The telephony marketplace

OK, here's another example of strategy playing out against the background of a product life cycle. You know the cycle - invent or buy into product or a marketplace, get it adopted, grow it, proliferate it, others copy it, they make it cheaper and better, you decide between volume or innovation or a balance of the two, you battle your competitors, make a good profit, find even more competitors sniffing out your profit, get bigger volumes, drive lower costs but profit stagnates and - bloody hell, is it worth it? Is this sustainable, or should we get out now and put our money elsewhere? Or do we innovate? Maybe diversify? Choose to lose the battle and shrink the company? Sell out to a winner (ie consolidate)? Become a niche player and nibble at the profitable edges? And so on until the product either becomes seemingly entrenched in a long-running war between a small number of big players (firstly think Coke vs Pepsi, and now think about how both Coca Cola and Pepsi have diversified their portfolios) or it dissolves into niches before disappearing.

The example? Telephony. Infoworld reports how Avaya is fighting back against VoIP in the smaller business arena by joining in with a solution that bridges the customer from small scale to larger PBX system. It's worth a look.

So, here's my brief analysis of the Telephony market. Firstly, pigeons. Then snail mail. Then telegraph. Lots of wires strung around the place. Then the telephone leverages the wires. It catches on, gets cheaper. It proliferates. Big players gobble up smaller ones. In some places it becomes a public utility monopoly, in others it's always commercial but is regulated to ensure some degree of competition. Better electronic switching technology drives down costs, allowing for less capital investment, more automation, fewer workers. The market saturates - everyone has a phone and most business a PBX of some sort. We see an innovation from within - mobile (cell) phones come along that use wireless transmission and the market accepts lower quality voice transmission for the convenience. All is under control of the big players until...

Along comes another technology, this time from left-field - data packets that leverage the wires. This technology proliferates and connects computers rather than telephones over the same wires and later wirelessly. The snail mail market is the first attacked - by email. Then email is attacked by instant messaging. All remains well in telephony - but uneasy - until this new player starts transmitting voice using these data packets. But the quality is awful when compared with dedicated analog voice circuits. But as the quality of VoIP improves it becomes clear that this will severely undermine every part of the telephony business. The new competition offers software based switching (effectively replacing PBXes), good voice quality and integration with instant messaging and low cost of entry. New players emerge from other industries taking bites out of the telephony market. Network world reports on one of these (Virgin Megastores) here. It's so easy to do that any retailer (for example) can buy into the VoIP market and take a share of the telephony market - right now.

Where do you think this will lead? The Telcos still provide most of the wires and wireless infrastructure but it is now being used by others to replicate telephony services on computers. And to integrate that with new services like video blogging and video chat. Some would say that Telcos are happy to be gate keepers and collect tolls on their systems. Some may say that the cheap internetworking of Wifi and WiMax services will undermine even that cash-producer. Will Telcos jump in (as some have already done) and embrace the digital convergence? Or will other players from the left side of the field now gobble them up?