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Voice Over Internet Protocol (VoIP)

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    Voice Over Internet Protocol (VoIP) “Crossing the Chasm”

    MKTG 6525

    E-Commerce and High-Technology Marketing: Strategic and Cultural Considerations

    Prepared for Professor Detlev Zwick

    Dante Cardenas Jaspal Dhillon

    Joseph George Aashish Jain

Table of Contents

    EXECUTIVE SUMMARY ................................................................................................................................... 2 INTRODUCTION ................................................................................................................................................ 3 TECHNOLOGY OVERVIEW ............................................................................................................................ 4 ADVANTAGES .................................................................................................................................................... 4 DISADVANTAGES ................................................................................................................................................ 5 CULTURAL AND SOCIAL IMPACT ................................................................................................................ 7 REGULATION .................................................................................................................................................... 8 MAJOR PLAYERS .............................................................................................................................................. 9 SKYPE ................................................................................................................................................................ 9 VONAGE CANADA .............................................................................................................................................. 9 ROGERS ........................................................................................................................................................... 10 YAK ................................................................................................................................................................. 10 LESSONS FROM OTHER TECHNOLOGIES ................................................................................................ 10 RESEARCH IN MOTION AND THE BLACKBERRY .................................................................................................. 11

    Implications ................................................................................................................................................ 13 FUEL CELL TECHNOLOGY ................................................................................................................................. 14

    Implications ................................................................................................................................................ 16 ERICSSON AND 3G ............................................................................................................................................ 16

    Implications ................................................................................................................................................ 16 CONCLUSION ................................................................................................................................................... 17 APPENDIX ......................................................................................................................................................... 20 APPENDIX 1 CUSTOMER MENTALITY AND REQUIREMENTS ............................................................................... 20 APPENDIX 2 SKYPE PRODUCT PROPOSITION .................................................................................................... 21 APPENDIX 3 VONAGE PRODUCT PROPOSITION ................................................................................................. 21 APPENDIX 4 ROGERS PRODUCT PROPOSITION ................................................................................................. 22 APPENDIX 5 YAK PRODUCT PROPOSITION ....................................................................................................... 22 BIBLIOGRAPHY .............................................................................................................................................. 23

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Executive Summary

    Voice Over Internet Protocol (VoIP) is a telephony technology used to transmit ordinary telephone calls over the Internet. VoIP takes analogue audio signals and turns them into digital signals (packets) that are transmitted using Internet Protocol (IP) networks. VoIP‟s advantages

    include low cost, flexibility, and mobility. Conversely, VoIP‟s disadvantages include sound

    quality such as latency (delay), jitter, and packet loss. VoIP has a number of cultural, social, and regulatory impacts that solution providers must consider when marketing their services.

    The major players in the VoIP market in Canada are Skype, Vonage Canada, Rogers, and Yak. Each player has its own separate marketing mix; however the majority are mainly targeting the technically savvy and small business niche segments. Even though the mass market is the ultimate goal for these players, much of their current business is found within these segments. Therefore, in order for the technology to cross the chasm from the niche to the mass market, the industry would do well to learn from other technologies that were in a similar position. For example, RIM‟s Blackberry gives suggestions on how to properly market to your target segment. At the basic level, it is to fulfill user needs and wants. However, it also includes fulfilling needs and wants that are sustainable for the solution provider (i.e. not just a low cost solution). In addition, the Blackberry also teaches VoIP providers the importance of using the purchaser vs. influencer model and the development of key partnerships to increase adoption. Fuel Cell (FC) technology has important lessons for VoIP providers in terms of the marketing message. FC technology shows that in order to reduce the appearance of risk in adopting a new technology, communication, education, and customer involvement are critical. Ericsson and 3G highlight the need for a complementary set of goods for the core technology. Overall, the implementation of these factors is vital for VoIP to “cross the chasm”.

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Introduction

     VoIP is a revolutionary new technology that could bring dramatic changes to the telecommunication landscape. However in terms of consumer adoption, the technology is at a crossroads and it is unknown whether it will be able to cross it. Author Geoffrey A. Moore has defined this crossroad as a “chasm” which has been successfully adopted by early adopters, but

    the late adopters are still left to be converted. The chasm can be described as follows: Figure 1 The chasm

    The set of individuals involved in each stage have their own set of requirements and mentality towards the technology. To get a greater understanding of these customers mentality and requirements please refer to Appendix 1. The purpose of this paper is to give insights and recommendations into how VoIP providers can go about successfully crossing the chasm.

