The Steinhorn Stare » Blog Archive » The Advantage of Bundling

The Advantage of Bundling

In a previous post, I touched on the fight over triple-play services (data, voice, video) by the data carriers (telcos, MSOs, satellite). In that post, I mentioned that I believed the crux of the fight was over data, as both voice and video would continue to migrate to full digital/IP transmission over the next several years, reducing triple play to just enhanced data services.

While left unasked in my original post, the question remained, if the carriers want to dominate triple play services, where will they get they get competitive VoIP and digital video offerings?

This question become somewhat more interesting last week when Om Malik posted this tidbit in his blog:

“Google might be looking to work closely with MSOs on its next generation efforts such as video and voice over the Internet. Proof of this direction might be found in this job posting.”

Yahoo! already has a partner in SBC, and it appears Google is now looking to create a similar partnership with (presumably) one of the other big telcos or one of the large MSOs.

Just a guess, but it seems to me just a matter a time before we start seeing co-branded and bundled voice and video services from a number of the big carriers and a number of the big tech players. While consumers will still have a choice in which VoIP or video service they use, the carriers have a huge advantage in converting new users to their own branded services; as an example, look at AOL back in the 90’s when nearly every AOL user used AIM, used AOL mail, and had their home page set to aol.com.

Which brings me to the point of this post…

Companies like Skype (and Vonage) will likely not be bundled with service offerings from any of the major carriers, and as such, may find themselves at a major disadvantage to the competiting bundled services. With VoIP and digital video offerings unlikely to carve out any major technical competitive advantages over the next several years, ability to leverage marketing/bundling partnerships may prove to be the key differentiator.

Update: Just found this article from The Washington Post about Comcast releasing VoIP in the Maryland/Virginia area.

This entry was posted on Saturday, December 10th, 2005 at 10:38 pm and is filed under Technology. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

11 Responses to “The Advantage of Bundling”

Ro Says:
December 11th, 2005 at 12:37 am
Jason- one small problem with that. Major reason folks sign up for Skype is international calls. Unless Google/Yahoo are gearing up for working with carriers cross-country, hooking up with SBC or another of the big U.S. carriers does little to counter free cross-country VOIP. I don’t see SBC working with Orange any time soon to offer free VOIP.
Administrator Says:
December 11th, 2005 at 12:56 am
Hey Ro,

I didn’t mean to imply that I think partnering with the carriers is going to provide the VoIP clients with any particular technical or financial advantage — all the services will still be able to call internationally, all will be POTS compliant, and all will probably charge about the same. In fact, I don’t think that from a technical standpoint, feature standpoint, or user experience perspective you’ll be able to tell any of the services apart.

But, the services that are bundled with the high-speed Internet service will have a huge competitive advantage in terms of marketing and co-branding.

Imagine a new Internet user just getting their Comcast high-speed hookup, and upon installing the software, they get automatic installation of Google Talk and a Free Trial Offer!!!. What are the chances they’ll choose to forego the pre-installed (and Comcast co-branded) Google Talk client and instead install Skype (or another client)?

Jason
Adam Trachtenberg Says:
December 11th, 2005 at 3:17 am
About the same that their friends are running Skype compared to Google Talk.
Greg Isaacs Says:
December 11th, 2005 at 7:07 pm
I think you place too much emphasis on the power of bundling. In the end, consumers will pay for the best content and services considering factors like: price, who’s on their network, ease of use, etc. As Web 2.0 is starting to show us, we are moving to a de-bundled world where consumers can pick and choose.
Administrator Says:
December 11th, 2005 at 7:23 pm
I think AOL is a great example of how powerful bundling is. Just take a look at the number of people still using AOL Mail and AOL Instant Messenger because they originally received their Internet access through AOL…despite the fact that objectively better products (by Yahoo!, MSN, and Google among others) have been around for more than 5 years now.
Adam Nash Says:
December 11th, 2005 at 7:48 pm
Aren’t network effects more important here though than bundling? I could argue AIM got an initial boost from the AOL network, but the total subscribers to AIM are easily 4-5x the number of AOL subscribers at the peak. I got AIM because, in the end, most of my family was on it, etc. I still use it despite the fact that I have iChat bundled on my Mac, and SBC Yahoo DSL.

The question is - will the network effects of Skype and other AIM like clients survive as they bridge to the traditional telco services?
Administrator Says:
December 11th, 2005 at 10:10 pm
That’s a good point, Adam. But, remember, to harness the network effect, you need some incentive not to migrate to (or choose) a competing product. For AIM, that incentive was lack of compatibility between the competing IM clients. With Skype, you won’t *necessarily* have that type of incentive. VoIP clients are likely to become commoditized, with all competing products likely offering the same set of features at relatively equivalent price-points.

So, the question is, will Skype either:

a) Differentiate itself enough to gain critical mass of marketshare or harness network effects; or

b) Provide some proprietary services/features relegating it incompatible with other VoIP products.

I think it will likely have to do one of these to continue to compete on equal footing with some emerging competitors.
Jeffrey McManus Says:
December 11th, 2005 at 10:42 pm
>Yahoo! already has a partner in SBC

SBC isn’t our only telco partner; the others include Verizon and BT, which covers at least one smidge of the international angle mentioned above.
The Steinhorn Stare » Blog Archive » Part II: Skype at a Disadvantage Says:
December 12th, 2005 at 3:38 pm
[…] This past weekend, I talked about the disadvantages that some VoIP services could face if other services partnered with the carriers and offered a co-branded/co-bundled offering. […]
Best of eBay Blogs » Blog Archive » Slinging mud Says:
December 18th, 2005 at 4:06 pm
[…] Hence when I read about companies whose seeming goal is to pursue innovation lauded for each and every launch as successful, I have to chuckle. It just doesn’t work that way. Take VOIP as an example. Does anyone really understand the LUCK and effort it took for Skype to reach its position of leadership in this space? Yahoo or MSN or Google launching their own VOIP feature will take similar if not more LUCK and effort to even get close to what Skype currently manages. Compare Skype with more than 4million concurrent users of its voice technology vs thousands (maybe hundreds of thousands) on any of the other IM providers. This isn’t to say the IM providers couldn’t throw money at the situation, lower price or bundle products and ultimately be successful. But just introducing functionality (which btw ALREADY existed in most cases) means little. If these companies DIDN’T introduce this functionality, that would actually be a surprise. […]
The Steinhorn Stare » Blog Archive » Malik on Bundling Says:
December 28th, 2005 at 10:39 am
[…] Om Malik discussing some of the bundling and network issues I discussed in my Bundling Part I and Bundling Part II posts… […]