Rags to Riches

Rags-to-riches tales are never very straightforward. Sometimes we hear about the courageous climb up from the sewers as if it were a steady, undying ascent toward justified rewards. More often, however, these stories have an uncertain, unstable quality about them. It is more like rags to riches to rags to riches to who knows where next.

The pattern can bear an amazing resemblance to the current wave of celebrity documentary TV shows, such as "True Hollywood Stories" or "Behind the Music." People start "promising careers," enjoy success, "hit rock bottom," but then come back to enjoy success again "only to face the toughest challenge of their lives."

They certainly have a canned quality to them, but we watch anyway because we are entirely compelled to see just how bad or good things will get. We don't know how it is all going to turn out.

The development of the Internet protocol telephony market has occurred in much the same fashion. Voice-over-IP gateways had very promising careers ahead of them a few years ago. They took an unrelenting rocket ride to fast success. All that success, however, took a header and hit rock bottom when the technology was thought to be popular only for hobbyists who forgave its inconsistent performance.

The market took off again as technology quality improved, and IP telephony service providers learned which customers they wanted to market to.

But wait. Riches looked as though they were potentially headed for rags again when international arbitrage and specific business niches refused to support a highly competitive market of many dozens of users. However, IP telephony players weren't saddened for very long before a wide range of new value-added applications became available.

This brings us to the fall of 1999 and specifically to the recent Telecom '99 show in Geneva. A few heads may have turned at this show when Net2Phone, one of the prominent IP telephony pioneers, announced that it would give away voice-over-IP gateways in its booth. This is the same "give away" that means "for free."

"What exactly does this mean?" the industry watchers wondered. Oh, it was a trade show stunt to make a big splash on a world stage - that much was for certain. But did it mean that the value of voice-over-IP gateways has vanished? And just what would that mean?

Riches to rags again?

The stunt may have come as a shock to some who thought the voice-over-IP gateway business was ground zero for the IP telephony market. Further inspection shows that, although this may have been the case a few years ago, the limited scale and feature capability makes it nothing more than the equivalent of a kid's first chemistry kit for service providers.

That is because the IP telephony business is not really about gateways at all anymore. It's not just about cost-saving tricks, but rather about one of many possible future steps for the telecom industry at large. If some people feel that gateway giveaways represent a market dip, they should take a good look around. Everything from Internet access to personal computers is free somewhere at this point.

The industry is closer than ever to universally recognizing that technology does not make successful markets - it only gives birth to opportunity, variety and service.

That is where the toughest challenge of IP telephony's young life comes in. IP telephony service providers have to prove they can be as ambitious, multifaceted and reliable as any other telcos in the market. If they can forget about the technology that helped give them a reason to be, they might just be able to stay on the upside of that rags-to-riches story when the closing credits roll.