Daiwa EuroTelcoblog No. 38, Tuesday 20th April, 2004: P2P network Morpheus launches VoIP service
Since the launch of Skype last August, one of the questions we have been continually pondering and debating with clients is: what response might we see from others with a background or established presence in the P2P space, or indeed in other segments of the internet world? At the time Skype launched, we made much of the association with KaZaA, and said that this would probably contribute to some high profile press coverage and rapid uptake of the service. Now, 10.6m downloads (and we estimate 4.5m active users) later, this indeed appears to have been a correct assumption. Today brings the launch of a VoIP service from P2P network Morpheus, in conjunction with i2Telecom (ITUI US). Morpheus' parent company, StreamCast Networks, will be offering a white label version of i2's MG-2 InternetTalker SIP-based analogue telephony adaptor-based service, which purports to work in a narrowband environment. The "Launch Special" tariff (until 15th May) for the "Morpheus Voicebox" product offers the box at the normal price of $49.95, with free activation, plus a coupon for a free second box and free activation. After 15th May, an activation fee of $25 applies. On-net calls are free, and the company has announced three tariff plans:
Unlimited Global Community - $6.95 per month, calls to US/Canada 3.9 cents per minute, discounted international calling - this is the basic plan to which all Voicebox users will subscribe
North America 1000 - $8.00 per month for 1,000 inclusive minutes to US/Canada, overage charges of 3.9 cents per minute + the basic $6.95 Community fee = $14.95 total
North America Unlimited - $18.00 per month for unlimited calls to US/Canada + the $6.95 Community fee = $24.95 total
This is hardly a Skype-killer, and in many ways it is difficult to find anything to distinguish the service from the countless other ATA-based services out there, unless we're missing something. However, what is of genuine interest is the fact that this is a "youth"-oriented internet brand with some clout (Morpheus claims 122m downloads to date) trying to leverage its installed user base with a targeted affinity offering. It is also interesting to see an ATA-based service taking a global approach in marketing, apparently shipping to anywhere in the world (Vonage and similar companies have thus far adopted a market-by-market service launch approach). We don't think it's an earth-shattering event, but rather further evidence of how those with a significant internet presence might seek to exploit voice as a commercial opportunity or service differentiator at the expense of traditional telcos.
http://www.i2telecom.com/press_materials/releases/2004-4-20.pdf
http://www.morpheusvoicebox.com/Information/Home.aspx
Tuesday, April 20, 2004
Friday, April 02, 2004
Daiwa EuroTelcoblog No. 37: Friday 2nd April, 2004 - What if?
One of the issues we have been pondering, writing and talking with clients about over the past year is that, as the IP voice market develops, the skill sets and market positioning required for success should play to the advantages of software companies and those with global internet brands, rather than telcos. Against such a background, the meat and potatoes of telcos (voice) can become, in our view, just another feature of a suite of web-based services. For the internet players themselves, the lines separating their perceived market niches are breaking down with amazing speed, as they make forays into one another's turf. This, in our view, heightens the risk that voice gets placed on the loss-leader shelf as part of a differentiation exercise. We have attempted to track some of these developments to the extent that it is appropriate for someone covering legacy telcos, but here is a short list of highlights, as we see them:
Yahoo has launched an independent search engine, dumping Google
Microsoft will do the same later this year
KaZaA has moved into personals/online dating via a joint venture with MatchNet
Google has affiliation with a social networking site called Orkut (created as a side-project by a Google technologist who gave his name to the site)
ICQ has adopted a social networking interface to the buddy lists in its new ICQ Universe IM service
Apple Computer has scored tremendous success in the consumer music space and launched the best-regarded voice/video instant messaging product in the market
Google last week launched a shopping site known as Froogle (http://froogle.google.com/), taking it into competition with ebay
Google yesterday announced its intention to launch a webmail service (Gmail), including a staggering 1GB of storage (10x the amount I purchased for my "premium" Yahoo! account!). This is pretty audacious stuff, and has deservedly garnered a lot of coverage
The media's reading of the email launch is that Google is rapidly morphing from a search engine into a portal, and it certainly looks that way to us. If you've got some interesting and ever-expanding search features, shopping, news (http://news.google.com/), a unique toolbar (http://toolbar.google.com/), a range of very useful tools (http://groups.google.com/options/index.html) and now webmail, then applying the "duck" test, Google is officially a duck.
