The Great Race (to Zero)
By James Wanless
President and COO of Talkster
I had an interesting conversation today with Pat Phelan about the tons of free stuff that has been hitting the market, in particular free phone calls. Free to call Poland this weekend. Free calls on Christmas Day (didn’t anyone mention that not ALL people celebrate Christmas!). Free month of service. Free. Free. Free. What is this doing to the market?
Of course, the customer will like free for as long as the quality survives, but herein lies the problem.
Transporting calls costs money. Real money. If you want quality (calls connect quickly, on the first try and you recognize the voice of the person on the other end) then you have to pay. Users love free but they won’t tolerate poor quality.
If one company offers calls at 2 cents a minute today and its competitor offers 1 cent a minute tomorrow only to be followed by another company which proclaims “Call for free!”, where’s the business sense in that? If a business model is to acquire customers with free calls (a “loss leader” to use the correct term) so it can be bought out for a $100 million – I’m sorry to say, but it’s not going to happen. Even Skype had a revenue model.
Something to ponder. If company #1 gives you something for free, what is your perceived value of this “something”? Similarly, what will you expect tomorrow when company #1 has gone out of business and company #2 wants to offer you this same “something”. Are you going to be willing to pay for it or will you likewise expect it for free? Talkster is staying out of the “Great Race to Zero” in the consumer market.
As we move from our beta to our v1.0 of our enterprise mobility product next year, we are focusing on bringing to market a communications service built on an enterprise-grade infrastructure. We believe, and those who have previewed the service agree, that our service will be of value to the enterprise. If our service not only addresses the needs of the enterprise and individual business users, but remains consistent, reliable and of high quality, then enterprises and individuals will be willing to pay for it.
Based on our conversations with enterprises, potential channel partners, industry analysts and pundits, we strongly believe Talkster is creating something innovative and important for the enterprise. But we won’t know for sure until our service is released. What we do know for sure is that the enterprise is not keen to experiment. They need to trust that the service they buy today will be available to them tomorrow, one year from tomorrow and so on for as long as they need the service.
The enterprise isn’t looking for free. They are looking for quality and longevity. That makes the goal of winning the race to zero a fool’s paradise.
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December 13th, 2006 at 6:58 pm
[...] Pat Phelan asks where will it all end, in regards to all this free VOIP and VoIM going around. How long can a free model sustain itself? Will ad-paid models like that of Globe7 be accepted? Will Google’s rumored free phones in return for ad-watching take over the world? I had a second chat last Friday with James Wanless, President and COO – one of three entrepreneurial spirits behind Talkster, a new mobile-to-VoIM service that just relaunched on Monday. He made a very astute comment to me regarding free services, and wrote The great race (to zero). I’m paraphrasing him (so any misquote is my fault), but he said that so many [startups] think that giving away everything for free and grabbing a subscriber list is sufficient enough for someone with deep pockets to buy them up. He then pointed out that while Skype gave away a lot, they still had a monetization plan that they implemented, including CallOut minutes. [...]
December 13th, 2006 at 7:15 pm
[...] Their plan, he said, is to market to businesses. As he mentions on his blog, in the post The Great Race (To Zero), VOIP/ VoIM providers can give some of their services away for free but they have to have a monetization model to keep the business going and offer quality. And when you’re a company started by three self-employed, self-funded people, you have to find a way to monetize. [...]
February 7th, 2007 at 6:18 pm
[...] The Great Race (to Zero) [...]