No business model for standards-based VoIP

Clay Shirky gives us his excellent VoIP – Plan A vs Plan B article, where Plan A is a telco-clone provider (such as Vonage) and Plan B is a more radical alternative, in this case Skype.

Clay makes it clear that Skype is only a metaphor for the Plan B model, but today the only practical Plan B option is Skype. That’s what people are using and some people have become quite zealous in their Skype fervor. Clay says:

The incumbent local phone companies — Verizon, SBC, BellSouth and Qwest — have various degrees of interest in VoIP, but are loathe to embrace it quickly or completely, because doing so means admitting to everyone — shareholders, regulators, customers — that both monopoly control and artificially high voice revenues are going away.

On the monopoly control issue, Clay fails to mention that the Plan B Skype option is a monopoly too, and a totally unregulated one. Skype is a closed proprietary system under the control of one private venture capital funded corporation. Skype runs on one platform and one operating system. It does not interoperate with any other products and no other vendors currently offer Skype protocol-compatible software or hardware. No vendor may do so without permission of Skype.

Obviously, real users don’t chose standards-based solutions for open-standards sake alone. There must be some more compelling reason for selecting a standards-based option over a proprietary option. This is what I call natural value.

There are many arguments in favor of standards-based solutions with perhaps the most obvious being multivendor interoperability, giving users a choice in vendors. The natural value of standards-based solutions often win out in the end. A few examples in which standards-based solutions totally obliterated their closed-proprietary competition include:

  • 802.11b that rapidly supplanted all other wireless LAN products
  • CCITT fax (yes, there used to be proprietary competitors)
  • Internet Protocol (instead of IPX, Netbeui, Lantastic, etc.)
  • Internet email (replaced closed systems like Lotus etc.)

There are many historical cases of customers becoming locked in to a proprietary solution and subsquently being milked mercilessly by a vendor. Despite this and other seemingly obvious risks of adopting proprietary solutions, users seem to still do it with some abandon. Consider Instant Messaging where proprietary and non-interoperable solutions such as AIM, MSN, and Yahoo! hold a 90 percent share.

So why did standards-based solutions work for Wi-fi, email, and countless other applications, but fail for IM? And where does that leave us for VoIP? Are we simply going to move from one proprietary monopoly (the telphone companies) to another (Skype/Kazaa)?

I don’t begrudge people that use Skype. I am however disappointed that we don’t yet have an open-standards based alternative. Despite the hype from the Skype/Kazza folks, we could build an open-standard interoperable Skype-like application using SIP today, but what would be the motivation? Who is going to pay for it? Skype can fund the development of their application because they know they can apply the old monopolistic squeeze when the time is right. And Skype CEO Niklas Zennstr´┐Żm will have to do that when his investors, folks like Bessemer Venture Partners and Mangrove Capital Partners, put the squeeze on Skype. Those guys don’t invest for the public good — they expect a return in cash.

There is some hope. People do like open systems for their extensibility too. I note that a frequently recurring theme of questions on the Skype support forums are those along the lines of “Where is the API?”

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