     The paper starts with a technical overview of VoIP which includes the advantages and disadvantages of the technology. The second part highlights the cultural and social impacts and the regulatory issues that VoIP providers have to consider when marketing the solution. The

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    third section gives a brief introduction into the major players in the Canadian marketplace and their individual marketing mix. The next part discusses other “chasm” technologies and the lessons VoIP can learn. Finally, the conclusion gives final recommendations for VoIP providers to take in order to cross the chasm.

Technology Overview

     VoIP is a new form of communication that takes analogue audio signals and turns them into digital signals, or packets. This is an innovative alternate to the traditional circuit-switched method of telecommunication, where a dedicated circuit between two parties is maintained. In order to set up a traditional phone call between two telephones, the switched and the intervening network establish a dedicated route from one end of the call to the other. Conversely, VoIP uses a packet-switched method where audio signals are converted into digital data at the originating end, which is then transmitted over the Internet and converted back to analog signal at the receiving end. In other words, VoIP digitizes voice, inserts the digitized data into discrete packets, and sends them over the IP network. The packets have a destination address, but no fixed path through the network. The packets arrive at the address, where they are put back together and converted back to analog audio signals. VoIP integrates voice and data communications and turns any Internet connection into a phone call. VoIP is a revolutionary technology that has the potential to drastically change the way people communicate and talk on the phone around the world.

    Advantages

     VoIP has a number of advantages. First, the major advantage is related to cost. VoIP has tremendous savings potential for anyone who communicates over long distance. For instance in a corporate environment, the cost for leased lines no longer exist if phone calls are transmitted

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    over the Internet. In addition, if an employee moved to a different location within the same office using a regular phone system like the Public Switched Telephone Network (PSTN), fees would be incurred in that move. To make such a move with a VoIP system, however, employees would only need to plug their IP phones into their office‟s Ethernet jack, with no extra cost. A

    1digital private branch exchange (PBX) system already provides for the integration of traditional

    telephone services and thereby eliminates the aforementioned costs of moving. Secondly, flexibility and mobility are also utilized with the adoption of VoIP. Individuals can simply plug in their laptops, access the Internet, and talk on the phone, potentially improving organizational communication and customer service. In terms of customer service, VoIP has some advantages. Using VoIP‟s capabilities with different enterprise software, when a customer calls they can be

    routed easily to whom they want to talk, and the service representative will have easy access to pertinent information that will improve customer service.

    Disadvantages

    VoIP also has its share of disadvantages when compared to the functionality of PSTN. A major disadvantage of VoIP is that it is a new technology. As a result, the long-term benefits and risks are not yet known. These risks include unknown service life of hardware and infrastructure,

    The factors that affect the sound quality during and details surrounding reliability and quality.

    2transmission include latency (or delay), jitter, and packet loss. In terms of latency, human ears

    can withstand a delay of 150-250 ms and not be able to notice the delay. The PSTN meets this standard with a nominal delay of 150; however, VoIP cannot meet this standard of delay for a

     1 PBX is a private telephone switch that provides switching (including a full set of switching features) for an office or campus. PBXs often use proprietary digital-line protocols, although some are analog-based. 2 Hui Min Chong and H. Scott Matthews. “Comparative Analysis of Traditional Telephone and Voice-over-

    Internet Protocol (VoIP) Systems”, IEEE

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    34 Jitter is defined as the variability in packet arrival at the destination. consistent period of time.

    Voice packets are transmitted over the same IP network as normal data packets and therefore voice packets have to compete for bandwidth with data packets. When a situation arises whereby there is a burst of network traffic (mostly in the form of data packets) voice packets arrive at sporadic times to the destination. The consequence of sporadic arrival time of the packets is sound distortion at the receiver‟s end - jitter. Lastly, the issue of packet loss occurs

    when voice packets that are transmitted over the network do not arrive at the destination. Along the same lines as the causes of jitter, the IP network is to blame for this drawback because it does not guarantee delivery of any packets (data or voice). The consequence of packet loss is distortion at the receivers end as sounds and words may actually never reach the receiver.

    With regards to availability, VoIP must meet the “five nines” availability demanded of phone services (i.e. VoIP must be available at least 99.999% of the time). A common misconception is that VoIP will have lower dependability and availability than standard PSTN systems because of power failures, internet service provider „down-time‟, security issues, etc.

    Nevertheless, it is has been demonstrated that it is possible to build VoIP systems that are more reliable than circuit based PSTN platforms. Adaptive routing ensures that packets reach their designation using multiple network lines.

