Say Goodbye to Standalone VoIP Providers

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Business stories happen at two levels: the particulars of why a specific company does well or poorly, and the factors that are relevant to the overall category. The latter, naturally, are more interesting to the bulk of observers.


This VoIP News story details the rather bleak prospects for standalone VoIP provider SunRocket. The piece, which draws on and links to pieces by Andy Abramson and Om Malik, paints a Titanic-like picture in which the co-founders left and about 40 people were laid off. The debate is whether the cuts were due to a lack of money or to lure potential buyers.


It's difficult to determine to what extent SunRocket's predicament is due to internal problems or to issues that are endemic to all standalone VoIP companies. But clearly it's not a good time to be an independent Internet telephone provider.


There are three players on the VoIP circuit. The old timers are the standalones, who saw VoIP as a wonderful use of the Internet and had the moxie to start companies. Next to arrive on the scene en masse were the cable operators, who pictured VoIP as a killer app that would not only be profitable in its own right, but also would serve as the glue binding wireless, video and data services in compelling triple- and quadruple-play packages. Lastly, the phone companies finally understood that VoIP wasn't just a gimmick and that their legacy services were under sustained attack that, if not countered, could marginalize them. Thus, they began offering their own VoIP services. In this way, VoIP became part of the endless battle between cable and telephone companies.


Clearly, the standalones are the most vulnerable. Vonage is fighting what likely will be a losing patent battle with Verizon. It remains to be seen whether Verizon or other legacy telephone companies can generalize the court's findings and make similar claims against other VoIP providers.


Large standalone VoIP companies may be in the process of passing from the scene. It's a bit sad, since these are the companies that launched the industry. In addition to the patent issue, which could affect both the standalones and the cable operators, the Vonages and SunRockets of the world suffer from myriad institutional disadvantages. Cable operators and telephone companies have multiple revenue sources, established back-office engines, big marketing departments, stables of lawyers itching to file lawsuits and huge existing customer bases.


Standalone VoIP providers simply don't have these assets. What they do have, however, is VoIP know-how and brand names strongly associated with the new platform. I wouldn't be surprised to see one of the possible scenarios pointed to in the VoIP News piece -- an acquisition -- become the more general trend. Indeed, the company with the highest profile, Vonage, may become the prime target.