However, comparison with MSN and Yahoo brings up one interesting service gap - no instant messaging client. I would be amazed if this gap weren't closed soon, which means potentially another powerful internet brand offering voice/video IM. But why stop there? One idea we floated in our recent piece on the glophone, was that the idea that a browser-based softphone capable of breaking out to the PSTN might be something we could expect to see from the likes of Google.
It's a crazy idea, we know, but it's also interesting to note that one prominent feature of Google is its usefulness as a phone directory (at least for US phone numbers). Try typing in (without the quotation marks) "phonebook: smith, NY" and view the 600 or so listings each from the residential and business directories for New York. One other recent development was the focus on search results relevant to the user's local area, so-called "Google Local" (http://www.google.com/press/images/local_summary.gif). If you're providing a detailed index of contact details globally and locally, then why stop there?
This is just blue-sky thinking on our part, and we can think of a number of reasons why this idea would be exceedingly challenging to implement (accounting and billing for a start). Anyway, with a unique audience of 59m in the US alone (Nielsen//NetRatings), maybe it is enough to try to steer the captive audience towards a differentiated IM platform for now. Perhaps the critical mass of such a user base would support another step towards sidestepping the PSTN, rather than destroying it as such. However it develops, what the Gmail announcement drove home to us yesterday was that the tit-for-tat responses to product developments coming out of Yahoo, Microsoft and Google may create a lethal crossfire where the telcos inevitably get caught.
One of the issues we have been pondering, writing and talking with clients about over the past year is that, as the IP voice market develops, the skill sets and market positioning required for success should play to the advantages of software companies and those with global internet brands, rather than telcos. Against such a background, the meat and potatoes of telcos (voice) can become, in our view, just another feature of a suite of web-based services. For the internet players themselves, the lines separating their perceived market niches are breaking down with amazing speed, as they make forays into one another's turf. This, in our view, heightens the risk that voice gets placed on the loss-leader shelf as part of a differentiation exercise. We have attempted to track some of these developments to the extent that it is appropriate for someone covering legacy telcos, but here is a short list of highlights, as we see them:
Yahoo has launched an independent search engine, dumping Google
Microsoft will do the same later this year
KaZaA has moved into personals/online dating via a joint venture with MatchNet
Google has affiliation with a social networking site called Orkut (created as a side-project by a Google technologist who gave his name to the site)
ICQ has adopted a social networking interface to the buddy lists in its new ICQ Universe IM service
Apple Computer has scored tremendous success in the consumer music space and launched the best-regarded voice/video instant messaging product in the market
Google last week launched a shopping site known as Froogle (http://froogle.google.com/), taking it into competition with ebay
Google yesterday announced its intention to launch a webmail service (Gmail), including a staggering 1GB of storage (10x the amount I purchased for my "premium" Yahoo! account!). This is pretty audacious stuff, and has deservedly garnered a lot of coverage
The media's reading of the email launch is that Google is rapidly morphing from a search engine into a portal, and it certainly looks that way to us. If you've got some interesting and ever-expanding search features, shopping, news (http://news.google.com/), a unique toolbar (http://toolbar.google.com/), a range of very useful tools (http://groups.google.com/options/index.html) and now webmail, then applying the "duck" test, Google is officially a duck.
However, comparison with MSN and Yahoo brings up one interesting service gap - no instant messaging client. I would be amazed if this gap weren't closed soon, which means potentially another powerful internet brand offering voice/video IM. But why stop there? One idea we floated in our recent piece on the glophone, was that the idea that a browser-based softphone capable of breaking out to the PSTN might be something we could expect to see from the likes of Google.
It's a crazy idea, we know, but it's also interesting to note that one prominent feature of Google is its usefulness as a phone directory (at least for US phone numbers). Try typing in (without the quotation marks) "phonebook: smith, NY" and view the 600 or so listings each from the residential and business directories for New York. One other recent development was the focus on search results relevant to the user's local area, so-called "Google Local" (http://www.google.com/press/images/local_summary.gif). If you're providing a detailed index of contact details globally and locally, then why stop there?
