of course they are. They've targeted the lowest end of the revenue stream. Skype hoping to make it up through some, as yet unfathomable, profit model. Vonage is trying through commodity sales of dial tone in volume - a plan doomed to failure. They're, at best, dial tone with  no real value add in my opinion.

Om notes that the commodity equipment providers, like Logitech will make money. Again, commodity widgets at best. Not the high revenue earning end of the market, even when you sell lots of widgets. But they'll continue to profit on the periphery.

As Om points out, there's nothing exciting for venture capital here.

Andy Abramson responded with "Look to areas like access, identity/directory and new apps......" Andy's more right than he is wrong, but as he often does, Andy gave us all a whack in the head with a one liner, then ran with his fiance for a well-deserved R&R in the Arizon sunshine. Andy's real thoughts are far more detailed than this one line might lead you to believe.

Aswath chimed in that he believes VoIP is a product alone. It's not entirely clear, but I think he doesn't see money to be made outside the same groups Om noted. He's absolutely correct that service providers are simply looking for the ARPU based revenue model. And I believe that approach is doomed to bankruptcy and faliure (although it might be a spectacular failure).

Smith on VoIP joined the fray and observes:

Product manufacturers and their channel partners (distributors,
resellers, integrators, ect.) will be the ones who make the most money
from VoIP.

Because hardware enables VoIP service. No matter what the service is,
you will always need some sort of hardware to act as an enabler,
transport mechanism, etc. For most product manufacturers, VoIP products
are just another “line” and when the next technology comes out the will
start another “line” to enable that technology as well.

We'll get to why I think this is a defendable but flawed position in a moment or two, so bear with me. Certainly it's possible, but I think hardware will play a role of rapidly diminishing returns and falling revenue in the long haul.

Ted Wallingford added his own observation "The knowledge-service provided by consultants who implement VoIP
systems of all stripes are the value-add that earn the most profit in
VoIP today, and who I expect knowledge consultants will reap the lion’s
share of the profit-making in the industry for many years to come." And while agree that some subset of the consultants and integrators will make good money, I think the mean revenue for these guys is mediocre at best. The cream of the crop will make really good money. Some will do ok. And a large number will starve out of business as they try to find a profitable niche.

Phoneboy had some good comments too, but I can't find them right now. He had some blog issues, so maybe the post is temporarily misplaced.

So where's the beef? Where's the money? Where's the future? If you've been reading here, you won't be surprised to hear it's in application integration. Let me credit much of the thought behind this post to some fascinating conversations I had with a new friend, Bhanu Sharma with Adobe Systems, when we were at the VoIP Developer Conference. So what, you ask, was someone from Adobe doing at a VoIP Conference? You weren't asking that? Perhaps you should...

Integrating VoIP into applications and making it invisible is going to be where the money is? Find a way to couple Flash, Ajax, Ruby and other tools to hook a universal, but ubuquituous VoIP service into every web browser, and you've got a winner. Hook it into enterprise applications from CRM to ERP to HR, and you've got a winner. Oh and all those hardware phone vendors? Their commodity phones are useless hardware that performs only one function...it delivers commodity dial tone.

The future of VoIP...the future of unified communications is NOT in commodities, and the folks who are playing the commodity game are doomed to move on to the next new game sometime down the road. They're leaving themselves and their investors at risk, and they will be left in the dust. Sure the core infrastructure hardware players will be around and successful. Even the smaller companies that play into open source solutions will succeed. But the big money, the big name, the glory and everlasting stardom goes to those who bring the real integration for next generation unified communications.

The companies to watch are the people bringing real, measurable innovation. You've seen many of their names mentioned in this blog and interviewed here. You'll see more of them here. You won't see Vonage interviewed here, because frankly, I think they're doomed.

If you want to see where the success in VoIP and follow the money in VoIP, look for innovation in software VoIP solutions, web services and application integration. And look in unlikely places for things from people you might not expect to be there. The money will come from licensing, partnership and innovation. And it will be spread among the innovators.



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