Telio - Still Going Strong

Telio is far from a household name in North America, but if you follow the residential VoIP market - or VoIP in general - they should be on your radar. I've been following them for years, and if this is news, here's what you need to know. They went public about the same time as Vonage, but let's just say the companies have gone in different directions. You can get a taste of this from my earlier posts, such as this one. Since this comparison post from 2006, the song has basically remained the same, and Telio keeps making money.

So, who is Telio? Well, if you do a Google search, you'll discover this is a Canadian fabric company whose website is under construction. Ok, well, let's try Bing. This search turns up a popular Greek restaurant on the the Upper West Side of NYC. Hmm - we're getting colder, not warmer.

If you dig a bit deeper, you'll eventually discover Telio Holding ASA, and that's where your search ends. A profitable VoIP operator based in Norway - who knew?

It's an old story for me, and you'll have to look at my older posts to get filled in, but basically Telio has got the right business model for OTT - over the top - VoIP, and with every passing quarter of profitability, they're proving that it can be done. And for what it's worth, they have some cool looking phones now and have made a strong push into video. I couldn't help noticing their latest phones on display at BroadSoft Connections last week.

I'm posting about them now as they announced their Q3 results a few days ago, and I'm determined to share this before the week is out. The results are not spectacular, and that's exactly what I like about this. They don't need an amazing quarter to get your attention and make you believe the worst is over. There never was any of this - they just continue posting steady growth - isn't that better?

In this economy, I'll take those numbers any day. Revenues are up, profits are up, the customer base is growing, and new markets are becoming established. They also mention making Deloitte's Top 50 Technology list for 2009. That listing hasn't been publicly announced yet, and I can't find it on the website, but I've followed Deloitte's industry lists for a while, and this wouldn't surprise me at all.

Vonage is still with us, but they're not so much in the public eye any more, and they're still struggling to find a niche for long term survival. The market has changed so much since their debut, and I'm not sure if that time will ever come. Telio, on the other hand, has stuck to its plan from the beginning, and they continue to execute with ongoing innovation, nominal marketing spend and a focused value proposition.

Perhaps most important is their ability to enter new geographic markets and grow their footprint. While markets like Holland and Denmark are pretty small, Telio has proven they can replicate their domestic model elsewhere. Just you wait - it's only a matter of time until they set their sights on bigger markets, and if they can scale successfully, Telio will be a company you'll have to follow, not want to follow. Just remember where you heard it first.

Time Magazine's Top 10 Tech Failures - Vonage?

Here's an item that's bound to get a few people going. Top 10 lists are everywhere, and we all know their real purpose is to start a conversation since people rarely agree on these things. On that count, Time Magazine has succeeded. They just came out with a new list - "10 Biggest Tech Failures of the Last Decade". How can that NOT get your attention, right?

I don't normally read Time, but two paths led me here. First was Andy Abramson's post from today. He and I basically agree, and I'll amplify his thought a bit in a moment. The second is my son Max, who for some reason has recently started reading Time. Great to see him following the news of the world, since - like most teenagers - he doesn't read the local paper and hardly watches TV. Your guess is as good as mine as to why he'll pick one form of mainstream media over another, but at least he's reading. That's definitely another topic --- but not now.

Anyhow, their top 10 list is an attention-grabber, and includes some expected flops like Vista, Iridium, satellite radio, and yes, YouTube. Hard to argue with these, but seeing Vonage on that list certainly caught my eye.

I totally agree with Andy that Vonage was a disaster as an investment story, but we would both strongly disagree it was a tech failure. This is how these top 10 lists suck you in - we can't resist when winners and losers are identified in the media. Tech has been a dirty word on Wall Street lately, so we love reading about "failures". Reading over the criteria that define's Time's list, there's a disconnect to me between a company or a product failing and the technology itself failing.

Would Vista be considered a failure? As a product, probably - but Microsoft is doing just fine as a company(arguably), and no one would dispute how successful their desktop OS has been. Sirius XM - no argument there. The company is not a success and satellite radio has not taken over the world. The underlying technology isn't really the story here - it's really about a new business model to monetize radio. On and on we go - it would fun analyzing each one of these, but that's not why I'm doing this.

Let's just move on to Vonage. Has the company been a failure? I'd have to say yes, and you don't have to look far for supporting evidence on a financial basis. Sure, they're still operating, and they just shifted their marketing strategy to voice quality instead of price. It's probably too little too late, but at least they're trying. Has the product been a failure? I would say no. Today, Vonage is a solid, mainstream residential VoIP service. It's not the best, it's not the cheapest, and it's not the most cutting-edge.

However, it's got great brand recognition, a track record, a critical mass of customers, and for consumers, it works pretty well. That's not a failure in my books. As far as pure-play VoIP offerings go, they're pretty much the last one standing in the U.S. While they've probably peaked in terms of subscribers, they wouldn't still have 2.6 million customers - in spite of all the nasty litigation and value-priced Triple Play bundles out there - if the product was not fundamentally sound.

