International Systems Research Co. International Business Plan

Transcription

International Systems Research Co.
International Business Plan
Monterey Institute of International Studies
Fisher Graduate School of International Business
December 2005
Authors:
Tarek Ali
Courtney Caneer
Takuya Miyazaki
Fumiko Taki
Joye White
Adam Wooten
Advisor: Bill Manby
2005 International Business Plan
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Acknowledgements
International Systems Research Co (ISR) approached the Monterey Institute of
International Studies and proposed a research project to assess the potential of its
softphone product, the PPPhone, for export outside of its Japanese home market and how
to gain profitability through a strategic marketing plan.
Courtney Caneer, Joye White, Adam Wooten, Fumiko Taki, Takuya Miyazaki, and Tarek
Ali were the team of MBA candidates assigned to this project. Bill Manby, a local CEO
and entrepreneur, was assigned as the team’s advisor. The team met regularly with Mr.
Pedro Akl, ISR’s US General Sales Manager, and Mr. Raul Mendez, ISR’s CEO both of
whom were easily accessible to the team and helped in the formulation and process of
this plan.
The team would like to thank ISR’s management for taking the time to help educate us
about the exciting Voice over Internet Protocol industry. We appreciate the information
shared in interviews and the willingness to receive our ideas and recommendations.
The team would also like to thank our advisor, Bill Manby, for all his time, support, and
guidance in aiding the process of this international business plan.
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Executive Summary ___________________________________________ 8
Strategy ___________________________________________________________________ 9
Implementation ___________________________________________________________ 10
1st Year (2006) __________________________________________________________________ 10
2nd Year (2007) _________________________________________________________________ 10
3rd Year (2008)__________________________________________________________________ 10
Objectives __________________________________________________ 11
Mission __________________________________________________________________ 11
Vision____________________________________________________________________ 11
Keys to Success ____________________________________________________________ 11
Experience _____________________________________________________________________ 11
Innovation _____________________________________________________________________ 11
Customization __________________________________________________________________ 11
Company Summary __________________________________________ 12
Company Ownership _______________________________________________________ 12
Organizational Structure____________________________________________________ 12
Raul Mendez: President and CEO ___________________________________________________ 13
Kazuto Miyai: Senior Managing Director _____________________________________________ 13
Pedro Akl, General Manager _______________________________________________________ 13
Company History __________________________________________________________ 13
Company Locations and Facilities ____________________________________________ 14
ISR SWOT Analysis________________________________________________________ 15
Strengths ______________________________________________________________________ 15
Weaknesses ____________________________________________________________________ 16
Opportunities ___________________________________________________________________ 16
Threats ________________________________________________________________________ 16
Options for Addressing SWOT _____________________________________________________ 17
Company Opportunity and Readiness to Export (CORE) Assessment ______________ 19
Products and Services_________________________________________ 20
Product and Service Description _____________________________________________ 20
Background ____________________________________________________________________ 20
Softphone ______________________________________________________________________ 21
PPPhone _______________________________________________________________________ 22
Features _______________________________________________________________________ 22
Benefits _______________________________________________________________________ 22
Core Benefit____________________________________________________________________ 22
Competitive Comparison____________________________________________________ 23
Main Competitors at a Glance _______________________________________________ 24
Cisco _________________________________________________________________________ 24
CounterPath ____________________________________________________________________ 24
eBay __________________________________________________________________________ 24
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Vonage ________________________________________________________________________ 24
Cicero Networks ________________________________________________________________ 25
Avaya_________________________________________________________________________ 25
Nortel _________________________________________________________________________ 25
SJ Labs________________________________________________________________________ 25
I2Telecom _____________________________________________________________________ 25
Jajah __________________________________________________________________________ 26
Linspire _______________________________________________________________________ 26
Terasens _______________________________________________________________________ 26
M2X__________________________________________________________________________ 26
Persona Software ________________________________________________________________ 26
Future Products and Services ________________________________________________ 27
Softphones that have dual Wi-Fi/cellular handset capabilities______________________________ 27
Market Analysis Summary _____________________________________ 28
Market Definition__________________________________________________________ 28
Market Size_______________________________________________________________ 29
Market Needs & Trends (World) _____________________________________________ 31
Market Growth (World) ____________________________________________________ 38
Industry Analysis (World)___________________________________________________ 43
Composite Competition ___________________________________________________________ 44
Bargaining Power of Suppliers _____________________________________________________ 45
Bargaining Power of Buyers _______________________________________________________ 45
Market Turbulence_______________________________________________________________ 46
Complementors _________________________________________________________________ 48
Market Segmentation (Japan) _______________________________________________ 66
Target Market Segment Strategy (Japan) ______________________________________ 66
Industry Analysis (Japan) ___________________________________________________ 72
Market Segmentation (North America) ________________________________________ 75
Target Market Segment Strategy (North America) ______________________________ 75
Market Needs___________________________________________________________________ 75
Market Trends __________________________________________________________________ 75
Market Growth__________________________________________________________________ 77
Industry Analysis (North America) ___________________________________________ 79
Complementors _________________________________________________________________ 80
Market Segmentation (Western Europe)_______________________________________ 81
Target Market Segment Strategy (Western Europe) _____________________________ 81
Market Needs___________________________________________________________________ 81
Market Trends __________________________________________________________________ 81
Market Growth__________________________________________________________________ 91
VoIP developing at very different speeds across Europe__________________________________ 91
Industry Analysis (Western Europe) __________________________________________ 92
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VoIP Marketing Strategy ______________________________________ 94
Positioning Statements______________________________________________________ 94
Core Competencies ________________________________________________________ 94
Competitive Edge __________________________________________________________ 94
Generic Strategy___________________________________________________________ 98
Recommendation: Focus on the Mobile VoIP Market____________________________________ 99
Product Strategy _________________________________________________________ 103
Optimal Design ________________________________________________________________ 104
Geographic Strategy ______________________________________________________ 108
Distribution Strategy ______________________________________________________ 111
Sales Strategy__________________________________________________________________ 113
Strategy Pyramid _______________________________________________________________ 113
Pricing Strategy __________________________________________________________ 115
Penetration Strategy _____________________________________________________________ 115
Promotion Strategy _______________________________________________________ 118
Web Plan Summary _______________________________________________________ 120
Website Marketing Strategy_______________________________________________________ 120
Implementation_____________________________________________ 122
VoIP Marketing Strategy and Implementation Summary ___________ 124
Financial Plan _____________________________________________ 125
Important Assumptions ____________________________________________________ 125
Key Financial Indicators ___________________________________________________ 129
Break-Even Analysis ______________________________________________________ 130
Projected Profit and Loss __________________________________________________ 135
Projected Cash Flow ______________________________________________________ 140
Projected Balance Sheet ___________________________________________________ 140
Business Ratios ___________________________________________________________ 141
Long-term Plan __________________________________________________________ 144
Launch an Initial Public Offering (IPO) _____________________________________________ 144
Conclusion ________________________________________________ 144
Appendix A: Export Assessment _______________________________ 145
Appendix B: Competitive Benchmarking ________________________ 147
Appendix C: Global VoIP Subscriber Distribution_________________ 151
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Appendix D: VoIP Softphone Market Survey _____________________ 152
Appendix E: 10-5 Survey Results_______________________________ 154
Appendix F: Porter’s Five Forces ______________________________ 156
Appendix G: Traditional Telecom Company Profiles_______________ 158
Appendix H: ISP Company Profiles ____________________________ 163
Appendix I: Dual Phone Offerings by Mobile Providers ____________ 166
Appendix J: GPS Providers ___________________________________ 167
Appendix K: New Brand Name ________________________________ 168
Appendix L: Geographic Decision Factors _______________________ 169
Appendix M: Western Europe Decision Matrix ___________________ 172
Appendix N: Softphone Price Benchmark _______________________ 173
Bibliography _______________________________________________ 177
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Executive Summary
Voice over Internet Protocol (VoIP) is the technology that enables voice communications
over the internet, and VoIP user endpoints1 are expected to grow from 30 million in 2005
to 300 million in 2009. International Systems Research (ISR) is a Japanese systems
integrator that has developed a softphone, the software that enables VoIP, called
PPPhone. PPPhone fits into the 38% of the VoIP market using client-server softphones,
as opposed to the 21% using PC-to-PC softphones like Skype or the 41% using hardware
only through analog telephone adapters (ATAs) and desktop IP phones. ISR would like
to profit from the rising global demand for client-server softphones, which will skyrocket
from 11 million endpoints in 2005 to 179 million endpoints in 2009, by exporting to
North America and Western Europe, the regions where the most growth will take place.
Mobile softphones will soon surpass fixed softphones and make up the largest part of this
client-server softphone market, as illustrated in the chart below. ISR must leverage
strengths and experience in the mobile market not only to grow from less than 0.5%
market share to as much as 13% market share, but also to differentiate its product and
adopt a more profitable premium pricing strategy. ISR will increase current PPPhone
revenues of approximately $100,000 to more than $20 million2 in revenues in 2009 if
management implements the following recommended strategies to focus on the mobile
softphone market.
ISR Will Focus on the Fastest Growing Segment:
Mobile Client-Server Softphones
Millions
.
Endpoints
300
200
100
Total
Client-Server Softphones
Mobile Client-Server Softphones
0
2005
1
ISR Share of Market
2006
2007
2008
2009
For purposes of this report, it is assumed that the number of retail VoIP subscribers is approximately
equal to the number of retail VoIP endpoints. VoIP subscriber ! 1 VoIP endpoint
2
Based on amount of licenses sold and ability to capture 13% of the market
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Strategy
Position – ISR must position PPPhone as the mobile softphone in markets where mobile
VoIP is set to take off. PPPhone will be promoted as the ideal mobile softphone in
engineering, performance, appearance, compatibility, and track record at a price that will
capture significant market share and increase profitability.
Promotion – ISR must intensify its promotion of PPPhone at mobile-related conferences,
increase its distribution of press releases, and continue to improve its website so that it
more clearly presents PPPhone as the mobile softphone.
Product – From the information initially gathered, PPPhone is largely undifferentiated
from its competitors. However, we have determined that PPPhone has the following
strengths that must be better emphasized and supported to create a stronger perception of
differentiation in the mobile market:
!" The smallest known mobile footprint (aids engineering in mobile devices)
!" High quality sound even over narrow bandwidth
!" Backing of some of the only softphone engineers with experience in the world’s
first mass-marketed wireless VoIP network
ISR must also do the following: make the user interface more modern and mobile in
appearance; add additional features that are popular in mobile and fixed softphones; and
obtain access to a method for seamless transfer between Wi-Fi and cellular calls, which
will be necessary if wireless VoIP is to be adopted as quickly as forecasted.
Placement – ISR must approach the mobile VoIP service providers at the executive level
because they appear to be the key decision makers in the VoIP supply chain. Some of
these mobile service providers must also be reached indirectly through mobile hardware
manufacturers. ISR must consider fixed VoIP service providers a secondary target.
After comparing ISR’s current market in Japan to potential markets in North America
and Western Europe, it was determined that ISR could indeed benefit from exporting
PPPhone. Furthermore, based on ten criteria including mobile phone usage, broadband
penetration, and WiMax growth, we determined that ISR must focus primarily on the
North American market, as it has the highest expected growth and lowest barriers to
entry. Secondarily, ISR must target Western Europe and focus on the countries most
advanced in VoIP adoption: France, the UK, and Germany. ISR must also focus on Italy
and the Nordic countries of the Netherlands, Norway, Denmark, and Sweden, countries
that have high potential because of their mobile and broadband networks.
Pricing – Although PPPhone is still, for the most part, an undifferentiated product, ISR
must undercut the competition a little with a penetration pricing strategy. However,
because competitors will respond to ISR’s increased market share by also dropping
prices, ISR must quickly work to better differentiate PPPhone as a superior mobile
softphone so that it can shift towards a premium pricing strategy and earn greater profit
margins. Most softphones are sold on a per license basis, and prices can be structured as
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ISR has previously done with a minimum purchase requirement, which will accelerate
cash flow while still allowing for continued revenue streams.