This is just blue-sky thinking on our part, and we can think of a number of reasons why this idea would be exceedingly challenging to implement (accounting and billing for a start). Anyway, with a unique audience of 59m in the US alone (Nielsen//NetRatings), maybe it is enough to try to steer the captive audience towards a differentiated IM platform for now. Perhaps the critical mass of such a user base would support another step towards sidestepping the PSTN, rather than destroying it as such. However it develops, what the Gmail announcement drove home to us yesterday was that the tit-for-tat responses to product developments coming out of Yahoo, Microsoft and Google may create a lethal crossfire where the telcos inevitably get caught.
Thursday, April 01, 2004
CV
(Please be advised that, though this post shows a 2004 time stamp, in fact it was created in 2007 - don't ask, it's down to the relatively inflexible nature of Blogger, which I still love)
If you wish to receive a formal, conventional CV, please contact me here. For now, here are the most salient features, or more appropriately, a few things I'm proud of. Also, see this more recent post for an update on my most recent incarnation, prior to being cut down in my sub-prime.
If you wish to receive a formal, conventional CV, please contact me here. For now, here are the most salient features, or more appropriately, a few things I'm proud of. Also, see this more recent post for an update on my most recent incarnation, prior to being cut down in my sub-prime.
- I was among the first, if not the first, in Europe to write about access independent voice and its potential impacts, late 2002/early 2003. This extended to an exploration of the voice/IM mash-up possibilities, which we saw come together conclusively in September 2003.
- I was the first investment banking analyst (to my knowledge) to write about Skype, within a few days of its launch. I think my sales force thought I had lost my mind, but two years and $2.6bn later... A couple of proactive people on our sales desk at the time thankfully dragged me around Europe, where I had the distinct pleasure of breaking the news about Skype to a number of fund managers - who both loved and hated what I had to tell them.
- In 2004 I began to publicly argue that conventional brokers' research was also in the firing line in an all-IP world, where information flows were less hierarchical. This was greeted with the usual silence from the higher-ups in research, but a few clients liked it. 2004 was also the year I began probing the implications of the looming tension between broadband as a economic/social policy and "broadband as a product," which we now see being played out so clearly in Amsterdam, Paris, Chile, Singapore, Seattle, South Yorkshire...
- February 2005 I wrote a long note on the disruption of broadcasting, with a focus on BSkyB. My diagnosis was that Sky needed broadband connectivity in the mix or there would be trouble. The company disagreed vehemently with my views, then bought Easynet eight months later...
- October 2006, I turned up on the list of Top 20 Stockpickers arising from a two-year Bloomberg study. This was particularly gratifying/amusing, as I probably spend less time on conventional stock-specific research than many of my counterparts, let alone the fact that I am a one-man show with absolutely no support.
- I have amassed an interesting, diverse, and unconventional range of contacts in the industry as a result of this blog and various appearances at industry conferences. Links to some of these presentations are found on the homepage (another example is here).
