blogging.vc

Yesterday, I spoke at a panel at the VON Conference in Stockholm. Even though this is a place where you don’t expect many bloggers, my two fellow panelists are probably some of the most well-known telco bloggers in Europe, Martin Geddes who writes Telepocalypse (I hope he’ll post his slides (Update: see his comment below for his slides), there was a great one comparing PSTN, Skype and cell phone) and James Enck of Daiwa Securities. The moderator, Howard Thaw of iotum, also is a big fan of blogs so we got to spend some time on that topic. I believe that for many people in the audience the idea that a blog can be a great way to have a quick and efficient feedback channel with your customers was still somewhat unusal.

I was asked to talk a bit about how VoIP and the Internet affects telcos, especially the end-consumer services aspect. I think that since IP (Internet Protocol) creates a nice separation between service and access (I wrote more about that in this post), many Internet companies are invading the turf of the telcos and the telcos have to start thinking in terms of Internet business models. Here’s what’s happening on the biz model side (and yes, that’s probably no news to many readers here):

• As a service provider in the Internet arena, customer acquisition cost is key. That’s where the famous “virality” concepts comes in: Communications is something that happens between people, so there is a natural incentive for every user to bring his contacts onto the same service - this was the case with Hotmail, then with IM (ICQ) and lately with Skype. If you manage to get your customers to recruit new ones by themselves, you are in great shape - now this clearly doesn’t always work and you still need to do marketing, but it’s something that’s key to understand for anyone in the communications business.
• Switching cost. I made the claim that the value of Skype (and other presence driven networks) is in their buddylist - that’s their strongest competitive barrier. While waiting at the airport, folks from Parlino (Tele2) were trying to sell me a cordless VoIP phone for 30 Euros. If it had worked with Skype, I would have bought it right away..but am I going to convince all my “buddies” to switch to Parlino? No. In the telco world, once you have number portability, your communications partners feel no difference if you switch providers…in a closed Internet network that’s not the case. Not pretty for the user, but reality.
• ARPU. That’s where the telco guys are experts…and yes, on the web you still need to monetize each user, even if you get them at low acquisition cost. You can do this through traditional pay-per-minute models, but as Skype just announced that they will offer free landline/cell phone calls in the US and AOL giving out free phone numbers, you see the writing on the wall that plain voice revenue will continue to shrink incredibly. Voice is a base service that gets people interested - much like people went to Yahoo for search and then started using it for email, stock quotes, groups etc. I think the telco world needs to move to a different model…they have the base service (voice), but need to figure out what they can offer on top to monetize the customer relationship (and yes, sending a bill to the end user every month is a huge advantage…a great way to add on services much more easily than any standalone player).

Especially the consumer facing units of telcos finally realized competiton was real when Skype was sold and they are probably getting used to GYME (Google, Yahoo, Microsoft, EBay…) as the new competitors. And maybe they’ll start understanding Internet business models. See my previous post on that…but my hunch is we’ll end somewhere in between a Yahoo model (they make $1.21/unique user/month according top this filing) and a nice litte subscription model like e.g. GoToMyPC (these guys are charging $20/user/month and business is humming). Let’s see.