Implementation
In order to implement this plan, ISR will be guided by the following timeline:
1st Year (2006)
!" Rename PPPhone and develop recommended additional features and new GUI for
differentiation
!" Increase marketing budget to 10% of revenues
!" Promote ISR’s mobile focus by updating website, increasing press releases and
intensifying promotion at industry conferences
!" Continue penetration pricing strategy
!" Enter North American market immediately and Western Europe by the end of the
year
!" Begin focusing majority of sales time and budget on mobile VoIP service
providers
2nd Year (2007)
!" Pass breakeven point
!" Increase staff as needed to support increased installed base
3rd Year (2008)
!" Begin shift toward premium pricing strategy once differentiated features are
deployed and market share has surpassed 9%.
Following the above timeline will give ISR the revenue growth and market share
projected below:
Revenues
Share of Market
2005
2006
2007
2008
2009
$104,000 $896,000 $10,000,000 $15,000,000 $20,000,000
0.47%
1.58%
9.19%
12.65%
12.86%
Clearly, these projections may vary, but ISR will be able to successfully market in North
America and Western Europe if it can do the following: act now to gain the early mover
advantage in the mobile market that ISR management desires; promote PPPhone as the
leading mobile softphone; target leading mobile VoIP service providers in high growth
areas with a penetration pricing strategy to gain market share; pursue points of product
differentiation that appeal to the mobile market; use those points of differentiation to shift
to a premium pricing strategy that will increase profit margins. These recommendations
and the analyses behind them are found in this international business and marketing plan.
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Objectives
Mission
International Systems Research, ISR, is committed to providing effective, reliable
solutions for enterprises in the Wireless Economy, where the competitive advantage is
obtained by optimizing responsiveness among companies, their mobile workers, their
business partners, and their consumers.1
Vision
ISR will become the global standard for Internet telephony.
Keys to Success
Experience
With more than a decade of experience working with many different platforms and
infrastructures, ISR has been a pioneer in creating Mobile Business Applications.
Innovation
ISR maintains a position at the forefront of VoIP (Voice over Internet Protocol)
technology by developing applications and deploying custom solutions such as their
VoIP-GPS dispatch systems and PPPush®-powered flat-rate mobile IP Telephony.
PPPush® technology was initially one of their product advantages linked to the PPPhone.
Customization
ISR’s products are designed to support a broad array of devices and platforms by
applying specific codecs, specifically suited for environments requiring mobility.
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Company Summary
Company Ownership
International Systems Research Co. (ISR) is privately held. Its ownership consists of the
seven main stockholders including three individuals and four corporations.
The three individual stockholders are Raul Mendez, ISR’s President and CEO, Kazuto
Miyai, its senior managing director, and Carlos A. Varela. Mendez owns 56% of ISR’s
stock, Miyai owns 10%, and Varela owns 5%.
ISR’s corporate stockholders are Kyocera Communications Systems Co. (Kyocera)
JAFCO Co., Kankaku Investment Co., and Nippon Venture Capital Co. Kyocera owns
10% of the ISR’s stocks and provides the following three services: IT& IP solutions,
management consulting, and telecommunication engineering. The other three investors
are all venture capitalists. JAFCO Co. owns 15% of ISR and both Kankaku Investment
Co. and Nippon Venture Capital Co. share the remaining 4 %.
Company Ownership
JAFCO Co.
15%
Kankaku and
Nippon
4%
Kyocera
10%
Carlos Varela
5%
Kazuto Miyai
10%
Organizational Structure
President & CEO: Raul Mendez
Senior Managing Director: Kazuto Miyai
Director: Yasuharu Ueda
Director: Naohiko Kamae
Corporate Auditor: Sayoharu Tanaka
Corporate Auditor: Shouhei Ohtani
Corporate Auditor: Kouichi Yasuda
Total 20 engineering personnel including the people above
Total 4 sales & marketing personnel including the people above
4 administrative personnel
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Raul Mendez
56%
Management Team
Raul Mendez: President and CEO
Mr. Mendez, a Colombian entrepreneur, holds BS Mathematics from Purdue University,
Indiana and both MS Mathematics and PhD Applied Mathematics from U.C. Berkeley.
Upon graduation, Mr. Mendez worked for several years as an assistant professor at the
Naval Post Graduate School in Monterey, CA. During this time, he gained a greater
interest for computing and soon became the director for the Institute for Supercomputing
Research, and for the Recruit Co., Ltd. In 1993, he established International Systems
Research Co.
Kazuto Miyai: Senior Managing Director
Mr. Miyai, a native of Japan, has a degree from the Shipping Instrument Engineering
Department at the University of Tokyo. Soon after receiving his degree, he began
working for Recruit Co., Ltd. in the Science Systems Department. He went on to become
the Multi-Media Group Leader and then Project leader at both Recruitment Co., Ltd. and
also for The Macintosh Corporation under Software Planning & Development
Department. He joined International Systems Research in 1996 and, in 1999, was
appointed Senior Managing Director and Manager of the SI Consulting Division.
Pedro Akl, General Manager
Mr. Akl, who is also from Colombia, came to the U.S. during his teen years. He earned a
degree in industrial engineering from Georgia Tech University. Soon after graduating, he
relocated to Europe to work on computer software for several years. He then returned to
Colombia and went to work for Colgate-Palmolive, which eventually led him to start his
own international marketing consulting business. After several years in this business, he
moved back to the U.S. to earn a MBA with an emphasis in marketing from the
University of Maryland. During the MBA program, his required internship led him to
ISR, where he now runs the U.S. branch office.
Company History
In September 1993, ISR was established with ten million (M) Japanese yen (JPY) in
startup capital. ISR increased its equity throughout the high-tech boom to 41M JPY in
1996, 56M JPY in 1997, 81M JPY in 2000, and 135M JPY in 2001. However, total
equity has not increased since the dotcom crash.
While increasing its equity, ISR developed several product lines, starting with ZOLAR
1.0, a database middleware. Since ZOLAR’s initial release in 1996, ISR has released
additional versions including its latest release, ZOLAR 7i. In addition, ISR released
@Box, a sophisticated mailing system, in 2001 and ServerEye, a remote servermonitoring tool, in 2003.
ISR entered the VoIP market with the product PPPush in 2002. PPPush is based on push
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technology, which enables a Personal Digital Assistance (PDA) to receive data even
while the PDA is off. PPPush is compatible with both the Personal Handyphone Service
(PHS) network and DoPa cell phone network provided by NTT DoCoMo Inc., which has
the biggest market share among the cell phone service providers in Japan. In 2004, ISR
released PPPhone, a softphone application. Integrated with PPPush, PPPhone enables
consumers to use the PDA not only as an organizer and date exchange tool but also as a
softphone.
Company Locations and Facilities
ISR has two offices. The company headquarters is located in Tokyo, Japan, and the U.S.
branch office is located in Monterey, California.
ISR currently operates only in Japan. The head office is located at:
Sugiki Bldg. 2F, 1-7-4
Kouenji-minami, Suginami-ku
Tokyo 166-0003
Japan.
ISR employs 20 engineers, 4 sales/marketing representatives, and 4 administrative
workers at this office. The company will be hiring an additional 7 sales representatives
and will be investing more in the future expansion of their business.
ISR’s U.S. branch office supports the main operation in Japan with market research and
international consulting. The U.S. branch is located at:
2600 Garden Road, Suite 238
Monterey, CA93940
Pedro Akl and a few contractors support operations in Japan from the Monterey office.
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ISR SWOT Analysis
SWOT Analysis
Strengths
Weaknesses
1.Experienced engineers with software
integration know-how
1. Lack of value-added proposition
2. Unique integration with narrow band PHS
service
3. Top management start-up mentality (quick
decision making, innovation and
aggressiveness)
4. Two geographic locations (Japan, US)
5. Customizing applications for B2B
2. Limited marketing resources (only one
person dedicated to marketing)
3. Limited resources (human, capital)
capabilities. (Small staff, vulnerable to vital
employees leaving)
4. Lack of marketing plan
5. Lack of brand recognition
6. Limited track record
6. Partnered with P2P services- MACNICA,
Inc. in Japan
Opportunities
Threats
1. The VoIP industry is on the rise with VoIP
users expected to increase from 45 million in
2005 to 441 million in 2009 worldwide
1. Several competitors with more product
features to offer
2. Low barriers to entry
2. Nascent Industry
3. Softphones could become (or may already
3. Government Funding: Increase broadband & be) a commodity
Wi-Fi access. I.E. Philly, SF, Seattle,
4. Possible imposition of government
establishing networks.
regulations
4. Trend towards convergence
5. Developments in technology could change
this market faster than ISR could adapt.
6. Traditional telecoms and mobile services are
fighting VoIP adoption.
Strengths
1. ISR has a team of experienced engineers who can integrate the software with any
product.
2. ISR’s unique integration is ahead of other leading competitors, being well
positioned in the Japanese narrow band PHS market.
3. Because ISR is a small company beginning to explore the options of moving into
new geographic locations, it has the flexibility to quickly react and implement
new ideas as needed without the formal procedures of a large organization.
4. Since there is an office in the United States, ISR has some understanding of the
ideologies, preferences, and culture of this region.
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5. The ability to provide each costumer with a specialized product to increase its
productivity and efficiency adds value for its clients.
6. By partnering with other companies, ISR will be able to bring in more customers
and establish a network and hopefully create a loyalty amongst its current clients.
Having a strong presence and reputation in Japan will aid the expansion process.
Weaknesses
1. Due to PPPhone’s limited features, the product does not have any particular
value-added proposition. This is a strong deficit for the company and without
offering consumers a clear benefit; the tasks of gaining market share will be
difficult.
2. Due to the size of ISR, its marketing ability and knowledge are limited.
3. Because ISR is comprised of only 28 employees, its capital and human resources
are limited. The company is vulnerable to vital staff being sick, leaving, etc. Its
R&D budget is also limited in comparison to the most of the market leaders.
4. There seems to be a weak organizational link between engineering and
sales/marketing staff (i.e. a product marketing manager), which could be
strengthened to facilitate communication between the two departments. Mr. Akl
provided this insight in consulting meetings. The marketing plan being developed
will aid in providing a shared vision.
5. Because of ISR’s limited business model (in Japan/B2B/small size of company),
its global market presence and reputation is limited.
6. ISR does have a lot of experience in the industry but they have limited experience
competing with its softphone.
Opportunities
1. VoIP industry is now getting attention from many customers who want cheaper
telecommunications.
2. The VoIP industry is currently a nascent industry.
3. Government funding of Wi-Fi networks is increasing in many places, which will
increase the use of wireless VoIP.
4. ISR is well positioned to apply the PPPhone to the popular trend towards
convergence.
Threats
1. Major competitors offer many features that are attractive for users, such as calling
to all types of phone lines, which ISR does not yet offer.
2. Due to limited governmental regulation and the low cost of starting a company,
there are low barriers to entry.
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3. If softphones become commodities, this will greatly affect the market share and
growth of the industry.
4. Like China, the government may prohibit or regulate the use of softphone. If more
countries follow suite, this will be a potential obstacle for the growth of the VOIP
industry.
5. If Microsoft decides that it wants to put the software on all computers as a part of
the standard MS Office offerings, the softphone market could be all but
monopolized as Microsoft gobbles up the market share.
6. Traditional telecoms and mobile services are fighting VoIP adoption (but some
may adopt it out of fear).
Options for Addressing SWOT
Options for Addressing Strengths, Weaknesses, Opportunities & Threats
Strengths
How to Magnify these Strengths
1.Experienced engineers with software
integration know how
1.Target customers who want customization
2. Unique integration with narrow band PHS
service
2. Continue to pursue the PHS market
3. Top management start-up mentality (quick
decision making, innovation and aggressiveness)
3. Work hard, take risks, and open to
exploring all options for success
4. Two geographic locations (Japan, US)
4. Utilizing networking and employee
opportunities
5. Customizing applications for B2B
5. Use current relationships to create new
relationships/partners
6. Partnered with P2P services- Macnica in Japan
6. Use targets to attract more diverse clientele
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Weakness
How to Eliminate/Strengthen these
Weaknesses
1. Lack of value-added proposition
1. Develop unique add-ons to exceed
competition
2. Limited marketing resources (only one person
dedicated to marketing)
2. Hire additional marketing staff &
dedicated liaison with language ability
3. Limited resources (human, capital)
capabilities. (Small staff, vulnerable to vital
employees leaving)
3. Identify investors/ keep increasing staff
4. Lack of marketing plan
5. Lack of brand recognition
4. Implement Monterey Institute of
International Studies (MIIS) consultant’s
plan
6. Limited track record
5. Increase exposure through current and
future partners
6. Build clientele/focus on more recognizable
and popular names
Opportunities
How to Take Advantage of these
Opportunities
1. The VoIP industry is on the rise with VoIP
users expected to increase from 45 million in
2005 to 441 million in 2009 worldwide
1. Invest now
2. Nascent industry
2. Act fast to take first mover advantage
3. Government funding: increase broadband
access. I.E. Philly, SF, Seattle, establishing
networks.