Public appearances:
- Moderator, Telco 2.0, London (11/09)
- Presenter, eComm Europe, Amsterdam (10/09)
- Presenter, Manchester Next Gen Roadshow (video), Manchester (06/09)
- Chairman, Open Mobile Summit, London (06/09)
- Presenter, OECD ICT working group biannual meeting, Paris (03/09)
- Presenter, Telco 2.0 Industry Brainstorm (video), London (11/08)
- Panelist, TelecomTV, London (10/08)
- Moderator, Streaming Media conference VC panel (video), London (10/08)
- Panelist, Society for Computers & Law conference "Legislating Web 2.0", London (09/08)
- Moderator, Telecom Executive Network panel on UK broadband user experience with 3UK, Virgin Media, Sky, Carphone Warehouse, and the OFCOM Consumer Panel, London (09/08)
- Speaker, Telco 2.0 Industry Brainstorm, London (03/07)
- Panelist, content and applications, FTTH Council Europe annual conference, Barcelona (02/07)
- Panelist, Telecom Finance panel on emerging and disruptive technologies, London (01/07)
- Speaker, Cambridge-MIT Institute symposium on Net Neutrality, London (12/06)
- Moderator, Telecom Executive Network panel on user-generated content with O2, BBC, YoSpace and MoblogUK, London (12/06)
- Panelist, OFCOM regulatory seminar in conjunction with book release “Communications: The Next Decade”, London (12/06)
- Industry Keynote, VON Europe, Berlin (11/06)
- Speaker and analyst-in-residence, Telco 2.0 Industry Brainstorm event, London (10/06)
- Moderator, Telecom Executive Network panel with Skype, Yahoo!, Microsoft and Google, London (06/06)
- Industry Keynote, VON Europe, Stockholm (05/06)
- Panelist, Total Telecom World Telecommunications Congress, Geneva (04/06)
- Industry Keynote, VON Spring, San Jose, CA (03/06)
- Speaker, Fiber to the Home Council Europe annual conference, Vienna (01/06)
- Briefing for Amsterdam City Government, Amsterdam (09/05)
- Speaker, Total Telecom Carriers World, London (09/05)
- Industry Keynote, VON Europe, Stockholm (06/05)
- Moderator, Osney Media IP Triple Play forum, London (05/05)
- Moderator, ECTA Conference, Barcelona, (05/05)
- Speaker, Marcus Evans Strategic Pricing for Telecoms, London (04/05)
- Panelist, PwC-Informa Media Leaders Summit, London (11/04)
- Speaker, Osney Media VoIP Forum, London (11/04)
- Speaker, Seminar on P2P video, Columbia University, New York (09/04)
- Disruptive Technology briefing, PwC Infocom Practice, London (08/04)
- Keynote, VON Europe, London (05/04)
Daiwa EuroTelcoblog No. 36, Thursday 1st April, 2004: Vonage in London
We hosted a couple of client meetings today with Vonage CFO John S. Rego, who provided an update of operations and some other interesting data points which we summarize below. For more detail on the Vonage service, consult our EuroTelcorama Issue No. 2, or email me for a copy.
Canadian launch underway
Vonage launched its Canadian business at 3AM London time today, and had its first two customers within five minutes. Illustrating the thin structure of the network, Canada is covered from three data centers, which took a total of three days to set up. The company has had to re-skin the website in French (the cost per word they quoted to us was extortionate - I'm in the wrong industry!), and customer care will also now have to encompass French (probably good experience for a company looking to tackle the Swiss market).
Financial update
Cumulative capex for Vonage to date stands at around $12m, and elements of recurring costs continue to fall. We think the blended termination rate from telco partners is now nudging below $0.01 per minute based on the traffic growth generated to date (175m calls, 700m minutes), and the hardware involved in the network also continues to offer considerably better performance at lower price points (the IBM blade servers employed by Vonage have halved in price over the past 12 months but offer 150% more capacity). Bandwidth and co-lo costs also continue to trend down nicely. On-net calls now account for 5% (this was 4% during our last series of hosted meetings in October), suggesting that the network effect is taking root, which is beneficial for margins. Customer acquisition costs, as expected, have trended down to the $100 level, compared to over $300 when the product launched nearly two years ago. The company is now strongly profitable at the EBITDAM (EBITDA excluding marketing costs) level.
The $75m financing rounds recently completed will fund this year's marketing budget (we think Vonage's projected monthly marketing spend has roughly doubled from this time last year) and the European/international expansion (we think targets for 2005 may include some Pacific Rim territories and possibly a venture into Latin America). In the US market, Vonage is currently buying 1,000 televisions spots per month, and is doing around 500m internet impressions at some very high profile websites, which the company tracks weekly for customer conversion rates. European expansion plans are still evolving, and we think some business development meetings have been taking place this week. A UK launch is expected late Q2/early Q3, with Switzerland to follow, and Mr. Rego claimed to be broadly encouraged by the direction of regulation in Europe so far.
The company is roughly doubling headcount to facilitate the international expansion, though by telco standards it will remain incredibly lean (at 1 - 1.5m US subscribers projected in 2006, Mr. Rego expects Vonage's US operation will only have 1,000 employees). The US business looks to be on track for its target of 300k subs this year, and has added 43,000 in Q1, to stand at 134,000 currently.