    Overall, the disadvantages of VoIP are not significant enough to hamper its ability to compete with traditional PSTN. In addition, advances are being made for the technology to get over some of these stumbling blocks. For example, the problem of jitter has been shown to decrease by using specialized gateways that determine whether large network data bursts are currently affecting throughput and the gateway adjusts to decrease jitter. The technology has

     3 Hardman, Dennis. “Noise and Voice Quality in VoIP Envrionments.” Agilent Technologies 4 Ibid.

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    matured to a state where major players are now offering VoIP solutions as alternatives to traditional telecommunication solutions.

Cultural and Social Impact

     The cultural and social impacts are important in order to understand the customer base and must be taken into account in order to increase market penetration. VoIP brings in a change of social behaviour patterns similar to that of text messaging on mobile phones. Individuals can take their VoIP connection along with them as long they have a broadband connection available at their location. In addition, the long distance VoIP charges are cheap enough to open up new market segments such as small businesses, students, teenagers, and even children. For example, youth TV channels could adopt VoIP and video streaming to deliver interactive shows to youth. The availability of new products and services which leverage the use of VoIP will be a major driving force in increasing adoption of VoIP by the general public.

     Security offered by VoIP systems vs. traditional phone systems is still an issue. This will affect the confidence of the users in adopting a VoIP system, especially in a business environment where confidential matters may be discussed. Also, other risks and fears of adoption include complicated installation, and the threat of viruses and hackers. These fears and risks must be addressed in order to improve the likelihood of adoption.

     As work groups continue to become distributed across several time zones, they increasingly need to interact and conduct business in a virtual environment. Studies have revealed that alternative method of communication such as email is not very effective for bringing people together. The combination of instant messaging with VoIP has been found to be very effective in such situations. The addition of “presence awareness enables employees to

    show whether they are online or offline. These visual clues enhance productivity by letting

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people “locate and connect” with people when they have to resolve a problem in real time. The

    availability of a VoIP service tied to the instant messenger really helps distributed teams connect with each other. It also allows users to be available to their coworkers wherever they are.

     Finally, people also tend to be online during their non-work hours. The availability of VoIP and instant messaging gives them a chance to overlap work hours with their peers in another time zone, and thereby increase the overall productivity of the team. The factors above play an important role in understanding the cultural and social factors (i.e. virtual teams) driving the current wave of early adopters and the factors (i.e. security) that will affect the next wave of adopters. The marketers who are able to capitalize on the trends and mitigate the risks for the end user will be the most successful in the end.

    Regulation

     The effect of regulation on how VoIP providers market their solutions is important. On

    thApril 7 2004, the Canadian Radio-television and Telecommunications Commission (CRTC) provided preliminary views on the regulatory issues surrounding VoIP. The commission stated that voice communication services using IP that provide access to PSTN and utilize phone numbers that conform to the North American Numbering Plan have characteristics that are

    5functionally the same as circuit-switched voice telecommunications services. As a result, the

    existing regulatory framework and tariffs should apply to VoIP. Although long distance phone calls are currently free using VoIP, the CRTC might implement charges and taxes which will result in an increase in price. The players offering VoIP solutions have to consider these changes to the regulatory environment when marketing the solutions. The views of the CRTC show that

     5 Canadian Radio-television and Telecommunications Commission. Regulatory Framework for voice communication services using Internet Protocol. April 7, 2004.

    http://www.crtc.gc.ca/archieve/ENG/Notices/2004/pt2004-2.htm. Site accessed October 11, 2004.

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    providers cannot market VoIP as a low cost solution forever. The long term sustainable benefits of VoIP have to be conveyed to the end user in order to extract as much producer surplus as possible.

Major Players

     In order to understand the Canadian marketplace for VoIP offerings, we took a representative sample of the major players Rogers, Yak, Vonage Canada, and Skype, and analyzed them in terms of the 4P‟s (price, promotion, place, and product). In general, we found

    similar methods of place (i.e. online) and promotion (i.e. word-of-mouth) strategies to target their key customer segments: technically savvy and corporate customers. For a further comparison, please refer to the overview below and added appendices.

    Skype

     The Skype service is used normally to maintain a conversation between 2 and up to 5 people using a computer. It does not require any additional hardware except a computer, broadband internet connection, speakers, and a microphone. Skype is used extensively in Europe and Asia by technically savvy end users. In addition, it is being used by teams of employees that are geographically based in different locations.

    Vonage Canada

     Vonage Canada is an early pioneer into the Canadian broadband phone industry. It is setting the standard for pricing, features, call quality, and reliability for the entire VoIP category. Vonage's award winning service is sold online and through national retailers like Office Depot, CompuSmart, Best Buy, and Future Shop, etc… In order to access this service, the user needs a

    broadband internet connection and an analog phone. Vonage supplies a phone adapter so users can use their analog phones without any additional change. Furthermore, the firm provides both

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