Yesterday, both Mark Evans and Om Malik commented on the latest report from Frost & Sullivan on the North American residential VoIP market. They refer to the press release that gushes about the "phenomenal growth" forecast for VoIP by this report.
So, while Information Week runs a very upbeat story on the research findings, Om and Mark correctly point out this growth story isn't very exciting at all, and if anything, it just confirms the view that VoIP will never amount to much more than a cheap second line service that may only achieve single digit penetration of the overall landline market. As Mark says, "ouch!".
So, is the glass half empty, or half full?
I actually share both points of view, but for different reasons. First, some background. For four years, I was the VoIP Program Leader at Frost & Sullivan, and I left this March to go back to independent consulting in the IP space. The just-released Frost report is an update to the initial report I authored for Frost back in April 2004.
I have not seen the new Frost report, so I can't comment on the methodology or assumptions used to generate the numbers. Looking at the numbers in the press release, I can see why Om and Mark aren't getting excited - by 2010 the N. American residential VoIP market will hit $4.1 billion. I agree, that's not very much.
Unless you have long memories, my version of events was a bit different. My Frost forecast last year had the market hitting $5.4 billion by 2008, which is a rosier picture. Not a great story, but a good story in terms of growth. I'm only mentioning this because the current report must be seeing something I didn't see for such a downward revision to come so soon. I can't really explain why Frost sees the market being so much smaller now, but that's not my concern. Looking at either forecast, the conclusion is still pretty much the same - the glass is half empty.
Not knowing what went into the current thinking at Frost, the analyst in me feels compelled to defend my thinking, which really hasn't changed since last year. Aside from a revenue forecast, my 2004 report also showed the market reaching about 18 million VoIP subscribers by 2008. Subsequent forecasts from other analyst firms such as Yankee had subscriber numbers that seemed uncannily similar to mine. I still see this 18 million number being used, so it must still hold credence out there. However, many of the other analyst firms had better PR machines than Frost, and this number is almost always attributed to these firms, even though my forecast came out months before the others. Sorry folks, I had to get that in to make my point. I'm not doing this to dwell on history or comment on the work of other analyst firms. I'm just using this as a proof point to say that I think my numbers from 2004 hold up pretty well.
OK, so where is this going? Well, I'm doing this to get to the "glass half full" side of the argument.
I don't expect Om or Mark to remember my study, and again, I don't know what went into the current Frost report. That said, I now want to put a postive spin on things. The press release that Info Week picked up on that report had a glowing view of the market, but absolutely no context to explain why. Whether the number is $4 billion in 2010 (yeesh!) or $5 billion in 2008, it's not that big a piece of the telecom pie. So, I with Om and Mark on that one.
When I wrote my report, I explained that the numbers did not take a number of key factors into account. I called these wildcards, and they could go a long way to making these numbers bigger.
- the emergence of WiFi/WiMax for VoIP
- impact of peer-to-peer - Skype Out/Skype In was months away when my report was written
- the adoption rate of broadband penetration
- Microsoft's participation in VoIP to leverage SIP support in XP
Of course other factors could kill the business, such as regulatory changes, 911 issues, network outages, etc., but I think the good things far outweigh the bad.
On top of this, we're not even talking about the adoption of VoIP in the enterprise market, or where things will go once Google, Yahoo, MSN, etc. figure out their go-to-market VoIP strategies. Once the big players are all in the game, things can get a lot bigger, and a lot faster.
Of course, adding all these elements to the mix will alter how we define and measure the VoIP "market", but any way you cut it, I think the market will be way bigger than $4 billion 5 years from now.
So, to come back to Om and Mark, I'm hoping you see what I see for the glass being half full!
I'd love to hear what you think out there in blog-land!