VoIP Subs Up, But Retail Sales Disappoint

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Millions of U.S. consumers have embraced VoIP telephony, and many millions more are expected to do so in 2007 and beyond, but the "grab and go" retail model pursued by many independent VoIP providers has yet to do much of the heavy lifting.

"I'd say the performance has been pretty disappointing," said John Lostroscio, technology merchandizing VP, Office Depot. "Most people are buying VoIP online."

"Retail is a tough channel for residential VoIP if you're not selling in large volume," said Huw Rees, sales and marketing VP, 8x8. The company plans to maintain its retail program for residential products in 2007 but not expand it. Instead, the company will focus on increasing the retail reach of its Virtual Office small business product.

"It's more of an international market," said Noah Herschman, A/V director, Amazon.com. Herschman noted that Amazon has seen success with higher ticket VoIP phones, like D-Link's Wi-Fi Skype phone, favored by early adopters.

"The service, retail channel and hardware are not yet in sync," said Richard Tosi, president, Uniden. His company will likewise ease its foot off the VoIP promotional pedal, with no new cordless introductions planned for Vonage or 8x8's service.

The disappointment extends to both landline replacement products and to those geared at the PC services like Skype and MSN, Lostroscio added.

Merchandizing VoIP, particularly computer-based devices, is especially vexing. VoIP adapters and routers are typically sold with other networking equipment while cordless VoIP phones and dual mode models that connect to a PC are merchandized along with conventional telephones.

"The challenge is there is no one standard," Tosi said.

For retailers sizing up PC VoIP services, committing to hardware tied exclusively to one provider is difficult because the services are not interoperable. "You have to flip a coin," Lostroscio said.

Interoperability looms as one of the largest inhibitors to the growth of PC VoIP, said Jennifer Simpson, Yankee Group consumer technologies & services analyst. "Most IM clients are proprietary — they want to own the consumer and the friends they're calling."

Another hurdle is merchandizing.

"Everyone is still trying to find the right place to merchandize these products," said Dennis Vogel, product marketing director, Linksys.

"If you just mix VoIP phones in with other cordless phones at retail, they'll disappear," said John Crean, entertainment accessories senior business manager for Philips. Instead, they need to be differentiated with effective point-of-purchase marketing, Crean said.

Those retailers who have been more successful selling VoIP hardware tend to have a sales-assisted floor, said David Goodwin, retail sales VP, Vonage. "It's a matter of bodies."

He added: "I wouldn't say the performance has been disappointing. It's just not the rapid growth we'd seen in the early-adopter period."

Vonage's recently introduced in-store activation service in conjunction with GetConnected is an attempt to boost retail velocity by making the VoIP buying experience more like buying a cellphone, Goodwin added. "We plan on increasing our retail distribution, though not at our previous pace," Goodwin said.

Providers and retailers alike are quick to point out that the dust has barely begun to stir — let alone settle — in the VoIP market.

"We're still experimenting with what hardware and service combination will resonate with consumers," said David Henry, product manager, advanced wireless products, Netgear, adding that Skype-enabled products represent "a big investment area" for Netgear.

"It's still very early for us," Herschman seconded.

The rise of cable-delivered VoIP (which MSOs have assiduously avoided calling "VoIP" in favor of "digital phone") may also drive retail revenue.

"The self-installation model is one that many cable providers are comfortable with," said Jeff Walker, senior marketing director, Motorola.

The country's largest cable provider, Comcast, is currently selling its digital voice through Best Buy and CompUSA, and marketing VP Tom White is bullish about moving voice as a part of the triple-play bundle through retail. "We would like to see it on par with high-speed data services sold through retail," he said.

"We've seen VoIP providers spend a lot of time emphasizing brand-building strategies — now we see them shifting to more customer education," the CompUSA spokesperson said.

"The good news is that people come into stores to handle new technology," Lostroscio said. "We have to demonstrate how VoIP fits into convergence. There's always a play for retail."


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