3. Target areas where the government
activity is aggregated
4. Trend towards convergence
4. Use convergence applications to add-value
for PPPhone
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Threats
How to Mitigate these Threats
1. Several competitors with more product
features to offers
1. Match and exceed all competitors features.
2. Low barriers to entry
2. Achieve significant market presence.
3. Softphones could become (or may already be)
a commodity
3. Create a niche/ integrate product with
something else.
4. Possible imposition of government regulations
4. Prepare programs in order to comply or
easily convert the software.
5. Developments in technology could change this
market faster than ISR could adapt.
5. Predict and be ahead of trends.
6. Traditional telecoms and mobile services are
fighting VoIP adoption.
6. Create partnerships and teach them how to
convert to the benefits of VoIP/ become part
of an association.
Company Opportunity and Readiness to Export (CORE) Assessment
In order to get an evaluation of our current assessment as to whether or not ISR’s product,
the PPPhone, is ready to be sold internationally, the CORE (Company Readiness to
Export) software program provided a framework for analyzing specific areas where ISR
needs to be adequately prepared in order to export. The assessment results provided
insights and recommendations for ISR. CORE gave us a moderate overall score of 77%
out of 100% including feedback covering these areas:
Competitive Capabilities in the Primary Market:
Moderate 56%
Motivation for Going International:
Excellent 99%
Commitment of Owners/Top Management:
Moderate 66%
Skills, Resources & Knowledge:
Moderate 76%
Experience & Training:
Moderate 75%
Product Readiness for Foreign Markets:
Excellent 94%
An expansion on each of these areas is provided in Appendix A: Export Assessment
Operating in a nascent, highly segmented industry of the global IP telephony softphone
market, ISR has a product that is ready to compete outside of the Japanese market but its
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knowledge and resources limit the company’s growth potential. With the majority of the
company consisting of engineers and few sales representatives, investment in marketing
expertise and promotional business skills will greatly strengthen the company’s potential.
ISR has a product ready for the international market. PPPhone has virtually no cost to
transport, has high tolerance, is easily and readily applied, and price competitive. ISR
has motivated management, with one year commitment to exporting before seeing
returns, and is investing in the product, while pursuing investors and knowledge (by
contracting our consulting team.) With the tools ISR will acquire in hiring the MIIS
consulting team to prepare an international marketing plan, it is on its way to succeed and
meet its international expansion goals.
The following matrix summarized ISR’s current positioning.
ISR’s Readiness to Export Matrix
PRODUCT
READINESS
DOMESTIC
COMPETITIVE
CAPABILITIES
SKILLS,
RESOURCES, and
KNOWLEDGE
HIGH
Potential for
International
Success
MANAGEMENT
MOTIVATION
LOW
LOW
HIGH
Potential to further
operations domestically
Products and Services
Product and Service Description
Background
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VoIP makes it possible to change analog voice data into digital data and transmit it
through the Internet. This protocol allows users to make free and low-cost phone calls,
often between PDAs and PCs. The software that enables such devices to use VoIP
services is called a softphone. Collaboration with telecommunications companies enables
calls to cellular and home phones.
Softphone
[A softphone is] an application that enables a desktop, laptop or workstation computer to
function as a telephone via Voice over IP technology that uses the cables of a computer
network as the medium for transmitting telephone service. Equipped with a headset or a
hand-held device and using the numbers on the keyboard to dial, the computer with
softphone software can perform the full range of telephone features available through
traditional systems, such as teleconferencing and call forwarding. Softphones typically
make use of the computer's sound card for audio input and output.2
Tangible and intangible differentiation characteristics that softphone developers can
utilize to differentiate from other competitors are summarized in the following matrix.
Softphone Differentiation Matrix
Physical Characteristics
For visual interface: Shape, color appearance, and sounds
For equipment: Size and expansion of hardware
Performance Characteristics
Tangible
Reliability, consistency, speed of data transfer,
security of VoIP activities, and convergence
A li ti
Characteristics of Complements
Customer support, customization of application,
product upgrades, and new product availability
Social Considerations
Group involvement, save $, and brand loyalty
Emotional Considerations
Intangible
Means to afford contact with needed individuals or can always be contacted
impress friends (or business associates) with variety of applications
Psychological Needs
Guarantee of knowing their message will arrive or be sent
Aesthetic Considerations
Less bulky equipment in home or office
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PPPhone
PPPhone is a softphone produced by ISR.3
PPPhone on a
PC
PPPhone on a
PDA
Features
Benefits
!" Voicemail/ Email
!" Communicate when there is no answer
!" Presence
!" Know who is connected (More efficient communication)
!" Lower service rates
!" Save money (Unique to softphone)
!" Client-server architecture
!" More stable performance under heavy loads
!" PPPush (Push technology)
!" Ability to receive calls even when device is turned off
!" Simple GUI
!" Less time required to learn how the software functions
!" Data + Voice transmission with one
!" Simplification - easier convergence with other IT (Unique to
device and one service (works w/
softphone)
PDA or PC)
!" Compatible with Windows and
!" Works on most PCs and some handheld devices
PocketPC OS
!" Value-add for mobile end use, allowing more room for
!" Footprint size of 400 kb
converged applications
Although many of these features and benefits are unique to softphones in general (when
compared to standard phones), they are offered by most key industry players and are
therefore not unique to the PPPhone. The most unique feature and PPPhone’s
competitive advantage is it's the smallest known footprint size in the industry. No other
softphone seems to compare to this value-add. Only Cicero advertises that the footprint of
its mobile softphone, CiceroPhone, is less than 1 MB.
Core Benefit
According to Raul Mendez, the sound quality of the PPPhone performed “very well”
when compared to traditional telephony. Some softphone products have performed
poorly in the past, especially when the service experienced some degree of latency.
22
Unfortunately, users will only expect the same quality they can get with normal phones.
Although poor quality will certainly lose customers, good quality will probably not win
customers.
Quality is not essential because it will win clients, but because it will help you keep
clients. As shown below, though quality is not driving implementation, it is still a top
concern.
Top Concerns about VoIP Implementation
Other
12%
Interoperability
8%
Security
25%
Upgrade
Procedures
8%
Voice Quality
47%
4
Competitive Comparison
ISR’s primary competitors include CounterPath Solutions Inc. (CounterPath, formerly
Xten), Cicero, Avaya, and Persona due to the amount of market share they have acquired,
similar features, and competitive positioning. These observations are further analyzed
and expanded in the strategy section. Reference the excel spreadsheet in Appendix B:
Competitive Benchmarking for more details on how these competitors’ features compare
to ISR’s.
23
Main Competitors at a Glance
Cisco
Cisco dominates the market for equipment used to link networks and power the Internet.
With its brand recognition, unique bundling of mobility, directory integration, and virtual
conference room, the Cisco is one of the leading softphone developers in the United
States. Cisco’s strategy is to recruit people who will sell LAN as well as IP telephony,
which is its real value-add.
CounterPath
CounterPath, formally known as X-ten, is currently creating the perception that it is the
company “where Leaders in Communication [go] for VoIP, IP Videoconferencing, IM
and Presence SIP Softphone SDKs.” As one of the largest providers of softphones,
CounterPath has partnerships with Yahoo!, Vonage, MCI, and Plantronics. Although
many have reported that the software is difficult to set up, CounterPath is attempting to
balance quality and bandwidth by supporting a range of audio codecs, which cut down on
the amount of bandwidth that is consumed.
eBay
eBay’s recent purchase of Skype received a lot of publicity and much speculation as to
why the company paid more than 4 times as much as the perceived value of Skype.
Skype is a peer-to-peer voice service that is simple, reliable, and free. Skype has
partnerships with over 36 companies including Packard Bell, Siemens, Motorola, and
Logitech. Skype offers a free product that is secure, does not require firewall
configuration, performs quick transfer of large files, and is available in 27 languages.
Skype does not use the SIP standard, so it cannot interoperate with other Internet
Telephony systems. However, this is largely justified since most of its advantages come
from using a new protocol instead of SIP, which does not work well behind firewalls.
Another weakness is Skype’s limited number of features, but most consumers feel that is
a small price to pay for a system that works so well. Skype’s strategy of offering the base
product for free while charging only for additional features and services has proven to be
very successful.
Vonage
Vonage is an all-inclusive phone service provider that uses CounterPath’s softphone. The
company has a large marketing and advertising campaign that is greatly increasing
customer awareness of VoIP.
24
Cicero Networks
Cicero’s mission is to enable the delivery of wireless VoIP services while maintaining
mobility and flexibility for end users at a lower cost. Cicero offers a single, very
streamlined product known as the CiceroPhone that appears to be compatible with several
carriers. This highly focused and well-positioned product uses a single dialer for all calls
and is overall a very well engineered product.
Avaya
Avaya is a leading global provider of business communications applications, systems,
and services focused entirely on serving the needs of businesses large to small for more
than a century. Avaya has strong alliances with large telecom companies (AT&T,
Motorola, Equant, HP, and Sprint).
Nortel
Nortel claims to be the supplier of secure, reliable, and dependable voice, video, and data
at a fraction of the cost of traditional phone services. Nortel sells the IP Softphone 2050,
which appeals to a broad landscape of user environments because of its multiple audio
interfaces. Nortel has focused its supplier strategy around Nortel’s Supplier Business
Engagement Model (SBEM). This model is a centralized, disciplined, and highly
collaborative approach to supplier selection, designed to strengthen supplier relationships
and drive greater spending with fewer suppliers – those with the products, capabilities,
innovation, and talent that best complement Nortel’s own strengths.
SJ Labs
SJ Labs’ flagship product is SJphone. SJ Labs’ strategy is to create partnerships with
hardware vendors and Internet service providers to customize, integrate, and support
VoIP solutions which will meet the needs of each of them; to maintain our own strong
R&D, which will provide long-term success in the ever-changing high-tech world.
I2Telecom
i2Telecom provides high-quality international and domestic long distance calling service.
Its products are the i2Bridge and the Voice Stick. The Voice Stick often referred to as a
“telephone on wheels,” is a USB memory stick type that enables users to switch between
VoIP and PSTN for local or emergency calls. i2Telecom also introduced innovative
channel strategy programs called VVNE (Virtual VoIP Network Enabler) and VVNO
25
(Virtual VoIP Network Operator). These programs provide a flexible, cost effective, and
rapidly deployable platform that enable agents, resellers and operators to quickly enter
into the VoIP services arena. The new service offerings provide channel partners with
additional revenue streams and new profit centers. The Voice Sticks will be sold to
travelers by Digital & Wireless through airports, retailers, duty-free shops, airlines, cruise
lines, etc.
Jajah
This free VoIP service is in direct competition with Skype. Its ability to individualize the
appearance and settings of the dial pad has given it an edge on competition. Though Jajah
software does offer video chat, the quality still needs improvement.
Linspire
Linspire, Inc. was founded to bring VoIP to different operating systems. Its VoIP product
Phonegaim is another direct competitor to Skype. Its free VoIP software gives free voice
mail as well as low costs for selected international calling areas. The product is
compatible with Linux. There is no complete home or office integration.
Terasens
Terasens offers both a free and paid softphone that can handle a multitude of users and
software applications. Its continual expansion of products and convergence applications
give this company a competitive advantage.
M2X
One of the least expensive softphones and VoIP companies in Japan, M2X, offers “free”
calls between “any” IP phones, even those calls between different ISPs. Its strategy is to
make a profit from monthly fees instead of the fees related to amount of usage. It
provides total IP phone services including system integration.
Persona Software
Persona software is an award winning software company that provides a variety of
application for VoIP services. Its software tries to incorporate a multitude of business
related application to be utilized by a large business or an individual customer. Persona
Software strengths include aggressive tactics and an ability to partner with multiple
convergence groups.
