Long Term Impact of Voice over IM

If you took things at face value, then the recent fad of adding voice to the “instant messaging” clients is nothing but Silicon Valley’s version of keeping up with Jones. Yahoo (via DialPad acquisition), Microsoft (via Teleo acquisition), AIM, Google Talk and Apple’s iChat are taking a cue from Skype and giving their users to have free PC-to-PC calls.

Over a long term, these announcements add to what is continuing trend that is commoditization of voice. If Vonage introduced the phone world to flat rate plans, then Skype was largely responsible for micro-slicing the phone revenues. Voice over IM takes it one step further. Makes voice free! Yahoo and MSN hope this translates into consumer stickiness, while Google, one day hopes to attack contextual advertising to their voice. (And some day they want the voice IP stream to be searchable just like text.)

Sure for now only the PC owners, that is largely the developed world which already enjoys some of the lowest telecom tariffs gets to reap the benefits of this trend. However, in the longer term, the evolution of newer “thin clients” that fit into the emerging economy lifestyles will also start to use voice for free. As a word of caution, it is not going to be today, or tomorrow or even two years from now. This is a long drawn out process, that should take somewhere between five to ten years. But like a big lumbering boxer, who has taken many a few punches, its going to slowly slide before hitting the deck.

There are a handful of reasons for that. If you took into account the current user patterns, no one except Skype is getting meaningful “voice” traffic. (That’s because Skype is viewed as a free voice service with IM features, and not the other way around.) However, as many of the younger users start to get comfortable with Voice over IM, the voice traffic over IM networks is going to increase. Microsoft’s XBox Live, where trash-talking over the network using headsets while playing Halo (and/or other games) has gone through a similar slow-but-steady growth curve. I think we are going to see similar adoption and usage patterns for the Voice-over-IM services.

When that happens, these Voice-over-IM services will start to siphon off minutes away from what is the traditional telephony – be it fixed line telephony or wireless/cellular telephony. This siphoning away of minutes is a bigger threat to the per-minute business models that say Vonage. It attacks the incumbents where it hurts the most – on ARPU. They can easily counter by reducing their spending on cap-ex, adopting IP-technologies, but they will be tilting at the windmills. Even new voice gods, Skype, is feeling the heat, and is slowly seeing its growth slow down.

Over a longer term, what this trend of constant commoditization of voice, will manifest itself in a whole new meaning of “voice.” Last year, in my Business 2.0 article, Voice over the Internet, I had pointed out that voice would soon become an embedded feature in most applications. We are simply starting out with the “instant messaging clients.”

+ Incredible Importance of Instant Message Clients
+ Telecom’s continuing death spiral.
+ Skype’s Numbers Game