ARPU trend
Blended ARPU is now $36, and the company is starting to see an identifiable ARPU contribution from premium features (recall that these carry very high gross margins). Virtual Phone Number penetration now stands at 15% (up from 6% at our last briefing) and the recently-launched softphone is estimated to have penetration of around 2% with no significant marketing yet. Vonage focuses on features as a key differentiator, and the development shop is continually working on new ideas (some of which we heard about but cannot share). The SIP proposition allows most new features to be rolled out completely across the network within a 36 hour period, allowing Vonage (and similar businesses) to structure product and pricing changes very quickly. A case in point is the recently-developed Basic 500 plan, which Vonage refers to as a "non-consumer" package, i.e., it is targeted at households which have cellphones and broadband service (cable), but no PSTN line (this segment was clearly identified as one of the top three spending in the Pew research which we cited in our EuroTelcorama Issue No. 5, and also the most likely to have tried VoIP). Thus, the platform available via SIP allows a service provider such as Vonage to opportunistically attack a relatively small (but lucrative) specific segment of the market relatively easily and quickly. No wonder we are now seeing a number of incumbents embrace this model, particularly when it opens up new revenue recapture opportunities (as in the BT and TeliaSonera adaptations).
The longer view
As for longer term developments, Vonage is currently trialling video telephony devices (we think we're probably 18 to 24 months away from deployment) and a variety of Wi-Fi handsets (some featuring video). Mr. Rego is cautious on the time required for a full migration of voice telephony to IP (his personal estimate was stated at 20 years, though he cited others in industry who think five years may be adequate), though he looked forward to a time in the nearer term when the scale of VoIP (access independent players such as Vonage, as well as access-based players like the MSOs) may be significant enough that the various service providers could adopt a bill-and-keep model for terminating traffic which would go some way toward displacing the PSTN. He expressed enthusiasm for technological and regulatory developments which will diversify broadband access options (naked DSL and Wi-Max were mentioned of course, and powerline in particular seemed to be a key area of interest).
Takeaways
We still think Vonage is one of the best (and certainly the best known) examples of how a disruptive technology can be harnessed and marketed as a common-sense alternative to conventional telephony. Perhaps the greatest validation of its business model is in the plethora of companies in Europe looking to do something similar (we documented two in Germany just last week, and hope to speak soon to a Spanish service provider with some interesting views.) We are curious to see how the company positions itself in the increasingly harsh UK market, where even a conventional CPS service provider like Carphone Warehouse has now taken onboard the free on-net calling practice employed by the VoIP world. Those looking for a Vonage IPO may have to wait some time, because based on our impressions from today, we don't think one is imminent, despite a lot of interest and speculation. However, our EuroTelcorama No. 2 feature on Vonage contained a list of stocks associated with the company in some way, and investors determined to get a piece of Vonage can add to that list 3i (III LN), which led the $40m funding round in early February.
We hosted a couple of client meetings today with Vonage CFO John S. Rego, who provided an update of operations and some other interesting data points which we summarize below. For more detail on the Vonage service, consult our EuroTelcorama Issue No. 2, or email me for a copy.
Canadian launch underway
Vonage launched its Canadian business at 3AM London time today, and had its first two customers within five minutes. Illustrating the thin structure of the network, Canada is covered from three data centers, which took a total of three days to set up. The company has had to re-skin the website in French (the cost per word they quoted to us was extortionate - I'm in the wrong industry!), and customer care will also now have to encompass French (probably good experience for a company looking to tackle the Swiss market).
Financial update
Cumulative capex for Vonage to date stands at around $12m, and elements of recurring costs continue to fall. We think the blended termination rate from telco partners is now nudging below $0.01 per minute based on the traffic growth generated to date (175m calls, 700m minutes), and the hardware involved in the network also continues to offer considerably better performance at lower price points (the IBM blade servers employed by Vonage have halved in price over the past 12 months but offer 150% more capacity). Bandwidth and co-lo costs also continue to trend down nicely. On-net calls now account for 5% (this was 4% during our last series of hosted meetings in October), suggesting that the network effect is taking root, which is beneficial for margins. Customer acquisition costs, as expected, have trended down to the $100 level, compared to over $300 when the product launched nearly two years ago. The company is now strongly profitable at the EBITDAM (EBITDA excluding marketing costs) level.