26
Future Products and Services
The industry is trending toward dual Wi-Fi/cellular devices with softphones embedded,
which will be explained later in the Market Growth and Trends section. This plan centers
on this trend as one of the keys to PPPhone’s success.
Softphones that have dual Wi-Fi/cellular handset capabilities
Cicero Networks
CiceroPhone, a dual-mode VoWi-Fi and Cellular softphone supports fixed, mobile, and
IP calls. Optimized to run on wireless devices such as mobile phones and PDAs,
CiceroPhone is designed for fixed-line operators and alternative service providers who
wish to offer wVoIP (wireless Voice over Internet Protocol) services to their enterprise
and residential customers. CiceroPhone is also ideal for softswitch manufacturers and
network equipment vendors who want to enhance their existing products with wVoIP.
As of October 11, 2005, Cicero has partnerships with HP, UTStarcom, 3Com, and
Hitachi to advance the capability of its technology.5
Persona Software Inc.
Persona OnePhone 2.0 provides support for an expanded range of dual mode (WiFi/cellular) handsets and operating systems including Symbian OS, the operating system
used by many of the worlds leading handset manufacturers. In addition, this latest version
of Persona OnePhone adds several important end user features, increases security
capabilities, and integrates seamlessly with the IP Multimedia Subsystem (IMS), which is
the basis for FMC and future converged services. Persona OnePhone 2.0 will be
available for release to networking companies for solution integration on November 15,
2005. Persona’s main partnerships with Siemens and UTStarcom give it a competitive
edge in this market.6
27
Market Analysis Summary
Market Definition
The IP telephony market, as defined by the MIIS business plan team, is comprised of
VoIP service providers. This includes VoIP service providers who are VoIP pure
players, mobile providers, telecommunication companies (telcos), cable providers,
systems integration vendors, and Internet Service Providers (ISPs). Software and front
end (handset) hardware providers are a way to access service providers in ISR’s market.
Definitions
Endpoint
“SIP or H.323 terminal or Gateway. An endpoint can Call and be Called.
It generates and terminates the information stream.”7 Softphones, desktop
IP phones, and analog telephones connected to analog telephone adapters
(ATAs) are all examples of VoIP endpoints. Numbers of VoIP
subscribers and numbers of VoIP lines are closely related but not the
same as numbers of VoIP endpoints. Estimates of the residential or retail
VoIP market are usually in subscribers or endpoints and estimates of the
business or corporate VoIP market are usually in lines or endpoints. For
purposes of this report, it is assumed that the number of retail VoIP
subscribers is approximately equal to the number of retail VoIP
endpoints.
1 VoIP subscriber ! 1 VoIP endpoint
Based on a forecast of 532 million corporate VoIP lines in 20098 and
another of 155 million corporate VoIP endpoints in 2009, 9 this report
assumes that 1 VoIP line is approximately equal to 0.2914 VoIP
endpoints3.
1 VoIP line ! 0.291 VoIP endpoints
Total Available
Market (TAM)
All VoIP endpoints including those composed of client-server softphones,
PC-to-PC softphones, desktop IP phones, and analog telephones with
ATAs. All of these endpoints could potentially use a softphone or SIP
stack (softphone without a GUI) produced by ISR.
Served Available
Market (SAM)
A subgroup of TAM. All client-server softphone endpoints. (This
excludes PC-to-PC softphones, desktop IP phones, or analog telephones
with ATAs.) This is the market that the PPPhone can serve.
Share of Market
(SOM)
A subgroup of SAM. A percentage or number of endpoints that reflects
the portion of the SAM that is captured by PPPhone.
3
This figure is calculated by dividing 155 million endpoints by 532 million lines in order to have a ratio to
be used in further analyses.
28
Total Available Market
Served Available Market
Share of Market
Market Size
Residential VoIP endpoints currently total approximately 17.4 million based on the
estimated 1:1 endpoint: subscriber ratio to the VoIP subscriber distribution by ZDNet
Research as of 7/18/2005 that can be found in Appendix C: Global VoIP Subscriber
Distribution. 10 Business VoIP endpoints total approximately 11.4 million. This is
calculated by multiplying an estimated line-to-endpoint ratio of 1 to 0.2914 by an
estimated 39 million corporate VoIP lines in 2005. 11 This brings the total available
market of all VoIP endpoints to approximately 28.8 million endpoints. *These figures
were updated as of November 23, 2005 and are subject to change.
World VoIP Market in Endpoints as of July 2005
(Numbers in millions)
Residential Business Total Percent
17.4
11.4 28.8
100%
Total Available Market:
All VoIP Endpoints
ATAs & Desktop IP Phones
6.0
6.0 12.0
41%
PC-to-PC Softphones
5.9
5.9
21%
5.5
5.4 10.9
38%
Served Available Market:
Client-Server Softphones
The served available market of 10.9 million endpoints was obtained by subtracting the
total number of ATAs, desktop IP phones, and PC-to-PC softphones from the total
available market. The total number of ATAs and desktop IP phones is estimated at
roughly 12 million, with 6 million residential and 6 million business endpoints, based on
current use of 8 million ATAs and 2004-05 annual sales12 of 5.1 million desktop IP
phones.13
29
2005 Total Available Market
(in thousands)
Served Available
Market, 10858,
38%
P2P, 5905, 21%
ATAs & Desktop
IP Phones,
12000, 41%
The served available market (SAM) can be segmented in many different ways in order to
identify which segment is the largest, and give a starting point to later identify which
segment is growing the fastest. This segmentation is important because it will help
identify which segments ISR must focus on in order to capture the largest possible share
of market (SOM).
2005 Served Available Market
(in thousands)
Business, 5363,
49%
30
Retail, 5495,
51%
2005 Geographic Distribution
of Served Available Market
North America
15%
Rest of the
World
4%
Europe
19%
Asia
62%
14
The market size numbers are merely a starting point to estimate market growth.
Conclusions about which market is most attractive cannot be derived from these numbers
alone. For example, the fixed portion of the served available market is currently much
larger than the mobile portion, which is currently almost nonexistent at a mere 2% of the
total market.15 However, as is illustrated in the growth section, the mobile portion will be
growing much faster than the fixed portion. Likewise, although the Asian portion of the
served available market is currently the world’s largest geographic VoIP market, this
market’s growth rate will begin to slow as it approaches the late majority adopter stage at
the same time the rest of the world is in the early majority adopter stage. And the
residential and business markets may currently look about equal in size, but one of them
may look more attractive if it adopts a larger percentage of the fast growing mobile
market. In conclusion, these estimates of market size are merely starting points to
analyze market needs and trends and estimate market growth, which is even more
important.
Market Needs & Trends (World)
General Trends driving IP-telephony’s Growth:
" Falling prices for IP phones and media gateways
" Increasing number of customer LAN/WANs capable of supporting quality of service
31
(QOS) requirements for real-time voice
" Improved system design to meet customer needs such as remote location support:
improved survivability: and new disaster recovery options
" General market acceptance of the technology platform as risk-acceptable
The final market driver is perhaps the most important because poor product quality was a
strong inhibitor at the beginning of the decade, when customers first began to seriously
consider the new technology. The most first-generation IP telephones and media
gateways required major design fixes, as did the generic software packages. Learning
from their mistakes, manufacturers have addressed many of these problems.16
Low Cost Telephony is the Killer Application of Today
In the figure below we have identified 6 typical end-user VoIP segments within mobile
and fixed-line telephony. Front-runners can be defined as consumers seeking out new
technology; they are the opposite of low involvement consumers who wait for technology
to provide convenience for them. The average family can be defined as residential
consumers. The mobility and work-smarter end users are mainly professional consumers
who need technology to make their lives easier.
End user segments
Front runnners
15%
Low involvement
10%
Average family
15%
Cost savings
30%
Mobility
15%
Work Smarter
15%
The largest segment is that of the price focused customer, or the cost savings segment.
This segment represents approximately 30% of all customers, who will change from their
existing telephony supplier as soon as they get a cheaper alternative, assuming that the
product and services are convenient to use.17
32
Regional Needs and Trends
At current trends in the adoption of both broadband and VoIP, 10% to 20% of users in
Japan, the United Kingdom, and the United States may switch to VoIP in the time span of
2007 to 2010. For fixed-line incumbents, this translates into threatened voice revenues of
approximately $2 billion to $2.7 billion in Japan, $500 million to $700 million in the
United Kingdom, and $4.3 billion to $5.5 billion in the United States. These trends are
an indicator of disruptive turbulence to come in the near future.18
19
The market research firm, iSuppli, predicts Japan and the U.S./Canada regions will
continue to dominate the residential VoIP subscriber market during the coming years. At
the end of 2004, the three nations together will accounted for 83 percent of the total
residential wireline (equipment) VoIP subscribers. By 2010, these countries still will
account for more than half of all residential VoIP subscribers, at 56.4 percent, the firm
concluded.20
Internet usage worldwide has grown 165% from 2000 to 2005 with 15% of the world
population using the internet. The three largest regions by percentage are 34% in Asia,
28% in Europe, and 23% in North America.21 These three regions are the most advanced
in the world to adopt VoIP in the near future due to their dominant usage of the internet
worldwide and advanced networks necessary.
33
Internet Usage Worldwide
Rest of World
15%
Asia
34%
North
America
23%
Europe
28%
The trend of increasing global broadband penetration will play a significant role in the
rate of VoIP adoption. A total of 85.3 million DSL subscribers globally exhibits a growth
of more than 39% as of December 8, 2004, according to the latest data produced for the
DSL Forum by industry analyst Point Topic. DSL - the world's most popular broadband
technology - added another 24 million subscribers in the first nine months of 2004, as
more than half a million people each week are choosing digital subscriber line (DSL)
around the world.22
Q3 04 DSL Subscribers
European Union
Asia Pacific
North America
South & SE Asia
Latin America
Middle East & Africa
Other Europe
Total
Total Subscribers
26,518,252
24,062,660
15,162,697
14,601,500
2,864,775
858,500
1,199,000
85,267,384
% of World Total
31.10
28.22
17.78
17.12
3.36
1.01
1.41
100.00
According to the data, DSL is also acquiring an even bigger market share in other
countries with high cable penetration. Announcing the figures at the DSL Forum's yearend meeting, its president Tom Starr said, "By the time we next meet in February 2005,
DSL subscribers will have passed the 100 million-subscriber milestone - a major
landmark on the way to a global mass market for this world-leading broadband
technology. That will mean 10% of the world's phone lines are delivering the very real
benefits of the digital society to people in every region."
The ten largest DSL populated countries now account for more than 80% of DSL
subscribers worldwide. Tim Johnson of Point Topic commented, "This is a classic pattern
for the early stages of a dynamic market. We can now see growth rates leveling off as
34
leading countries like South Korea, Taiwan, and Hong Kong approach 30% market
penetration. But there is another cycle of growth still to come. We will see new
broadband applications beginning to take hold, like voice and video that will drive the
next cycle and then, in a year or two, broadband will be going into homes that have no
interest in owning PCs or surfing the Internet."
Business Needs & Trends
!"
Businesses are trending towards becoming increasingly global while incurring
escalating communication costs.
!"
Diversification exists in dispersing human resources, thus requiring more efficient
communication.
!"
The current fast-paced business environment demands real-time communication and
data transfer with the growing application of ERP- Enterprise Resource Planning –
providing an entire computerized systems integration.
!"
Many companies, ranging from the smallest company to large multinationals, are
using advanced technology to add features that will attract customers, thus making
this technology essential to their business.
!"
Although mass production of dual-mode sets is not scheduled until 2007, an In-Stat
market survey found that over 80 percent of businesses have an interest in the
technology.23
70% of IT managers would prefer their VoIP service to come from a company that owns
its own national fiber network compared with a provider that leases internet access from
another company.24
-
-
Mainstream businesses, and not just technical companies are adopting it.
According to Eric Bozich, Vice President of National Network Services at Qwest,
“We have moved past educating customers on ‘what VoIP is’ to demonstrating
‘what VoIP can do’.”
