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.