VoIP Is in Big Trouble

Today’s enterprises have been wistfully gazing at VoIP and all of its super-hyped savings for some time now. For many enterprise CIOs, feigned interest has been the safest route. (“I’ll make sure I know enough about it if somebody asks me about our VoIP plans, but there’s no way I’m rolling that out enterprisewide!”)

And the rather large, unanswered question on many people’s lips these days is this: I thought VoIP would have taken off by now … what’s the holdup?

According to a recent In-Stat report by analyst David Lemelin, just 20 percent of U.S. businesses are currently using VoIP-enabled technologies. And there’s no data streams (that I can see) that show this turtle-pace of VoIP adoption will change in enterprises any time soon. (In-Stat predicts that by 2011 — four years from now — that two-thirds of U.S. business will have some form of VoIP service.) As to the slow pace of adoption in enterprises, Lemelin says that he’s not surprised. “It’s going to take a while because people are so reliant on wireline service,” he says.

In the report, Lemelin states that “VoIP is not typically embraced as the sole source of voice communications for the vast majority of businesses that have adopted VoIP to date.” I asked him on the phone if in his research he was able to ascertain what percentage of U.S. businesses have ditched traditional voice lines altogether and switched completely over to VoIP or other IP telephony-based solutions. “It’s pretty uncommon,” he replied.

One of the chief reasons for this lack of whole-hog VoIP adoption is that most businesses are locked into long-term contracts with the carriers for existing landline service, Lemelin says.

In addition, many enterprises still rely on a traditional PBX (or private branch exchange, the system that directs all a company’s internal phone traffic), Lemelin says, and until their PBX fully depreciates, enterprises are reluctant to make a the switch (and incur more costs in the process) to VoIP. The trigger events for those that want to make a change to VoIP usually come when those lengthy telecom contracts are up or the PBX starts running out of gas.

The wonderfully incisive site Techdirt, whose authors write extensively about technology patents (among other IT topics), asserted in one recent piece that a patent thicket may “destroy” VoIP. The author’s insight didn’t bode well for those heavily invested in VoIP’s future: “A ton of patent holders are preparing to sue over various VoIP-related patents, following the news of Verizon’s big win over Vonage for VoIP patents. The problem, of course, is that tons of companies (some big, some small) all claim patents on various aspects of VoIP — creating the very definition of the ‘patent thicket.’ That is, there are so many patents around the very concept of VoIP that no one company can actually afford to offer a VoIP service, since the cost to license all the patents is simply too prohibitive. Expect plenty more lawsuits in the near future as this all comes out in court. The big players will use their patents to keep out competition, and the small players will use the patents to try to create an NTP-style lottery ticket. The lawyers will all win — but consumers who just want to use VoIP will lose big time.”

Lemelin concedes that there’s a “certain recognition that not everything is resolved” concerning the patent case, and those CIOs and telecom managers sitting on the fence might use the patent uncertainties in this case as a reason to “hold back.”

In another VoIP-related post, Techdirt reported that the now famous Verizon and Vonage patent dispute was “spooking” VCs from investing in VoIP-related startups.

These latest VoIP setbacks add more difficulty to the hurdles that VoIP service providers have had to navigate through, namely: reliability and quality concerns (VoIP demands robust, leading-edge networking and any degradation in service has a major effect on call quality); security concerns (since VoIP runs on networks that can be hacked, denied service and availability, or otherwise messed with); issues regarding 911 emergency call availability (if someone can’t dial 911 because his VoIP phone is down, that’s not good); government regulatory possibilities (those always make for an uncertain and scary future); and the electricity snag (without power, or a backup generator, VoIP doesn’t work).

Lemelin points to the fact that the carriers have been increasing VoIP options into their product portfolios. That’s certainly true. But the carriers are mostly going after residential and small-business customer segments. “They need to start integrating more business-grade solutions into their offerings” in order to crack the enterprise markets, Lemelin says.

At least from where I sit, CIOs (who are the de facto decision-makers on VoIP) don’t seem in any big hurry to embrace VoIP. They’re skeptical, and they see a lot of risk. In fact, I believe CIOs are ignoring VoIP for the exact same reason they are ignoring telecom and networks on a much larger scale. They just don’t seem to care about it, and the status quo seems just fine.

Unfortunately, when you connect all of the aforementioned dots, an ugly picture emerges that does not bode well for VoIP’s future.

Perhaps VoIP is destined not to be the world-beater in businesses that many have predicted. Perhaps it’ll end up as a niche tool that can save a little on CIOs’ telecom spend. Perhaps the telecom goliaths and their protected infrastructures are too immovable, and their dial-tone legacies too ingrained in our psyche of what telephone calls should be.

But something tells me that the one, undeniable allure of VoIP — the siren song of huge cost savings on long-distance calls — might just be enough of a life-saving buoy to rescue this ship that is taking on lots of water right now.