Friday, October 14, 2011

Are free voice and messaging startups looking to succeed … or get bought out?

It is inevitable.  Free voice and messaging services are going to transform the way we talk and text on our mobile phones.  And they will change the way operators do business, how governments regulate the internet, how we are billed for our data usage.

But not quite yet.  And probably not by the current crop of competitors.

Because while companies like Viber, Tango and fring might pose an existential threat to traditional operator-driven voice and messaging revenues, most of them have limited funding, no profitbability and face a brutal competitive climate.

In other words, yes, they are a threat as an industry, but, individually many of them are doomed to failure. To succeed, “over-the-top” companies need high smartphone market penetration, flat mobile broadband fees, operator partnerships and an enhanced user experience, says the management consulting firm Arthur D. Little.

And all that will likely happen. In a base case growth scenario from 2010 to 2015, Arthur D. Little projects that the mobile voice “over-the-top” players could grab up to 10 percent of the overall mobile voice market. But their curve doesn’t really get steep until 2013.

So who’s going to make it to 2015? Or even 2013?  

The bulk of funding for this sector is coming from rather wary venture capitalists, with other institutional players slow to invest.  And listed companies have underperformed compared with the S&P 500 since 2006.  Even a strong customer base is no guarantee of success, with a very low barrier for customers to switch between free services. Of course, this analysis does not apply to the heavyweights, like Google Voice, Skype or Jajah, all of whom are part of strong, well-positioned companies (Google, Microsoft and Telefonica, respectively). But for the smaller players, it is still the Wild West.

And like in the real Wild West, the smaller companies will have to rely on their strong ability to innovate, to develop new products and to navigate a shifting marketplace. And many of them seem to have these skills.  But that raises another question:  To what end? To succeed on their own?

Or is it more likely they are in a window of opportunity to partner with operators or be incorporated into established communities like Google or Facebook, all of which have the resources and big picture skills to succeed in a world of easy connection?

What do you think?  Are we overestimating or underestimating the disruptive potential of these internet-based voice providers?


  1. It might be true that OTT players are decreasing the share of the communication services pie for operator-provided services, but by creating new communicative possibilities they substantially increase the overall size of that pie.


  2. Nice point. It certainly points to a good future for the "partnership" model between operators and OTT players, making the most of operator resources and OTT innovation.