Report: Google Buys VoIP Startup

Google Buys VOIP Startup Gizmo5 -- Report (Silicon Alley Insider)

Google is now full VoIP provider with purchase of Gizmo5 (Computerworld Blogs)

Philly Area Companies battle for Business Voice over Internet Protocol (VoIP) Market

You can credit companies such as Vonage and Comcast for popularizing Voice over Internet Protocol (VoIP) for residential services. On the business services side, a number of companies are positioning themselves for growth in this market. Although VoIP has been present in many larger enterprises for some time, its adoption in SMEs (small and medium-sized enterprises) has been occurring more recently. Smaller local firms such as Alteva, Evolve IP, and CoreDial are making major inroads, but they will be facing growing competition from larger players such as Comcast, Verizon and Paetec.

Infonetics Research says the worldwide VoIP market reached about $21 billion in the first half of 2009. While the majority of that comes from residential services, Infonetics says that the hottest spot in the market is for hosted VoIP services for smaller businesses. VoIP can provide better voice quality at lower costs, with greater customization and a gateway towards "unified communications". Hosted VoIP services are analogous to Software as a Service (SaaS) or perhaps Cloud Computing, as it eliminates much of the upfront capital outlay and on-premise maintenance on the customer's part and results in greater use of shared resources

Hosted VoIP services provider Alteva, based in Philadelphia, was founded in 2003 by Bill Bumbernick (who also had time to get elected to the East Greenwich NJ town committee last week) and has been profitable since 2006 with minimal outside investment. Alteva's primary service area is the Mid-Atlantic region (they have plans for offices in Baltimore and Wilmington), but it also provides nationwide service to some customers. Alteva targets the SME market (primarily 50 to 500 employees, but some up to 5,000) and currently has more than 40 employees, Bumbernick says. Although Alteva won't release revenue figures, VP of Sales Louis Hayner told Network World in July that sales were 45% higher than 2008 over the first half of the year, after averaging 66% growth over the past three years. Alteva considers its proprietary software and API (application programming interface) to be one of its key competitive assets.

Other significant hosted VoIP providers in the Philadelphia area include Evolve IP of Wayne, which raised $15.6 million in VC funding in early 2008, and CoreDial of Plymouth Meeting, which has received funding from Ben Franklin Technology Partners of Southeastern Pennsylvania and was just ranked as the tenth fastest growing company on the Philly 100.

Generally speaking, the larger competitors own and provide more of the actual networks, while the smaller companies own less of their own networks but specialize in providing installation, services, and software that helps customers configure and manage their telecom services. Some larger telecoms may continue to focus primarily on wholesaling their network services, while others may move closer to providing full solutions to smaller customers.

Comcast, already the largest provider of residential VoIP services, has established a Business Services division with an $850 million annual run rate. In its most significant recent move in the business services market, it acquired Chicago-area CLEC (competitive local exchange carrier) Cimco, which will considerably strengthen Comcast's ability to provide solutions to larger mid-sized businesses with up to 250 employee, according to Cable Digital News. Originally, Comcast served businesses mostly in the 1-20 employee range. M & A activity in the CLEC space is high now, and it wouldn't be surprising to see Comcast make moves in other metro markets it currently serves.

Another factor impacting the industry's future is "Unified Communications", which was once a rather vague concept but is becoming more defined as offerings from Microsoft, Cisco and Google (Google Voice and Google Wave) come to market. Unified Communications attempts to provide users with a common platform and user interface for integrating multiple modes of communications. Alteva is working with Microsoft's new offerings; while these companies may be viewed as collaborators now, at some point they may become powerful competitors.

The state of the VoIP business services industry today is similar to the Internet Service Provider (ISP) business in the mid 1990's. The current emphasis on firms that are locally or regionally focused will shift towards providing a more national footprint to achieve both network economies of scale and standardization of software systems. That shift is going to start happening quickly through M & A, expansion and alliances. However, as this business evolves, the quality of the services and software may be more important than the size of one's network.


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