This is evident in that cost savings drivers will always be important, but the real
benefit of VoIP is its long term productivity”25
Primary Driver for VoIP Migration
Features and
Productivity
36%
Cost Savings
64%
35
44% of Corporate Telephone Lines Worldwide are IP-based by 200926
IP telephony is poised for strong growth worldwide. Over the next four years, the number
of worldwide corporate IP telephony lines will increase by over 490 million, from 39
million in 2005 to 532 million in 2009– nearly 14 times as many as the current installed
base. 27
“Revenue in the corporate IP telephony market will total nearly $1.0 billion in 2004.
Over the next four years, this revenue will increase substantially, reaching $5.5 billion in
2008.
Although overall VoIP revenue will continue to rise annually, the price per user of IP
telephony will decline as the technology proliferates.
Uptake for IP telephony will be greatest in large corporations. Most of these companies
will deploy Hybrid PBX systems, which include both IP and traditional TDM technology.
Pure IP-PBX deployments will take place primarily in small corporations and Greenfield
environments.”28
Recent market surveys, shown below, point to a few more of the reasons why businesses
feel they might need VoIP.
According to the following chart, VoIP is being implemented to fill the following needs:
lower telephony costs, easier videoconferencing, easier conference call setup, improved
staff collaboration, improved organizational effectiveness, easier archiving, improved
security, improved system compatibility, and improved sound quality.
Perceived Potential Benefits of VoIP
VoIP w ould reduce our telephony costs
VoIP w ould make it easier to do videoconferencing
VoIP w ould make it easier to set up conference calls
VoIP w ould improve collaboration among staff members
VoIP w ould make archiving easier
VoIP w ould improve organizational effectiveness
VoIP w ould improve telecom/messaging security
VoIP w ould improve compatibility across messaging systems
VoIP w ould improve sound quality/fidelity of communications
0%
10%
20%
30%
40%
50%
% of Respondents Who Feel that Benefiit Would Be Significant or Major
29
36
60%
Consumer Needs & Trends
!"
!"
!"
!"
!"
!"
!"
!"
With an increase in the use and ease of cellular phones, they have become
increasingly common for people to use their cell phone as their primary and only
phone. This trend is growing more common among young adults and will clearly
become increasingly popular as these population ages.
Increasing consumer choices cause consumers to demand lower prices for
communications.
Consumers also expect more customization of their devices and individual plans for
their communication needs.
With the bundling of e-mail, cellular, and instant messaging forms of communication,
customers tend to expect more functions in one device (camera phones, iPod phones,
and smartphones.) The trend towards multi-functional devices or smartphones
combines computing functions, wireless Internet access, and multimedia
capabilities. 30 From researching what hardware is available, we found that
consumers prefer devices that have the look of an oversized cell phone with a large
GUI and all the functionalities (i.e. redial, hold, feel, etc.) of a normal phone.
Developing Internet infrastructure has increased the number of broadband lines and
its users.
The rise of Skype, a global leading softphone company, and Vonage has increased
consumer awareness of the VoIP Industry.
There is a high propensity for consumers to switch from their current modes of
communication to free software such as Skype. As consumers are trending towards
more value-added services, they will continue to expect the devices and software to
be free with paid services.
Increasing numbers of VoIP software users demand more convenience, such as
easily accessible wireless networks.
A consumer survey was conducted on the MIIS campus October 5, 2005 to identify the
awareness and usage of VoIP and consumers propensity to switch to this type of service.
A copy of the survey can be found in Appendix D: VoIP Softphone Market Survey. With
the international community of MIIS, our survey led us to conclude some of the global
consumer needs and trends mentioned above. Specifically, the survey supported:
consumers’ trend towards seeking more cost-effective long distance and international
communication, the awareness of Skype with 100% of respondents mentioning the
service, and preferences towards online communications with voice being a more
effective means of communication. We also found that consumers would prefer to have a
softphone in their PDA or telephone to be more efficiently mobile than having to be
confined to their PC.
The analysis of the survey can be found in Appendix E: 10-5 Survey Results.
37
Market Growth (World)
Total Available World VoIP Market by Subscribers
2005
2006
2007
2008
2009
2010
CAGR4
Corporate
11,362,782 34,554,630 62,574,208 99,871,793 155,000,000 244,395,376
162%
Residential/SOHO 17,400,000 40,818,091 67,635,360 99,976,521 141,294,385 197,200,000
63%
Total
28,762,782 75,372,722 130,209,568 199,848,315 296,294,385 441,595,376
31 32
/
Total Available World VoIP Market by Subcribers
.
Millions
350
.
300
Subscribers
250
200
Residential/SOHO VoIP
Subscribers
150
Corporate VoIP Subscribers
100
50
0
2005
2006
2007
2008
2009
Year
The following table summarizes the projected compounded average growth rate (CAGR)
in each region for the 2003-2012 time periods. “The VoP [Voice over Packet] market
includes all packetized voice services, including Voice over ATM and Frame Relay,
which may or may not use Internet protocol (IP). [VoIP], however, is clearly the
predominant format for VoP usage.”33
38
Voice over Packet Market
CAGR by Region 2003 – 2012
Sales (million $)
Region
2003
2012
%/year CAGR
North America
637
5,026
25.8%
Central & South America
204
1,623
25.9%
1,038
4,564
17.9%
166
1,345
26.2%
1,263
5,876
18.6%
276
2,535
27.9%
53
606
31.0%
3,637
21,576
21.9%
Western Europe
Eastern Europe
East Asia & Pacific
Rest of Asia/Middle East
Africa
Total Worldwide
Source: Dittberner Associates, Inc.
Japan is further along in its adoption of both fixed and mobile VoIP, which means that it
will arrive sooner at the early maturity phase when the growth rate begins to slow. North
America and Western Europe are at an earlier point in the adoption process when the
growth rate is still expected to increase for several years.
Innovators
Early
Adopters
"The
Chasm"
Early
Majority
Late
Majority
Laggards
Japan
Western Europe
North America
Technology Adoption Process
Mobile Handset Growth
In business and consumer markets, widespread adoption of VoIP depends on the
availability of wireless VoIP handsets. Dual-mode mobile/ Wi-Fi handsets will be the key
driver to mass consumer adoption of VoIP. By 2009, over 66 million mobile/ Wi-Fi
handsets will be in operation, according to the report from market research firm In-Stat.
“Wireless high-speed broadband access, unified messaging, video, and dual-network
cellular/ Wi-Fi services are making the mobile triple play a consumer market reality,”
says Keith Nissen, In-Stat analyst. “The key to successfully capturing the market for
39
these next-generation personalized services is control of the end-point device.”
Worldwide, consumer VoIP subscribers using wireless IP phones will grow from two per
cent currently to 73 percent in 2009.34
Growth of Wi-Fi enabled handsets will greatly determine growth of the softphone market
as a whole. After noting that price might not be enough to convert consumers to VoIP,
Joe Laszlo, senior analyst at Jupiter Research said that ”the biggest competitors to VoIP
are the cellular providers, not the local phone company." 35 This emphasizes the need for
wireless access to VoIP, meaning the growth of VoIP enabled handsets to compliment the
growth of VoIP and softphone markets.
In 2004, “worldwide Wi-Fi VoIP handset revenue totaled $54.7 million and units totaled
143,000,” 36 while “worldwide dual-mode Wi-Fi/cellular handset revenues hit $6.7
million” 37 and units totaled at least 8,000.38 As illustrated below, the dual-mode WiFi/cellular unit is expected to quickly take over the market and grow at a CAGR of more
than 100%. It is anticipated that “Wi-Fi capability will eventually become a common
feature in cell phones, just as it is becoming standard in laptops today.” 39
Outside of the largest OEMs lies a big potential customer base. Six manufacturers,
according to the market research firm, made some 74 percent of the handsets produced
worldwide in 2003 Yankee Group. More than 120 manufacturers made up the remaining
26 percent - representing about $2 billion of the total handset market - and they are
looking to contract manufacturers and outside design partners for product. "There's a lot
of potential in the 26 percent that can be unlocked with a sophisticated approach to
design, integration, manufacturing, marketing and distribution," Jackson said. 40 These
statistics illustrate the potential for ISR to have significant access to distribution channels,
which is further analyzed, in the distribution strategy section.
The illustration below not only shows that the softphone market is likely to grow very
quickly, but also that the wireless softphone market will likely grow faster among cell
phone manufacturers and cell phone service providers than among companies that
provide strictly mobile VoIP service or strictly VoIP enabled handsets.
40
41
A study from ABI Research suggested that annual global sales of dual-mode mobile/WiFi phones would exceed 100 million by 2010. It noted that while dual-mode handsets
were virtually unknown to both consumers and enterprises until now, that was about to
change. The dual-mode services planned by BT and Korea Telecom this year could start
a very large trend according to ABI Research senior analyst Philip Solis. However, it is
not all roses in the world of Wi-Fi, particularly for voice. Other problems that need to be
addressed include security, encryption, QoS (quality of service), and charging and billing,
according to Mohammad Akhtar, Vice President, and technology marketing for Motorola
Asia Pacific. Another issue will be the availability of the devices.
"In the short term we expect the impact to be small as the dual-mode Wi-Fi/GSM phones
will not be available in volume until 2006," he noted. "Additionally, the affordability of
these devices might be a factor for mass-market adoption in the short term."42
Residential/SOHO VoIP Service
Strong growth is also expected in the residential and SOHO (Small Office, Home Office)
VoIP service markets in the US and Europe, which will naturally translate into more
softphone installations.
“Vonage leads the residential and SOHO VoIP subscriber market, but their share is the
lowest it’s been in 9 months due to cable companies making gains,” Mitchell continued.
“Cablevision and Time Warner Cable each have double-digit share and combined have
over 40% of all North American residential VoIP subscribers. Time Warner Cable is
41
gaining subscriber share and they only sell within their footprint, not nationwide like
AT&T and Vonage.” (Reference VoIP Service Providers section for more information)
“The incumbent telcos have insubstantial subscriber share at this time, but we expect
them to make a bigger impact in coming years, because triple-play services will all be
based on broadband infrastructure, and legacy PSTN access will continue to slowly churn
away.”43
North American residential/SOHO VoIP subscribers jump from 1.1 million in 2004 to
24.3 million in 2008, with over 6 million new subscribers added in 2006, 2007, and 2008.
In Europe, VoIP subscribers multiply from 2.2 million in 2004 to 27.8 million in 2008,
with close to 8 million new subscribers in 2007 and 2008.44
45
A more conservative estimate from “a Jupiter Research report, ‘Broadband Telephony:
Leveraging Voice Over IP to Facilitate Competitive Voice Services’ forecasts VoIP
adoption will grow from only 1 percent of all US broadband households in 2004 to 17
percent by 2009 (representing 10 percent of all US households).” That is a rise from
400,000 to 12.1 million households, which is still quite a dramatic increase even though it
is more conservative than the estimate above.46
Corporate VoIP Service
Another indicator of strong growth in the global softphone market is that worldwide
corporate VoIP lines are anticipated to drastically overtake non-IP lines. 47
42
Worldwide Corporate Telephony Lines Installed,
2005&2009
Millions of Lines
532
600
443
500
400
300
187
Non-IP Telephony Lines
200
100
0
IP Telephony Lines
39
2005
2009
Year
48
Industry Analysis (World)
In order to analyze industry forces, this report looks more than just the five forces in
Michael Porter’s popular model, which are rivalry among existing competitors, threat of
new entrants, threat of substitutes, buyer power, and supplier power. The model
illustrated below combines competitors, new entrants, and substitutes into composite
competition. Furthermore, this model helps us to examine market turbulence, market
growth, complementors, and how all these factors influence the profitability and risk and
drive ISR’s overall strategy.49 The methodology behind these observations can be found
in Appendix F: Porter’s Five Forces.
43
Market influences on profitability, risk, and strategy
Suppliers
Composite
Competition*
Complementors
Profitability,
Risk & Strategy
Market
Turbulence
Market
Growth
Customers
* Combines direct competition, threat of
substitutes, and threat of new entrants.
50
Composite Competition
Rivalry among Existing Competitors
In our analysis of the VoIP/softphone market we concluded that there is currently an
overall low to moderate rivalry among competitors with concentration, product
differentiation, and excess capacity, and exit barriers are also low. The diversity among
competitors in this nascent industry is low to moderate because there is no standardized
product, and there are many different capabilities of the various products. The
investment to enter the market is moderate with the cost condition being a high fixed cost
variance due to the high initial investment and very low variable costs to distribute.51
How can ISR rise above the rivalry?
