Saturday, July 21, 2007

The Economies of VoIP

Gary Kim gives us some lessons from SunRocket:
  1. In hindsight, it was kinda of crazy to spend $200+ to acquire a customer whose annual spend was only $200+. Hard to outrun the economics. The hopes, of course, was that if you reached a decent size, people would come to you and you could reduce your marketing costs. Vonage certainly hasn't seen this, so SunRocket wasn't going to be much better.
  2. Customer service cost also can eat you alive. Anytime you call for customer service, figure it's costing that company between $0.75 and $1.00 PER MINUTE to talk to you. For a typical 10 minute call that's $8-10. Call twice in a month and for a SunRocket $17 a month revenue, they lost money on you. It's also amazing the number of people who buy cheap are also the same group who complain constantly.
Some more lessons from Bob at DigiLink (as commented to my blog on Phone+):
  1. There is no such thing as unlimited voice service today. It is an illusion being propagated by those companies with clueless management and more money than sense who will cut off their own arm's and legs to get market share. It is not a sustainable business model today and anyone that thinks otherwise is just in denial.
  2. Sunrocket's demise is a good example of the fact that they still had to deal with the per minute/incremental costs of passing calls to/from the PSTN.
  3. the voice business is very complex and capital intensive. VoIp service may not require copper wires and plant but it does require a lot of software, facilities, systems and most expensively experienced personnel to keep everything running.
One point about Unlimited is that many companies play the over/under - hopefully, the few heavy users can be made up by many, many limited users.

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