Effects Of Commercialism On VoIP

By: Nitzan Kon

The Voice over IP scene began with an idealistic approach - offer people better voice service - for a more cost effective price. A few years later these ideals have been shifting as the key players grows up, and decided to be a profit machine. Gone are the days when networks concentrate on giving free service to all who agree to take. These days, companies are more nad more concentrated on one goal - profit.

Although this in itself is no news - the amount of monetization going on behind the scenes may very well surprise some. A great example would be so-called Voice over IP review sits. The two largest VoIP review sites have been purchased by a single company, who in essence now owns this market. Both websites used to be more-or-less non-commercial in the past, but sold for an undisclosed amount, probably in the tens of thousands of dollars.

The buying firm has been very generous in their offers to Voice over IP providers from my personal experience. Personally I have had good experiences advertising with them. However, this is not the point. The real point is that a single entity managed to take over a huge chunk of the VoIP Review market - a market that did not even exist a few years ago. With the way the web ebbs and flow, and with Google always changing things, they are unlikely to remain the market leaders for many years, however for the time being they are a force to reckon with.

Many, many providers that used to get free or very cheap advertisement opportunities with these non-profit sites, have now been essentially cast out of the market completely. Some providers who have been in the market for years have gone out of business this year. We can blame the economy, or the fact these providers weren't any good to begin with - but the single fact remains: as a company it is irrelevant how good you are, if there are no customers. Those who chose to skimp out on advertising costs, paid the ultimate price.

These two review sites are not alone. Rather, they're the norm. There is a whole mass of so-called "review" and "comparison" sites flooding the internet. In almost all cases such sites are biased and display only sites who pay to be included, run pay-per-click campaigns, or pay-per-sale affiliate revenue sharing. Not the I object such sale techniques, but the market at this point in time is almost 100% pay-to-play.

Such pay-to-play tactics impact more than just the providers themselves. It is obvious that the higher the cost of advertising, the higher the cost would be to the end user. This is especially prominent with the leading providers - some of which spend over $100 on average to aquire a single customer. Such insane figures, combined with churn rates to the tune of 3% a month, spell financial trouble for bigger players. In today's financial scene, hot-shot VoIP providers can no longer borrow millions of dollars without account for how they're going to pay it back. The credit-crunch is on, and the largest borrowers are feeling it harder than most.

Smaller providers in essence are living off the scrapes, so-to-speak. With 3% churn from the big guys there are a lot of scrapes to go around... smaller providers typically have far less cost to aquire new customers, and in turn price anywhere between 25-75% of the big guys. More often than not, smaller providers are actually profitable rather than living on credit. It is much easier to turn a profit when you have a few thousand customers with a new customer aquisition cost of a few dollars each - than millions of customers who cost you millions to acquire.

In the coming year I think we will see major changes in the VoIP world. Some bankruptcies and providers going out of business are inevitable. As a result, lenders will get scared and start pressuring to get their loans paid. This will result in even more bankruptcies. This is a rather grim prediction for the big guys, but the next year will see profitable, better managed smaller providers propel forward in growth as they eat up customers from old, failing bigger providers.

Recession? for the big guys - very much so. For smaller providers 2009 means full steam ahead and insane growth for those who manage well and are conservative with their spending.

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Nitzan is the CEO of Future Nine Corporation - a leading VoIP Provider. Nitzan also helps with Compare VoIP Providers - an ongoing research of VoIP rates worldwide.

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