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Telecom, Meet Web 2.0

image Google (GOOGappears to be buying GrandCentral, a company that merges VoIP and advanced calling features. They provide you with a single phone number and web/mobile interfaces to manage call redirection, voicemail, address books, etc. Think of it as VoIP on steroids and EPO, simultaneously. Click over to their Features page for a better description and familiarize yourself with how outdated a plain landline has become.

This acquisition is exceptionally interesting because it clearly shows Google recognizes the vulnerability of the Telcos bread-and-butter voice and long distance business and intends to capitalize on their failure to deliver incremental value.

Note: ‘Telcos’ in the context of voice services applies to any provider of simple landline voice service, whether Cable (like Comcast (CMCSA) ) or copper based Telco (like AT&T (T ) or Verizon (VZ). I view the ‘war’ between Telco and Cableco as increasingly irrelevant as both are fighting for a rapidly depreciating and irrelevant asset – POTS and long distance voice minutes. (see “Comcast: Party like it’s 1999“)

The greatest voice feature from the Telco establishment in the last 20 years was Caller ID. Your teenage daughter might argue Call Waiting is more important, but then again she probably hasn’t used a landline since she became a teenager, preferring the vastly superior features of a mobile phone or IM client.

In the meantime, the Telcos have completely failed to implement any evolutionary or revolutionary improvements based on VoIP. Upstarts like Vonage (VG) have impaled themselves on the lance of the incumbents while running up huge customer acquisition costs. You would be correct in saying that VoIP has been a consumer success and a commercial failure.

The big guys like Google, Yahoo (YHOO), and yes, even Microsoft (MSFT) don’t have the same problem. They have deep pockets and more relevant marketing platforms than the Telcos themselves – their email and instant messaging platforms. Voice is a natural extension of their business.

Their offerings up until today have focused on computer to computer connectivity and address the most cost sensitive and technically savvy customers of the telephony market. GrandCentral type services are a big step up the value chain and offer much higher value than the home phone I pay $50 a month for. They are also dead simple to use.

I just do not see how this ends well for the Telcos, whose oxygen is derived from overcharging for landline service, a service that is vastly superior and cheaper when provided over VoIP. Telcos are great at innovating the pipes (digital switching, digital voice, SONET, DSL, FiOS) they are awful at innovating with features. Just ask your teenage daughter.

Author owns no positions in companies mentioned. And keep the jokes about Microsoft as Phone company to yourself, as my readers should have sufficient imagination there.

Discussion

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  1. Good write up!
    Lots of people do not understand the idea behind services such as Grand Central. The telcos thought that VoIP was their biggest competition and they’ve done all they can do to kill them off (Verizon vs. Vonage).

    You are right that my phone service hasn’t changed much over the last twenty years, yet the telcos are trying to nickle and dime me on features that are relatively useless. I think people are ready to purchase features for their calling service now. Not just lame features but sophisticated features. I guess Google might have the vision to see this as an opportunity to make your phone call more than what it can be.

    I can see that the next twenty years I’ll still be making and recieving calls very much the same way I do now and years past, but the difference will be that besides picking up the handset and talking… I’ll be given a menu of options before I talk.

    Posted by Ned Plimpton | June 26, 2007, 10:27 PM
  2. VoIP is not the threat, it is the platform for the services that are.

    There is no reason why the Telcos cannot implement this strategy themselves, particularly AT&T and Verizon who can integrate their wireless arms.

    Others are taking the initiative in the absence of their action.

    Google isn’t invincible, but they do take risk. That is the only advantage they need.

    Posted by Andrew Schmitt | June 27, 2007, 9:47 AM
  3. I still like picking up the good ole POTS phone. It rings, I pick it up, it works, and its clear.
    Even though it’s a Digital Phone by Time Warner Cable.

    Do we need to make a phone call complicated now?

    Posted by Ed Raker | June 27, 2007, 10:27 AM
  4. The telcos understand their dilemna here. Many of them believe their solution is IMS, which promises to deliver on all the application features that the Telcos need and consumers want. The problem with IMS is the cost and complexity required to deliver on this promise.

    Posted by Albert Lew | June 28, 2007, 9:40 AM
  5. It would be nice if their feature set could include also faxing.

    Posted by reuben gaz | July 5, 2007, 1:16 PM
  6. Fax? What is this ‘fax’ you speak of?

    Posted by Andrew Schmitt | July 6, 2007, 7:54 PM
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