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Study shows startups have early advantage in "last mile VoIP" market
Posted: 06-Oct-2004 [Source: Global Advertising Strategies]

[Study says large companies need to lead in the innovation of VoIP as strong competition is expected to continue from new and smaller players in the industry.]

New York -- A new in-depth study of the players best positioned to succeed in the burgeoning VoIP market showed Vonage, Primus and 8X8 to be ahead of major telecom and cable brands including AT&T, Time Warner, Cox and Cablevision. Conducted by Global Advertising Strategies, a New York-based marketing and consulting firm, the report titled "Last Mile VoIP Incites Marketing Rivalry," analyzed and ranked nine major VoIP service providers based on qualities including attractiveness to consumers, potential for growth, quickness to react to competitors' offerings, and marketing approach. According to the study, which aggregates five years of in-depth analysis on what Global has dubbed "last mile VoIP," Vonage ranked number one overall, while Primus and 8X8 were rated second and third respectively. Additionally, AT&T, Delta Three and Time Warner tied for fourth, Cox and Net2Phone were rated fifth and Cablevision was ranked sixth.

"Although there are a number of lessons incumbent players can learn from startups, the key is that they have to stop chasing small players and start leading the innovation," said Max Smetannikov, vice president of business development and analysis at Global Advertising Strategies. Some of Global's recommendations for these companies include: Create bundles with more free features to match startups

Set up international calling bundles for both B2C and B2B with competitive rates

Segment the market into different target groups by Unique Characteristics of Consumers as opposed to region

Implement discounts for customers using the provider's DSL line and allow customers to set up a broadband line along with a broadband phone without an obligation of having a landline (certain providers only).

According to the study, the challenge is very different for new companies. "Startups have to build brands in order to survive and must create value for potential customers in order to grow exponentially," Smetannikov says. "It is still a brave decision for most Americans to cut their phone lines in favor of the broadband telephone, and startups have to give consumers a truly compelling reason to do so that goes beyond lower rates." Some of Global's recommendations for startups include:

Concentrate on the mass market. VoIP has a future not only in Orange County and Manhattan, but also in Iowa and Alabama

Work harder with ethnic markets by creating more international bundles and adding more value to existing customers

Start with an exit strategy, do not chase any player, and do not rely solely on one feature as a sure-sell. As has happened many times in the past, the competition is ready to clone features.

Startups Have the Advantage--For a While

As with many new technologies, the infrastructure major telecom and cable brands have already built actually works against them and provides opportunity for startups. However, Global believes that younger companies will have limited time to leverage this situation.

"VoIP is fundamentally disruptive to large voice and carrier switching firms because it offers a vision of standardized equipment to an industry that has historically driven its margins by selling various proprietary systems," explains Smetannikov. "However, the low barrier to entry into the VoIP market will prompt all RBOCs and cable companies to offer it, and once ISPs (i.e. AOL, EarthLink, etc.) realize that startups are essentially VoIP ISPs by architecture, they will also begin to offer the service."

Marketing Must Evolve

Global's analysis found that, although the main thrust of VoIP marketing is currently aimed at preteens/teens living with their parents, students living by themselves, and young professionals, future marketing campaigns must broaden their appeal by shifting focus to messages of value and differentiation and de-emphasizing technology to be successful in attracting a wider audience.

"There is a misconception that all VoIP users are "techies" who as a matter of course are interested and like to try new innovations," said Smetannikov. "Unfortunately, because many VoIP providers have concentrated their marketing efforts on this perception they've failed to generate widespread customer adoption. In the telecommunications industry, choosing the right target audience is of utmost importance prior to launching the product."

The real initial driver for VoIP, according to Global's study, is not necessarily the cost savings it affords. Rather, adoption will come from its most unique feature: allowing end users to keep their home number forever. The study cites Vonage's pursuit of targets such as students who migrate from apartment to apartment, and young professionals who often move from one place to another as they follow their careers as an example of this strategy in action.

Strong Brands Will Win in the End

In Global's analysis, consumers will become overwhelmed by the multitude of last mile VoIP programs being offered by local phone companies, cable companies, satellite service providers, ISPs, independent VOIP providers, and wireless carriers over the next twelve months. This crowded marketplace will quickly lead to brand wars as rates come down to an absolute minimum and end users are asked to make choices on factors other than service pricing and features.

"In a year we will see deepening differentiation, and strong niche identities as competitors deplete the differentiation of calling plans and features like portability commoditize," Smetannikov says. "All players, regardless of size, quality of technology or pricing, must develop their brand early on to ultimately be successful in this highly-competitive market."

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