Demos Called Key To VoIP's Retail Success

New York — The three keys to merchandising VoIP at retail are education, education and education, according to service providers, vendors and retailers.

Call-quality issues have been vanquished, but there is still a lingering perception among consumers that VoIP call quality is inferior, said Huw Rees, 8x8's sales and marketing VP. “Once people hear a VoIP call, they're shocked at how good it is,” added Bob Laikin, chairman/CEO of distributor Brightpoint.

Harking back to a strategy used by some retailers when AT&T gave up its monopoly on landline-phone sales, CompUSA has dedicated space to demonstrate working phones from Vonage and 8x8 to show customers how VoIP works and let them place calls directly in store to anywhere in the world, said Brian Woods, Comp-USA's merchandising executive VP.

While initially skeptical about how well VoIP would sell, Woods said he has been pleasantly surprised by the results. “We thought with all the complexity there would be confusion.”

“The biggest concern people have is: 'Does it work like a regular phone?'” he added.

Vonage senior sales VP Matthew Deatrik said the company “recognized the value of educating customers in the retail environment where choice is the prevailing goal.”

Vonage's multimillion dollar national ad push has been cited by numerous service providers and hardware vendors as almost single-handedly elevating the public's awareness of the category.

The retail channel still represents only a sliver of the total VoIP business, and VoIP itself represents only a sliver of the total communications business, but both segments are growing. Overall penetration for residential VoIP service increased to 3.5 percent, or nearly 3.9 million, U.S. households in January 2006, up from 2.9 percent in June 2005, according to research company Telephia. The company's latest survey of VoIP sales channels, completed in 2005, pegged retail channel sales at 10 percent of the market — though the survey did not cover the cable or telecom company services.

“We have been somewhat cautious entering the retail channel because it is expensive in both time and resources, but we hope to reach 20 percent of our sales through retail,” 8x8's Rees said.

How consumers will purchase their VoIP service is still an open question,” said Kanishka Agarwal, Telephia's new products VP. In the days of landline service, the direct-sales model was king, Agarwal said. In the cellular era, retail was ascendant, particularly carrier-direct stores. VoIP, however, occupies a gray area, Agarwal continued, with many of the major cable providers billing it as a “digital phone” and selling it direct, and start-ups like Vonage and 8x8 billing it as VoIP and leveraging national retail chains.

Still a third category of PC-based services like Skype and Yahoo! Instant Messenger have further muddied the waters: They're generally free for consumers to use, but a host of hardware makers have jumped into a burgeoning accessories market attracted by the vast user base. Siemens, Uniden, VTech, Panasonic and Motorola have all announced products designed to place calls through a PC using either Skype or an instant messaging service.

Given the Internet's centrality to VoIP, e-commerce plays an outsized role in the market, as consumers turn to the Web for research and to sign up with providers directly. “Ninety-five percent of consumers say they've learned about VoIP online,” said Curtis Schmidek, RTX's marketing VP.

One key retail challenge centers on how to merchandise VoIP. Because the service can travel across several devices — cordless phones, USB handsets, adapters, modems and broadband routers — VoIP products can sit on a number of shelves. Since the VoIP-enabled cordless phones arrived later than the routers and adapters, VoIP has principally been sold with the networking equipment.

“We sell it with networking because that's the backbone” of the service, Woods said.

RTX, which is selling a Skype-certified cordless phone, has encouraged a “computer-centric” link, but “ideally the product would be with both the cordless phones and computers, Schmidek said. ZyXel, which is selling a Wi-Fi handset through Office Depot, prefers to see VoIP treated “as a regular phone,” said product manager David Thomson.