Go away, young entrepreneur: IP voice pioneers don't die; they reorganize

Describing eFusion's new strategy takes some delicate use of the English language. The Beaverton, Ore.-based company, which inked a deal with U S West to provide Internet call waiting software, is biting the proverbial hand that feeds it by becoming an application service provider.

"I'd say it was a bit of a gutsy move," said Jeff Gaus, vice president of marketing for eFusion. "We don't believe that the telcos have delivered to the masses. In November, we went to our largest customers and told them. It was a pretty hard message to deliver, but it was the right thing to do."

The move looks relatively normal in the voice-over-IP market. Since late last year, many IP telephony industry pioneers have realigned business units, reorganized or simply given up on selling systems to larger carriers.

The change can be attributed in part to natural market evolution. When the technology shifted out of the hobbyist phase and into the Internet telephony service provider market, small start-ups were well-equipped to support it. Product demand and line counts remained relatively low, while unstable standards suited suppliers that could turn on a dime.

As the technology matures, many of those vendors find themselves competing with industry behemoths such as Cisco Systems, Lucent Technologies and Nortel Networks, all of which have long-standing relationships with the largest carriers. At the same time, the big carriers with years-long sales cycles are demanding complete end-to-end solutions and not simple gateways to bridge the IP and circuit-switched worlds.

"If you concentrate on a small part of it, you really can't be a player anymore," said Eric Larson, director of Motorola's Internet and networking group. "The world is past the technology part of it."

The world also is moving past many of the pioneers, forcing several of them to restructure.

VocalTec, one of the early leaders in the IP voice gateway market, also was one of the first to recognize the change. In late 1999, the company reorganized into three groups: an IP telephony products group that will continue to provide voice-over-IP gateways to Internet telephony service providers and competitive local exchange carriers; an e-commerce ASP that will target vertical markets within the Web-enabled call center sector; and a new consumer communications portal division.

Although not as antagonizing to its current customer base as eFusion's plan, the unnamed VocalTec ASP will work around the fringes of an area where some of its core customers would like to be. However, VocalTec doesn't see a conflict with customers as much as it sees opportunity to pioneer a vision of multi-media call centers that could be used by IP telephony service providers to reach e-commerce providers, said Ariel Rabban, vice president of corporate development for the VocalTec ASP.

"We always talked two or three years ago about the applications that would be coming," Rabban said. "It's here now. It's still the early stage, and someone has to take the first step and start offering it."

In that vision, the VocalTec ASP would provide multimedia call center services, such as IP voice and data collaboration, with customer service reps. These services, in turn, could be sold by others to dot-coms.

"Today text chat has been popular because it's the most simple," said Hugh Goldstein, director of marketing for the VocalTec ASP. "Data collaboration, combined with voice over IP, is perhaps the ultimate goal."

But getting to that point requires big coffers and has forced some small companies to team with bigger vendors that can afford to fund such visions.

NetSpeak, which has an equity investment from Motorola, recently added an agreement with Fujitsu Business Communications Systems to integrate the primary components of its iTEL platform, including a gatekeeper, route server, event management server and client products, with Fujitsu's enterprise equipment to target larger carriers.

NetSpeak also has been relying more heavily on its position as a Cisco partner to push into larger accounts, said James Kwock, vice president of marketing for NetSpeak. "We're working with about two dozen accounts now with Cisco."

The move to become a component provider to large vendors increasingly is common.

Lara Technology, which made its name developing complex search engines for routers and switches, last month launched a separate company, empowerTel Networks, specifically to handle its voice-over-IP business.

Lara will continue operating the switching systems while empowerTel will function as a component group. empowerTel will remain focused on Lara's technological heritage of providing fast sampling, which leads to lower latencies in the voice-over-IP environment - a concept that empowerTel believes must be achieved before large-scale deployments take hold.

"From a global perspective, to really get the carriers interested you have to have zero quality impact," said Ajit Medhekar, president and CEO of empowerTel.

Big vendors also seem to appreciate the help, allowing pioneering companies to provide much of the expertise in the evolving market.

Motorola, for instance, is using partners to provide voice ports in its routers and likely will continue as long as interoperability among different vendors' equipment is an issue, Larson said. "There are a lot of issues at the gateway level," he said. "And the call management platform interoperability is not even close."

Tellabs, which has been working quietly with Sprint on its AN-2100 switching gateway, has developed a partnership with IEX to provide complete voice-over-IP systems. Still, as a traditional big carrier vendor, Tellabs recognizes that big carriers aren't going to jump on board with any one company's vision overnight.

"We're gunning for the big carriers, and we realize that the sell cycle is going to be a long, arduous process," said Steve Kemp, North American marketing manager for the AN-2100 at Tellabs.

That process is simply too frustrating for eFusion, which is buying capacity for its network from several different players, including Global Crossing, Level 3 Communications and Qwest Communications.

"The telcos are pretty lethargic," Gaus said. "They have physical infrastructure, and one would think that they have the opportunity to own the ISP space. As for the [Internet telephony service provider] space, I think the train has left the station, and they haven't even gotten on the platform."

Under the new business model, eFusion will offer its signature push-to-talk software to digital design firms through a revenue-sharing arrangement that lets Web site creators set up a residual income stream. The company now also is offering its Internet call waiting service through Tier 2 and Tier 3 ISPs. The company also plans to launch three more products under the ASP model.

"We don't believe voice over IP is the killer app for the Internet," Gaus said. "We believe voice over anything combined with the rich content of the Internet is the app."

- eFusion: Frustrated by the long delays in getting voice-over-IP applications moving, the vendor has taken things into its own hands and revamped its business strategy to become an ASP.

- VocalTec: No longer content with providing gateways, one of the first companies in the market is now divided up into three entities: a gateway vendor, a consumer communications portal and an ASP.

- NetSpeak: Another early entrant is now relying more on partnerships. Last week, the company signed a $15 million OEM agreement with Fujitsu Business Communications Systems.

- Clarent: One of the few pioneers not to fundamentally change business plans, the company is promoting partnerships more now in an effort to push new applications forward.