!" Partner with big names/ future market leader (make your rivalries partners)
!" Ensure product can be easily adaptable and accessible
Threat of New Entrants
Our analysis concluded that overall there are low to moderate barriers to entry in the
current VoIP market. Entry is low due to the fact that there are many engineers that can
easily write up an application, while it is also moderate due to the cost of creating the
software. There is high requirement for economies of scale, and absolute advantage is
44
high since the softphone is trending towards being a cheap commodity. The capital
requirement is medium, and there is high access to distribution channels. We also
indicated there is low product differentiation, low government and legal barriers (though
dependant on the country: low in the US, high in China), and low retaliation by
established competitors since there are not that many.
How does ISR mitigate this threat?
!" Increase R&D and differentiate its product
!" Capture optimal/remaining distribution channels
!" Pursue different complementors than competition
Threat of Substitutes
In analyzing a list of 14 different possible substitutes, there is a high threat of substitutes
with a high propensity towards ATA (Analog Telephone Adapters), traditional
telephones, cell phones, email, and instant messenger (IM) substitution in place of a
softphone. We compared each substitution by price and performance where a softphone
out priced 57% of substitutes, is about equal with 29%, and is out priced by 14% (email
and IM). Softphone outperformed 57% of substitutes, about the same with 36%, and
were out performed by 7% (video conferencing).52
How can ISR mitigate this threat?
!" Partner with substitutes (i.e., incorporate softphone with instant
messaging, converge several substitutes, etc.)
!" Integrate softphone into one system
Bargaining Power of Suppliers
Our analysis concluded that bargaining power of suppliers, such as skilled computer
engineers, is low since the size and concentration of suppliers relative to producers are
high. Suppliers’ price sensitivity is moderate because there is low product differentiation
and diverse competitors. The importance of having suppliers is integral to software
development, but their overall value is low.
How can ISR maximize its bargaining power with suppliers?
!" Offer more competitive salaries and incentives to obtain skilled staff
!" Use outsourcing
Bargaining Power of Buyers
Buyers, on the other hand, have high bargaining power due to the low concentration of
buyers relative to producers. Buyers’ switching costs are low (they could create their
own software or switch easily to another provider), and buyers’ information is high due
45
to many producers. They have the ability to backward integrate.53 The price sensitivity
of buyers is extremely high since there are fewer buyers than producers, with low
differentiation from product to product; buyers have many choices at low prices. Price
sensitivity pertaining to consumers is high since they expect a free or cheap product
whereas businesses are less price-sensitive; they are already saving money with VoIP
versus their current communication systems.
How can ISR increase its bargaining power with buyers?
!" Differentiate its product
!" Partner with an organization that will make the PPPhone appear to be a
standard (for instance a popular OS provider)
Market Turbulence
Overall market turbulence is high since VoIP is in a nascent industry, and a threat like
Microsoft has the ability to potentially take over a large segment of the market. In
addition, future government intervention is largely unknown with only China having any
real government barriers to market entry. In contrast, the city of Philadelphia54 unveiled
a controversial plan to transform its streets and neighborhoods into a gigantic wireless
Internet hotspot corresponding to President George Bush's goal of "universally available
broadband in the U.S. by 2007." 55
How can ISR mitigate this market turbulence?
!" Diversify target market segments
!" Keep focus on systems integration
!" Foresee and easily adapt to market needs and trends
Pricing
The law of supply and demand also works in the IP telephony market. An article has been
published by Communications Industry Researchers, which claimed the prices of the
traditional and the Internet telephony will equalize as soon as the quality of the both
standards will do so. We believe that the most significant obstacles in reaching the
equilibrium are the still unsatisfactory voice quality and the lack of means of commercial
deployments. Both of these areas are under investigation. The voice quality will increase
with special Quality of Service (QoS) means and generic increasing bandwidth.
Wiretapping
A pretty controversial discussion about the justification and standardization of
wiretapping as a legal issue took place on the Raven mailing list of IETF. Eventually,
IAB and IESG issued a RFC 2804, which justifies why IETF does not include such
functionality in its standards-track.56
46
International Accounting Rates
Each United States phone company negotiates an accounting rate with a Foreign Service
carrier for handling one minute of international phone service (delivered currently by
POTS, the plain old telephone system). Carriers are required to pay half of the
accounting rates, with one half of the rate going to each of the two carriers. If one carrier
originates more calls to the other, the carrier must make a settlement payment to the
other. The settlement rate is typically found by multiplying the accounting rate times the
number of excess minutes. VoIP calls bypass the international accounting and settlement
rate structure, allowing for much cheaper calling. As more users switch to VoIP for
international calling, the international community will need to decide if and how they will
regulate international VoIP rates.
Government Regulations
IP Telephony may also become a subject to government regulations. Such efforts are very
welcome to traditional telcos - a good example is the action brought by Czech Telecom
against Paegas' "Internet call" service. According to Bruce Jacobs, some governments
intend to regulate even the PC-based telephony (India, Pakistan), while others have
indicated they will treat IPT as simple resale (Canada) or have recognized that action is
premature.
As the use of VoIP continues to expand, the Internet communication technology
continues to cause legislative and administrative ripples around the world. The following
news story on March 10, 2005 highlights this trend.
The Instituto Costarricense de Electricidad, Costa Rica's state-owned telecommunication
monopoly, has proposed legislation that might make Internet telephone calls a crime. The
agency says that it views VoIP as a value-added telecommunication service that uses the
country's telecommunication infrastructure and which therefore must be regulated. Not
surprisingly, members of Costa Rica's software industry believe that the proposed
legislation could seriously harm their efforts to expand the country's software
development and outsourcing business.57
Countries Restricting VoIP
VoIP is restricted in Hungary, India, Brazil, China, Columbia, Czech Republic, Paraguay,
and Poland as of April, 2004.
In Hungary, IP telephony is allowed provided that the delay is more than 250
milliseconds and packet loss is more than 1%. Hungarian policy imposes sound quality
limits to prevent IP telephony from serving as a perfect substitute for PSTN voice
services.
In India, VoIP is allowed but only for communications from computer to computer.
47
The government in China actively licenses and promotes IP telephony services. It
sponsored the incumbent telecom operator, China Telecom, to build the largest such
network in the world. China is now at the center of telecommunications development.
In Poland, IP telephony is illegal because it is competing with the government’s exclusive
international service provider licensee, however, mobile phone operators are allowed to
route international phone calls over the Internet.58
Countries Prohibiting VoIP
As of April, 2004, VoIP is prohibited in Albania, Bahrain, Botswana, Burundi, Cuba,
Cyprus, Jordan, Kenya, Mauritius, Mexico, Nepal, Pakistan, Panama, Slovakia, South
Africa, Thailand, Turkey, Venezuela, Vietnam, and Yemen. The governments of these
countries have monopolies in telephone and telecommunications services and permit no
competition. Any competition with the government monopoly may bring about the loss
of vital funds and, therefore, is forbidden.59
Complementors
The sixth force added to Porter’s five forces model is complementors, defined by
Brandenburger and Nalebuff to be firms from which customers buy complementary
products or services and their effect is the mirror image of competitors. They increase
buyers’ willingness to pay for products and decrease the price that suppliers require for
their inputs. Complementors seem to be particularly important in situations where
businesses are developing entirely new ways of doing things or where standards play
important roles.60
ISR’s complementors have parallel aspects to buyers with high bargaining power and
high price sensitivity. We also recognize that the VoIP service plus the softphone
software is needed in order for it to be compatible with their systems.
Determining whom consumers and businesses will look to for VoIP software and service
is a good indicator of which products and services complement the PPPhone, and with
whom ISR could partner with. The consulting company Savatar asked 300 of the 1.8
million SMBs (small and medium businesses) in the US whom they would think of as a
business VoIP provider. Businesses are already looking to these types of companies to
provide VoIP services because they are indeed complementors of VoIP and softphones.
Furthermore, these companies, which include non-traditional telecoms, traditional
telecoms, equipment vendors, cable companies, and traditional ISPs, are also potential
distributors.61
48
Where Decision Makers at Small and Medium Businesses say
they wuld look for VoIP Service
Nontraditional
Telecoms
24%
Internet
Service Resellers Other
Providers 7%
2%
10%
No one in
particular
13%
Cable
Companies
13%
Equipment
Vendors
17%
Traditional
Telecoms
14%
Savatar also determined which other services these SMBs would consider purchasing
from the VoIP providers, displayed in the following graph, which seems to further
reinforce that ISPs and cable companies are good complementors and potential
distributors since they provide many of these complementary products and services
including web hosting and email.62
What other services would you consider
purchasing from a VoIP provider?
Web
Collaboration
19%
Web Hosting
18%
IM/Presence
5%
Other
3%
Email
18%
Data
37%
63
49
Chart of Complementors
The following graph displays the complementors and potential distributors that will be described in the following pages.
Complementors &
Potential Distributors
Systems
Integrators
& VARS
Service Providers
Carriers in the VoIP
Business
Pure VoIP Service
Providers
Telephone
Service
Mobile Phone
Service
ISPs
Traditional
Phone Service
Wireline ISPs
Narrowband
ISPs
Broadband
ISPs
Retail VoIP
Narrowband
ISPs
Telephone
Hardware
Desktop IP
Phones
Broadband
ISPs
Wide Area
Networks
Software
Developers
Connecting
Hardware
Mobile
Devices
Original
Design
Manufacturers
(ODMs)
Wireless ISPs
Hotspots
50
Wholesale
VoIP
Hardware
Manufacturers
Wireless
Dialup
Adapters
Original
Equipment
Manufacturers
(OEMs)
Routers
Back End
Hardware
ATAs
Video Game
Consoles
Other
Hardware
PCs
Operating
Systems
Global
Positioning
Systems
Personal
Computer OS
Software
Applications
Handheld OS
Cell Phone OS
Developers
Smartphone
OS
Developers
CRMs
Instant
Messengers
The above chart of potential distributors is not all-inclusive, and additional
complementors and distributors are likely to emerge as the softphone industry matures.
Service Providers
Traditional Phone Service Providers
The world’s largest telecommunication companies are giant holding companies. They
provide local and long-distance fixed-line services, broadband network services, and
wireless services.
Recent industry trends have driven the companies to provide broadband services
including VoIP services using high-speed Internet connection such as DSL and fiberoptic lines. Among the following top 10-telecommunication companies in terms of sales
and total subscribers, all companies except Vodafone Group and NTT DoCoMo have
fixed lines. The eight fixed-line service providers offer high-speed Internet access using
DSL and six out of the eight companies offer fiber-optic services. This trend to focus on
broadband will drive the VoIP market into the future, as it provides a foundation for all
players in the VoIP industry, indicating a guaranteed future for PPPhone. Worldwide,
fixed line subscribers total 225.6 million with these companies accounting for an
estimated 60% of this share. In addition to broadband, wireless service is also growing.
In fact, the following 10 companies already offer Wi-Fi services.
Subscrib
ers
(mil)
Market
Share
VOIP
Fiber
Optics
DS
L
WiFi
$100,99
0
28.1764
11.02%
Yes
Yes
Yes
Yes
$78,404
5865
25.71%
Planni
ng66
Yes
Yes
Yes
$71,283
14567
76.68%
Yes68
Yes
Yes
Yes
Sales
(mil)
1
2
3
4
5
6
7
8
9
10
NTT(2005)
Deutsche
Telekom(2004)
Verizon
Communications
Inc. (2004)
Vodafone
Group(2005)
France
Telecom(2004)
NTT
DoCoMo,
Inc(2005)
Telecom
Italia(2004)
Telefonica(2004)
SBC
Communications
Inc(2004)
BT Group(2005)
$64,505
$63,879
Yes
Wireless
5069
$45,184
22.16%
Yes70
Yes
Yes
Wireless
$42,314
Yes
Yes71
Yes
Yes
Yes
$42,278
4472
19.50%
Yes73
Yes
Yes
Yes
$40,787
5274
23.05%
Yes75
Yes
Yes
Yes
$35,194
3076
13.30%
Yes77
Yes
Yes
51
A description of these companies that own fixed lines can be found in Appendix G:
Traditional Telecom Company Profiles.
