Why So Many Consumer VoIP Service Providers Struggle

It’s been a rough year for VoIP Service Providers, at least in the consumer space. We saw SunRocket abruptly shut down this summer when they failed to raise the money they needed to continue operations. We saw Vonage suffer through a barrage of patent lawsuits and continued hounding over customer service and 911 deficiencies, and increasing costs for acquiring subscribers. What’s going on…why is consumer VoIP now a rough neigbhorhood?

I think it comes down to three reasons:

1. No barriers to entry for competition
2. No sustainable competitive advantage (some would argue there is a competitive disadvantage)
3. Not enough attention to details that matter to customers.

Let’s face it: consumer VoIP is a commodity business. Anybody can license the technology to get into the business, and putting up a few VoIP servers in colocation space with Internet access, buying VoIP gateway services from Level 3, is a game anybody can play. To get into it you have to believe you have an angle that nobody else has (unlikely), or that you can market it better than anybody else. Most folks who think they are going to run the next big VoIP service aren’t marketing experts at all…they are just technologists who think it is cool that they can bypass the telcos for phone service. The problem is that everyone else can do it, too.

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