Many have heard me tell the story about my Zayde (yiddish for grandpa) Morris, who upon receiving my first VoIP (Voice over IP) call transmission to him said "sounds like a regular phone call...what's the big deal?"
As someone who back in 1996 founded one of the first commercial VoIP providers (Delta Three, still alive and kicking [NASDAQ:DDDC] although no one remembers me there), it took me time to see past my excitement at new uses of technology to fully understand what my grandfather was telling me -- which is that if you offer the same exact service as existed before, it's just not that interesting, at least to the end user. The "big deal" then may be some back office savings, making the delivery of the "same old" service just a little bit cheaper, which in volume could be a nice business. But exciting it isn't.
Today we mourn the loss of SunRocket, a VoIP service provider that burned through $60 MILLION in venture funding. Yes folks, you heard right, that was $60 million. Just as a comparison, as of the day Delta Three went public, we had spent less than $10 million (and inflation hasn't been that much since 1999). What were the VC funds investing in? I was not sure when I first read of SunRocket's success at raising money, and certainly could not explain today. SunRocket offered no innovation, simply copied the same service a myriad of other companies had out there-- and even worse, came to market as the big guys (Comcast, Verizon, etc) finally started to offer the same package ($25 a month unlimited domestic calling, etc)...except backed by billions of dollars in real value, not (relatively speaking) fly-by-night venture backing.
At the end of the day, SunRocket was trying to sell the same minute FOR THE SAME PRICE, and that simply will not work, and they did not have any magic to sell that minute any more profitably than the next guy.
Can Vonage be far behind? Well, they have more subs (2 million, versus the 200K SunRocket claimed). That means more cash flow, but as we saw with SunRocket, sometimes companies take a year in advance and then go out of business, leaving customers high and dry. Vonage also HAD more cash, but is burning it rapidly, especially as it fights the patent battles with Verizon (which Verizon will lose, but will take time).
The guru of VoIP, Jeff Pulver, realized sometime ago the newness of cheap minutes was not there anymore, which is why he switched his attention to video.
There are a few companies still trying to peddle cheap minutes on mobile phones as a new thing (VoIP over GPRS or 3G, not a recipe for success). I highly doubt they will be able to beat the mobile network operators at the minutes business -- that's how Amp'd Mobile got into trouble. The newness is not cheap, unless you are so far ahead of the curve, as we were back in 1996, or as Skype did two years ago (by the way, Skype now is stalled, see latest Ebay financial reports...).
A minute is a minute is a minute. Give it a fancy name, it's still a minute.