Internet Service Providers (ISPs)
ISP/IP Carrier Market Segments
The total ISP market includes four segments; business, consumer, value-added services,
and wholesale and private-label services, illustrated in the visual below. Worldwide
estimates indicate there will be nearly 1.7 billion internet users by the end of 200578
including all broadband and dialup businesses and consumers. 131 million consumer
broadband lines were active in 200379, and the installed base of DSL business subscribers
is expected to reach 8.5 million by the end of 200580, with many of the same providers
(i.e. AOL and SBC/Yahoo) providing value-added services as well as wholesale Internet
access.
!Internet access
!AT&T, Broadwing, Verizon
Business
Value-added services
!Advertising, IP VPNs
!Verio, AOL, SBC/Yahoo!
Total
ISP
Market
Consumer
!Internet access
!AOL, EarthLink, local ISPs
Wholesale
!Transport, Internet access, private-label services
!Level 3, MCI, Equant
81
The technologies ISPs provide make it possible to connect to the Internet from your PC,
Mac, PDA or other mobile device. Their aim is to provide access that is easy to use. ISPs
offer dial-up, Wi-Fi, broadband, and satellite access. Their goal is also to have Internet
service in as many places as possible, and most of these companies are working to make
it available in more places every day. ISPs are very price competitive and highly
diversified with many owned by conglomerates, making them difficult to identify.
Among the thousands of ISPs worldwide, the top ten global Internet service providers
make access available in over 150 countries on five continents.82 The following top ten
ISPs are ranked globally by their subscriber base versus sales volume since this is more
52
quantifiable in assessing their ISP business. The year for each provider indicates when
the sales data was retrieved. Each ISP is currently providing VoIP services in their
region and globally with various partners. Four of the ISPs provide softphones, four do
not, and two are unknown.
These ISPs make up 5.6% of estimated Internet users with thousands of other global ISPs
accounting for the rest, 94.4%, of this huge diversified market.
Top Global Internet Service Providers Ranked by Subscribers
Subs.
(mil)
Sales
(mil)
Softphone
1
AOL (2004)
29.0
$8,69283
Yes
2
T-Online (2004)
13.6
$2,74484
No
3
Wanadoo (2004)
9.7
$3,89385
Yes- Service, not software,
via « Live Box »86
4
Comcast(2004)
7.7
5
Tiscali(2004)
7.489
$1,08090
6
Korea Telecom(2005)
6.291
N/A
7
SBC(2004)
6.092
$4,11693
No
8
Earthlink(2004)
5.4
$1,38294
Yes
9
Nifty(2004)
5.295
N/A
?
10
Yahoo BB(2005)
4.796
N/A
Yes
$2,12987
No-Service via Vonage88
No
?
A description of these ISPs can be found in Appendix H: ISP Company Profiles.
Top 10 ISPs in the US
A recent study by Jupiter Research lists the top ISPs in the US and their market share.
This provides a nice comparison with the global ISPs since the top four in the US have
the largest subscriber base when compared to others globally. Jupiter Research estimates
the total number of subscribers to be 83.7 million in the US; this only includes residential
consumer accounts. All subscriber counts are as of June 31, 2005. 97
The top 10 US ISPs account for 62.8% of the US consumer residential market, with
37.2% belonging to the hundreds of other providers, encompassing a large potential
53
opportunity for ISR.
Top 10 ISPs in the US
Rank
ISP
Subs.
Date & Source
Market
Share
(millions)
1
2
3
America
Online (all
U.S.
AOL
brand
accounts)
Comcast
20.8
[August
Trending Schedules
3,
2005]
22.2%
[August
Press Release [.pdf]
2,
2005]
8.2%
25,
2005]
(cable
broadband)
7.7
SBC
6.0 http://www.gateway.com/about/spotnews/releases.shtml
(DSL
only)
[April
6.4%
Press Release
EarthLink
4
(DSL, dialup,
cable,
satellite, PLC,
and
web
hosting—SK
EarthLink
not included)
5
Road
Runner
6
Verizon
7
(cable
broadband)
(DSL only)
United
Online
(counting
paid dialup
only)
[August
9,
2005]
4.5
[August
Trending Schedules
3,
2005]
[August
8,
2005]
[August
8,
2.8
9
BellSouth
(cable
broadband)
3.3%
SEC 10-Q
(cable
broadband)
Charter
4.4%
2005]
Cox
10
4.8%
SEC 10-Q
8
(DSL only)
5.7%
SEC 10-Q
[August
Press Release
9,
2005]
[August
3,
2005]
3.0%
2.6%
SEC 10-Q
[August
2,
2005]
2.2%
SEC 10-Q
Mobile Phone Service Providers
Many cell phone service providers are rumored to be looking toward VoIP service out of
fear. However, Sprint has recently partnered with Avaya as a software provider/ systems
54
integrator to potentially provide a dualphone as part of its service plan. We see this
market segment adopting dualphones more competitively in the future with more players
entering the market and an increasing amount of partnerships in 2006.
Top Cell Phone Service Providers98
Service Provider
Cingular Wireless
AT&T Wireless Services
Verizon Wireless
Sprint PCS
Nextel Communications,
Inc
T-Mobile
U.S. Cellular
ALLTEL Corporation
Dobson Cellular Systems
Western Wireless
Number of
Subscribers
44+ million
Merged with
Cingular Wireless
37 million
29+ million
Merged with Sprint
PCS
13+ million
4+ million
4.4+ million
1.5+ million
Merged with
ALLTEL
Percent of
Market
22%
18%
14%
6%
2%
1.9%
<1%
36% of the market shares are divided amongst hundreds of other service providers.
Dual Phones offered by Mobile Phone Service Providers
Six years have passed since the IEEE 802.11b/a was standardized. Now, many wireless
and wired service providers aim at providing converged services over both cellular and
Wi-Fi networks. Among them, TeliaSonera in Norway started providing Wi-Fi
technology and now provides integrated services in Northern Europe. Some other
competitors such as T-Mobile, Cingular, Vodafone, and France Telecom have begun to
follow TeliaSonera’s Wi-Fi strategy.99
Unlicensed Mobile Access (UMA) is a wireless-networking infrastructure effort intended
to allow calls roaming between GSM cellular networks and Wi-Fi networks. 100
Accordingly, the companies that participate in the UMA can be considered, at least, to be
planning to provide the converged services. The participants are Alcatel, British Telecom,
Cingular, Ericsson, Kineto Wireless Motorola, Nokia, Nortel Networks, and O2,
Research in Motion Rogers Wireless, Siemens, Sony Ericsson, and T-Mobile USA.
The following table shows whether each cell phone service provider offers or plans to
offer the converged services of Wi-Fi/ Cellular Phone. In addition, it indicates the
handset manufacturers in case the company provides the converged services. News
information pertaining to some of these providers can be found in:
55
Appendix I: Dual Phone Offerings by Mobile Providers.
Wi-Fi/ Cellular
Phone
Top 10 US Cell Phone
Existing
Verizon Wireless
AT&T Wireless Service
Singular
Wireless
(US/EU)
Sprint PCS
Nextel Communications,
Inc
T-Mobile (US/EU)
U.S. Cellular
ALLTEL Corporation
Dobson Cellular Systems
Western Wireless
No
Handsets
Planning
Merged with Singular Wireless
Yes
-
Yes
-
Siemens
Merged with Sprint
Yes
No
No
No
-
HP (iPaq H6315)
Merged with ALLTEL
Asian Market
NTT DoCoMo
Yes
Korean Telecom
No
! NEC (N900iL)- Linux
Yes(2005
)
European Market
British Telecom
Boingo! (US/EU)
France Telecom
Vodafone
TeliaSonera
Yes
(Bluetoot
h)
Yes
Yes
Yes
(Wi-Fi)
Yes
Yes
-
LG Electronics / Nokia / HTC Corp /
Motorola
Kyocera
Adoption of Dual Phones
As campus-based VoWi-Fi deployments evolve, users, vendors and service providers are
looking to converge VoWi-Fi with cellular voice technology to create a voice service
where users can roam freely between WLAN and public GSM wireless networks.
Although promising, the tricky technology behind a VoWi-Fi-to-cellular handoff might
cause some service providers and companies to be reluctant to jump into such a
codependent service, Riggs says. "Dual-mode handsets and the services that are going to
have to come out are really going to require service providers and enterprises to work
together in a way they never have in the past," Riggs says. "Enterprises are going to
56
have to allow a service provider a certain amount of access to technology they never had
access to before."101
VoIP Service Providers
In Q1 of 2005, there were some 17,400,000 VoIP subscribers worldwide- up 3 million
from 14,400,000 in Q1 2004. The following are the top ten VoIP service providers
worldwide by subscriber base.102
1. Skype- 5,300,000
2. Yahoo! Japan- 4,517,000
3. VoiceGlo- 605,000
4. Free (France)- 600,000
5. Vonage - 535,000.
6. FastWeb (Italy) 528,000
7. Cox- 413,000
8. Time Warner- 372,000
9. Cablevision- 364,000
10. Neuf (France)- 297,000
57
Wholesale VoIP Service Providers
The majority of wholesale VoIP service providers are privately held companies,
rendering their size by revenue difficult to identify. The top companies have acquired
VoIP wholesale providers as part of their added services, making them large players in
this industry. Market share is difficult to identify in this emerging market.
A January report, "IP Telephony: 2002-2007 Sizing, Case Studies & Trends," by
Boston-based ATLANTIC-ACM, says international wholesale VoIP minutes during
2001 exceeded 10 billion minutes and will reach at least 300 billion minutes by
2006.103
Wholesale
Provider
Level 3
Communications
2004 Revenue
(millions)
106
News
Partnered with Adelphia Communications in March
2005
3,820 104 785.4 105
VSNL
Partnered with a
Softphone
No
Purchasing Teleglobe, which acquired ITXC in 2004
107
3Com
iBasis
New Global
Telecom
DSL.net
Volo
Communications
666.6
328.7108
Privately
held109
62.7 110
Yes
No
Strategically tech relationship with Cisco Systems
No
Acquired General Telecom in 2003
No
Recently acquired TalkingNets
Private
No
Subsidiary of Caerus Inc.111
PointOne
Privately
No
HiTech Telecom
JS
Communications
Privately
No
Privately
Yes114
VoiceOne network
75% on-network coverage of US 5th generation
network112
Use CISCO hardware113
Hardware Manufacturers
Wireless Dial-Up Adapter Manufacturers
Always On Wireless is already partnering with PointOne to provide wireless VoIP to
dial-up subscribers to “allow consumers without broadband Internet - representing more
than two thirds of U.S. households for the next several years [now only one third] - to
enjoy the benefits and cost reduction of VoIP phone service without the costs or
requirement for broadband.”115 According to Always On Wireless’s Vice President of
Sales, this new VoIP product, which will be released shortly for enterprise sales, requires
connection speeds of 100 kbps to show quality comparable to a landline quality.
However, no one seems to have partnered with NeboWireless. NeboWireless appears to
be the only manufacturer of a similar device, which is only different in that it lacks a
modem, so it requires a connection to a PC in order to be used for VoIP.
This could prove to be a great niche market for ISR since the PPPhone was originally
58
designed to work well with the narrowband PHS service. The dial-up market may be
decreasing, but it is still comparable to the broadband market, and it might possibly
always survive in many poor and rural areas unless some very disruptive technology
comes along to replace it.
However, as shown below, the percent of dial-up users in the US, the country ranked 16th
for broadband penetration, is steadily decreasing. “Narrowband users (56Kbps or less)
now [comprised only] 38.68% of active Internet users [at home in August 2005], down
1.4 percentage points from 40.08% in July 2005.” 14.54% of users at work connect at
56Kbps or less, which is down 3.82% from the previous month of July. Dial-up market
share is certainly decreasing globally as well117
116
59
118
Mobile Device Manufacturers
Mobile Original Equipment Manufacturers – OEMs
Total mobile phone sales are growing steadily. According to Gartner, mobile phone
shipments will total 779 million in 2005 and 1 billion in 2009.119
Global Unit Shipments of Mobile Terminals
1200
Millions of Units
1000
800
600
400
200
0
1997
1999
2001
2003
2005
2007
2009
120
As shown in the table below, the top cell phone manufacturers already offer some type of
softphone with their units. This means that much growth in the cell phone market would
60
require that softphone providers fight over market share instead of just enlarging the
market.
