Level 3: Mass market not ready for VoIP

BOSTON--The saturation of the early adopter market for voice over IP is looming, and the industry is stalling in its advance on a broader mass market, said Charles Meyers, group vice president of marketing for Level 3 Communications. But there are opportunities for the industry to build more momentum if it collaborates and focuses on a few key problem areas, he said.

Speaking to the Voice on the Net show in Boston Wednesday, Meyers pointed out that progress in the VoIP space has been disappointing lately. In July, Frost & Sullivan revised its expectations for VoIP from being a $5.4 billion market in 2008 to being a $4.1 billion market in 2010. And in June, IPSOS Insight said, “Interest in VoIP hasn’t grown.”

Less than 1% of total voice revenue comes from VoIP, and less than 3% of U.S. households have been converted, Meyers said. “And the next 97 [percent] will be a lot harder than the first 3.”

The early majority

To win over a broader market (what Meyers called “the early majority”--the crowd that comes after early adopters but before the true mass market), the industry will need to correct some of the perceptions preventing many people from switching to VoIP.

The first is awareness, illustrated by the fact that 60% of Internet users polled by Level 3 recently said they’d never heard of VoIP. “We need to band together to increase category awareness,” Meyers said. “People view VoIP as a cheap alternative, and that’s not how we get to the early majority and the mainstream.”

Part of the awareness problem could be remedied by big-brand providers such as AOL and Comcast promote VoIP more aggressively in coming quarters. “The big brands are coming in,” he said. “Comcast and AOL have both said, ‘We’re ready, we’re going to begin to turn up our marketing machines.’”

Major players with large existing customer bases may be in the best position to market VoIP, because the high churn of early adopters (and thus the high customer acquisition cost) will not currently support a very expensive mass-market ad campaign, Meyers said.

AOL is already helping to focus more attention on the unique features that come with VoIP, demonstrating an integrated email, voice and instant messaging system at VON this week.

Too much satisfaction?

Another hurdle was revealed when 80% of respondents in Level 3’s recent survey said they were satisfied with their existing telephony service. And 66% said they imagined switching to VoIP would be a hassle. To correct that perception, Meyers said, the industry must make installation and local number portability timely and seamless.

The overwhelming satisfaction consumers have with their existing voice provider forces VoIP providers to offer savings of 20% to 25% to convert customers, but price alone will not be enough enticement to encourage the broader adoption of VoIP that analysts anticipate will begin next year.

Voip on the rise

“2006 is the classic hockeystick year,” Meyers said, pointing to a chart that projected the number of VoIP subscribers to jump from roughly 5 million to roughly 10 million next year. “This industry has to substantially increase its marketing sophistication, beyond focusing myopically on price.”