The $75m financing rounds recently completed will fund this year's marketing budget (we think Vonage's projected monthly marketing spend has roughly doubled from this time last year) and the European/international expansion (we think targets for 2005 may include some Pacific Rim territories and possibly a venture into Latin America). In the US market, Vonage is currently buying 1,000 televisions spots per month, and is doing around 500m internet impressions at some very high profile websites, which the company tracks weekly for customer conversion rates. European expansion plans are still evolving, and we think some business development meetings have been taking place this week. A UK launch is expected late Q2/early Q3, with Switzerland to follow, and Mr. Rego claimed to be broadly encouraged by the direction of regulation in Europe so far.
The company is roughly doubling headcount to facilitate the international expansion, though by telco standards it will remain incredibly lean (at 1 - 1.5m US subscribers projected in 2006, Mr. Rego expects Vonage's US operation will only have 1,000 employees). The US business looks to be on track for its target of 300k subs this year, and has added 43,000 in Q1, to stand at 134,000 currently.
ARPU trend
Blended ARPU is now $36, and the company is starting to see an identifiable ARPU contribution from premium features (recall that these carry very high gross margins). Virtual Phone Number penetration now stands at 15% (up from 6% at our last briefing) and the recently-launched softphone is estimated to have penetration of around 2% with no significant marketing yet. Vonage focuses on features as a key differentiator, and the development shop is continually working on new ideas (some of which we heard about but cannot share). The SIP proposition allows most new features to be rolled out completely across the network within a 36 hour period, allowing Vonage (and similar businesses) to structure product and pricing changes very quickly. A case in point is the recently-developed Basic 500 plan, which Vonage refers to as a "non-consumer" package, i.e., it is targeted at households which have cellphones and broadband service (cable), but no PSTN line (this segment was clearly identified as one of the top three spending in the Pew research which we cited in our EuroTelcorama Issue No. 5, and also the most likely to have tried VoIP). Thus, the platform available via SIP allows a service provider such as Vonage to opportunistically attack a relatively small (but lucrative) specific segment of the market relatively easily and quickly. No wonder we are now seeing a number of incumbents embrace this model, particularly when it opens up new revenue recapture opportunities (as in the BT and TeliaSonera adaptations).
The longer view
As for longer term developments, Vonage is currently trialling video telephony devices (we think we're probably 18 to 24 months away from deployment) and a variety of Wi-Fi handsets (some featuring video). Mr. Rego is cautious on the time required for a full migration of voice telephony to IP (his personal estimate was stated at 20 years, though he cited others in industry who think five years may be adequate), though he looked forward to a time in the nearer term when the scale of VoIP (access independent players such as Vonage, as well as access-based players like the MSOs) may be significant enough that the various service providers could adopt a bill-and-keep model for terminating traffic which would go some way toward displacing the PSTN. He expressed enthusiasm for technological and regulatory developments which will diversify broadband access options (naked DSL and Wi-Max were mentioned of course, and powerline in particular seemed to be a key area of interest).
Takeaways
We still think Vonage is one of the best (and certainly the best known) examples of how a disruptive technology can be harnessed and marketed as a common-sense alternative to conventional telephony. Perhaps the greatest validation of its business model is in the plethora of companies in Europe looking to do something similar (we documented two in Germany just last week, and hope to speak soon to a Spanish service provider with some interesting views.) We are curious to see how the company positions itself in the increasingly harsh UK market, where even a conventional CPS service provider like Carphone Warehouse has now taken onboard the free on-net calling practice employed by the VoIP world. Those looking for a Vonage IPO may have to wait some time, because based on our impressions from today, we don't think one is imminent, despite a lot of interest and speculation. However, our EuroTelcorama No. 2 feature on Vonage contained a list of stocks associated with the company in some way, and investors determined to get a piece of Vonage can add to that list 3i (III LN), which led the $40m funding round in early February.
Subscribe to:
Posts (Atom)