This brings me to the third aspect that defines "failure" - technology. Here's where I would object the loudest and longest. I've followed Vonage longer than almost anybody (and am on record as one of their staunchest supporters). This is where I think Time has got it wrong. When Vonage went public, they owned the residential VoIP market, and had over 50% share for a long while. There is absolutely no doubt they did more than anyone to build the foundation for VoIP in the U.S. I've long called Vonage the Kleenex of VoIP - the two words are synonymous. Without Vonage, we wouldn't have a consumer VoIP market, and guess what, they've outlasted CallVantage.

When Vonage started making noise in 2004, the RBOCs - as they were called then - got very nervous as the media was trumpeting the likes of Vonage as the successors to dinosaur telcos that would make them obsolete. This led AT&T to engage in an aggressive marketing campaign to compete head-to-head with their CallVantage service. A price war ensued, with the incumbents hoping this would drive Vonage out. It failed, and ultimately, AT&T was acquired by one of its offspring - SBC - for an embarrasingly low amount of money. It's a much different story today, but at the time, it sure looked like Vonage was going to kill the telcos. Fast forward to today, and you could argue that VoIP has failed as a technology because for all its effort, Vonage, barely has 3% of the market.

Sure, that's laughable, but if you don't think VoIP is the future of telephony - not just residential - then you probably think Iridium, Vista, HD DVD, and the rest of Time's top 10 list still have a chance. Vonage may have topped out as a market player, but they've long conceded that the cablecos now own the consumer VoIP space. While most of the growth in consumer telephony is wireless, there are still around 90 million landlines out there in the U.S., and there's no doubt that VoIP is going to become dominant there. And guess what - once we get LTE, WiMax, 4G etc. up and running, VoIP will do to mobility what's it's done to landline. I could go on, but I'm sure you get the idea. So, thanks Time for getting my attention, and next time, please be more careful - or consistent - in making these choices.

What to do with Skype?

Big question, and lots of interesting solutions. I've been out of the news loop the past couple of days, but this eBay/Skype story was hard to miss - examples here, here, here and here. Without rehashing the mainstream headlines, it's clearly on the table now that eBay has given up trying to create synergies with Skype, so the focus now is on making the best of things as distinct entities.

The preferred route for eBay would be to keep Skype and recoup their investment via an IPO sometime next year. That would certainly bring an end to things with both parties leaving on a high note. Of course this hinges heavily on the state of capital markets, and the optimist would say that by next year we'll be so fed up with the recession, investors will happily jump into anything resembling a good news story. Skype IS a good news story, and no doubt Wall Street would play this up as the IPO that kick starts tech stocks back to life. If so, Skype could ride this wave a while by validating this space for investors and giving us all a reason to believe that tech stocks can make us wealthy again.

And what do I mean by "this space" anyway? To me, this is where things get interesting. Most people associate Skype with VoIP and PC telephony, and we all know how poorly that "space" has done for investors lately. Don't forget Vonage got first mover advantage by going public ahead of Skype, and contrary to great expectations, their IPO set VoIP back a very long way with investors. I like Skype's prospects a lot more than Vonage, so for those looking for a second chance at the VoIP space, a Skype IPO would be ideal.

However, I see Skype being much more than a VoIP play. I won't deny that's important, but to me Skype is really a Web 2.0 story. Their revenues are built almost entirely around VoIP, but there's so much more potential if/when they can monetize their community of over 400 million users - video, mobile apps, social networking, file sharing, business users, etc. Of course that's a big IF, but think about what that would mean for all those Web 2.0 companies out there with huge communities but no real business models - Myspace, Facebook, Twitter, Flickr, etc. If Skype can show the way, then I could see their IPO being much bigger, not just financially, but providing some validity to invest in all these other stories, which then makes Web 2.0 the next BIG THING.

I'm guessing that's why Niklas and Janus want to buy Skype back. It has to be a good sign when the founders want back in, and they certainly aren't hurting for cash. Joost was their follow up to Skype, and it really hasn't done much - but probably could with Skype back in the picture. Talk about interesting possibilities. Of course, there's another big twist here - Joltid - which appears to be the core technology Skype was built upon. It's a mystery to me why this didn't come with the Skype acquisition - and I'm guessing the Skype folks felt it was too important, and maybe that's turning out to be true now. So, a lot depends on how this plays out, and who will end up with lawful control. I'd have to say all bets are off until this is resolved. If Joltid ends up with eBay, Skype may not be as attractive to the founders, and vice versa should it go the other way.

And then there's the scenario of Skype being acquired by one of the usual suspects - Google, Microsoft, Yahoo. There's a storyline around all these, but for my money, I've long felt Apple would be the best fit, or possibly a Web-savvy company like Adobe. I got to share that view with the BBC yesterday, which was nice, but we'll need a longer conversation to take this further. Back to work...