Top Mobile Phone Manufacturers121
Market
Do they
2nd Quarter
Share
have a
Company
2005 Sales
(%)
Softphone?
Softphone Name
60,793.90
31.9%
Yes
Nokia D500 IP DSLAM
Nokia
34,018.10
17.9%
Yes
Unknown
Motorola
24,478.60
12.8%
Yes
OfficeServ Softphone
Samsung
12,374.40
6.5%
Yes
Unknown
LG
Ericsson
Communication
Sony
(Enterprise)
Ericsson
11,843.20
6.2%
Yes
8,894.80
4.7%
Yes
Siemens SIP Softphone
Siemens
38,095.60
20.0% Unknown
Others
190,498.60
Total
Client
Top 5 Vendors, Worldwide Converged Mobile Device Shipments and Market
Share, 1Q 2005 (Preliminary)122
1Q 2005
1Q 2005
1Q 2004
1Q 2004
Rank Vendor
Shipments
Market Share
Shipments
Market Share
1
Nokia
5,400,000
64.50%
1,771,508
49.60%
Research
in
Motion
2
769,818
9.20%
425,600
11.90%
3
Fujitsu
710,000
8.50%
350,000
9.80%
4
PalmOne
386,705
4.60%
167,921
4.70%
Sony
Ericsson
5
207,129
2.50%
203,652
5.70%
Other
899,094
10.70%
650,964
18.20%
Total
8,372,746
100.00%
3,569,645
100.00%
61
Mobile Original Design Manufacturers – ODMs
Most of the major ODMs, many of which are located in Taiwan (12.8% of the total ODM
market)123, do not have a softphone on their phones. However, most of their OEM clients
do provide a softphone, for which reason there may be no need for these ODMs to do so
as well.
Top Taiwanese ODMs
Taiwanese ODM124
BenQ
Arima
Compal Communications
Quanta Computer
Lite-On
HTC
Chi Mei Communications
Systems
International OEM Client
Motorola, Nokia
Sony Ericsson, NEC
Motorola, Alcatel
Philips, NEC, Panasonic,
Siemens
Siemens, LG Electronics
Motorola
Motorola
Does it have a softphone?
Can add Skype, MSN Messenger
or other to HQ - P50
Not found
Not found? website in Chinese
Yes - ODM VoIP phones
Not found
Wants Skype on their Windows
Mobile Smartphones
Not found
GPS Device Manufacturers
There are several Global Positioning System (GPS) receivers on the market today,
ranging in price from just over $130 to several thousands of dollars. GPS devices use
military satellite transmissions to help determine an individual’s exact location at any
given point in time. GPS devices come in a variety of sizes and offer a wide range of
functions.125
The top companies internationally provide GPS services for consumer and enterprise end
users. There is no indication that these companies have a softphone or are currently
partnered with VoIP providers. Integrating GPS and VoIP will be the next new popular
convergence with ISR already highly capable of leading this market with its PPPhone
voice dispatch system with GPS. Their successfully engineered system allows companies
to easily and effectively allocate resources in the field, combining GPS and ISR’s IP
telephony system. 126 A few other players integrate GPS and VoIP, but these are
primarily data systems such as Bly Communications.127 Leading GPS companies serve
many segments, with the opportunity for VoIP primarily in the fields of wireless
telecommunication, system integration, and OEM applications. A reference to some of
the top players in the GPS industry can be found in Appendix J: GPS Providers.
Computer Manufacturers
There is so far no indication that PC manufacturers like Dell and HP have plans to offer
62
softphones or VoIP service with their system orders, though their systems are certainly
compatible.
Video Game Console Manufacturers
Microsoft Xbox has already integrated VoIP. Nintendo is now following suite with a WiFi voice chat system as part of the NintendoDS console. SONY does not yet have
anything, but has shown some interest in adopting VoIP communication.
Game Console Manufactures
Manufactures
SONY
Console
Softphone Included with Console
PS3
Not yet, but will128
PSP
No
Microsoft
Xbox3600
Nintendo
Revolution
Yes129
No
NintendoDS
Yes130
Operating Systems
Personal Computer Operating System Developers
It is rumored that the Microsoft Windows monopoly has plans to make a softphone come
standard with its operating system.
Top PC Operating Systems
Operating System
Windows 98, 2000, NT, XP
Mac OS X
Linux
UNIX
Solaris
HP-UX
IBM AIX
FreeBSD
Softphone Included with OS
no
yes131
no
no
yes132
yes133
yes134
no
63
Handheld Operating System Developers
Unlike the computer OS market, the mobile OS market is not dominated by Microsoft.
This makes Symbian, Linux, and others very appealing potential partners since none of
these mobile operating systems appear to come standard with a softphone. Symbian
dominates the market with 56% of the market share, as shown below, for which reason a
partnership with Symbian to make the PPPhone a standard part of its OS would quickly
make PPPhone the standard in mobile internet telephony.
2004 Mobile OS Market Share
Other
20%
Linux
11%
Symbian
56%
Windows Mobile
13%
135
2009 Mobile OS Market Share
Linux
17%
Windows Mobile
17%
Other
6%
Symbian
60%
136
IDC’s market share estimates above differ from those estimates shown below, which
were made by Gartner earlier in 2005. However, the Gartner estimates may be skewed
since their “data does not take Windows Mobile-based Pocket PC Phones into account,
which utilize the same software platform as Windows Mobile-based Smartphones.”137 In
another contradicting report, Allied Business Intelligence (ABI) predicted that Symbian’s
market share would actually fall below 50% by 2009. 138 In any case, it appears that
64
Symbian’s operating system will hold on to its lead for the foreseeable future.
2005 Mobile OS Market Share (excluding pocket PC)
Palm OS
4.6%
Windows
Mobile
4.5%
RIM
1.0%
Linux
13.7%
Symbian
76.2%
Other Complementors
Other complementors who are potential distributors include the following:
!"
System Integrators (Competitors for ISR’s service business)
!"
Wireless Broadband Service Providers
!"
Video Conference Service Providers
!"
Analog Telephone Adapter Manufacturers (Complementor for SIP stack.
Competitor for softphone)
!"
Software Application Developers (Especially CRMs: e.g. SLM is a CounterPath
customer)
!"
Router Manufacturers (e.g. Belkin is a CounterPath customer)
!"
Headset Manufacturers (e.g. Plantronics is a CounterPath partner)
!"
Online Auctions (e.g. eBay purchased Skype)
65
Market Segmentation (Japan)
Target Market Segment Strategy (Japan)
Market Needs
Telephone communication fees such as those of fixed-line and cellular phones in Japan
are expensive. The following list is a comparison of communication charges among
service providers of softphones, IP phones, cellular phones, and fixed phones. The
communication charge of the softphone was retrieved from Skype, the IP phone from
Yahoo BB, the cellular phone from NTT DoCoMo, and the fixed phone is from NTT
East and NTT Communications. Yahoo BB, with 34.9% market share in the DSL market,
is a leading DSL service provider; it is a remarkable company that minimized the high
cost of broadband Internet connection and widely familiarized the people in Japan with
the low cost benefits of broadband. NTT DoCoMo, of which market share is over 60%, is
the top cellular phone service provider in Japan; it is the first mover to enable its
subscribers to access the Internet and exchange emails using their cellular phones. NTT
East, of which market share combined with NTT West is over 60%, is a leading localphone service provider, and NTT Communications provides long-distance services.
The Charge Comparison among Different Communication Services
Cost/3Min(Weekday & Daytime) to a Fixed Phone
Substitutes
To the Same
Service
Short
Distance(SD)
Long
Distance(LD)
To US (NY)
Softphone139
$0.00
$0.07
$0.07
$0.06
IP Phone140
$0.00
$0.07
$0.07
$0.07
cellular Phone141
$0.26
$0.39
$0.39
$3.26142
SD$0.07
LD$0.47
$0.07
$0.47
$1.34144
Fixed Phone143
As shown in the list above and the graph below, the cellular phone charges and the fixed
phone charges per three minutes are much more expensive than those of softphone and IP
phone. In addition, the further the calling distance is, the larger the differences of the
communication charges are. For example, a 30-minute call to New York by softphone or
IP phone costs less than $1. In contrast, the charge of fixed phone is approximately $14,
and that of cellular phone is more than $32. Thus, especially for the companies that
require frequent long-distance calls, reducing communication expenses is critical.
66
. #A A C(+?>%+#(!. '>DE)F!9A +(!@%#
$+,)-!/+()B
Communication Charges relative to Distance
39564
39544
. )//!& '#()
38564
38544
37564
*+,)-!& '#()
37544
34564
34544
"#$%!& '#()
98
"'#D%!< +=%>(?)
744
I#(E!< +=%>(?)
< +=%>(?)@A +/)B
0 1 2&
7:9;4
!!G H
In addition to the expensive communication fees, the maintenance and support fees for
fixed-line phone services are also costly. According to Net One Systems Co., Ltd, which
has 1,500 fixed lines, for example, used to expense around $100,000 annually for the
maintenance and support of its fixed lines before replacing with VoIP. 145 The PBX
system required some construction whenever it relocated employees’ desks; however, by
replacing its conventional telephone system with VoIP, Net One Systems was able to
reduce, at least, $100,000 annually. Thus, using VoIP enables a corporation to cut quite a
large amount of annual maintenance and support expenses.
Market Trends
In 2001, Japan’s government announced e-Japan strategy, which aimed at “making Japan
one of the world's most advanced IT nation within five years.”146 The e-Japan strategy
established four focus-areas and declared its strategic implementation in each area as
followed:
1.
establishment of an ultra high-speed network infrastructure and competition
policies:
2. facilitation of electronic commerce:
3. realization of electronic government: and
4. nurturing high-quality human resources.
In addition, Japan’s Government addressed the succeeding three targets and four
government actions in the implementation of the ultra high-speed network infrastructure
and competition policies mentioned in 1. above.
A. Targets:
(1) Establish one of the world's most advanced Internet networks within five
years, and enable all the people who need it to have ultra high-speed
67
access networks (30-100Mbps as a standard) at affordable rates. (Aim to
provide high-speed constant access networks to at least 30 million
households and ultra high-speed constant access to 10 million households)
(2) Enable all the people to have constant access to the Internet at extremely low
rates within one year through the use of fixed-line, wireless and other kinds
of networks
(3) Promote the shift to the Internet networks equipped with IPv6
B. Government Actions:
(1) Establishment of an ultra high-speed network infrastructure and promotion
of competition
(2) Improvement of digital divide
(3) Support and promotion of R&D
(4) Establishment of international Internet networks
As the result of the government’s strategy, broadband Internet infrastructures have been
tremendously developed in the last five years.
In 2005, the final year of e-Japan strategy, the government addressed its successful
results. The number of broadband internet subscribers has been increasing
consecutively. 147 In 2005, the number of DSL subscribers reached approximately
13,676,000, and that of fiber optics became approximately 2,897,000.
The Increasing Number of DSL Subscribers
*1,000
10,272
8,257
5,646
3,301
2,379
9,229
12,069
11,197
13,325
13,676
12,804
7,023
4,223
J
>D
5!8
4
KC 48
(5!
84
" ) 48
L5!
8
< ) 448
?5!
8
J 448
>D
5!8
4
KC 49
(5!
84
" ) 49
L5!
8
< ) 449
?5!
8
J 449
>D
5!8
4
KC 4M
(5!
84
" ) 4M
L5!
8
< ) 44M
?5!
8
J 44M
>D
5!8
44
6
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
68
The Increasing Number of Fiber-Optic Subscribers
3500
2,897
3000
N7O444
2500
2,432
2000
1,452
1500
1000
500
191
857
420
0
1,307
603
296
1,758
2,034
Sep. Dec. M ar. Jun. Sep. Dec. M ar. Jun. Sep. Dec. M ar.
2002 2002 2003 2003 2003 2003 2004 2004 2004 2004 2005
In contrast, the number of the fixed-line telephone subscribers has been decreasing for
seven years in a row, down to approximately 59,610,000 in March 2004. In addition, the
growth rate of both PHS and cell phone subscribers is decreasing even though the total
number of subscribers is increasing up to approximately 91,470,000 in March 2004.
The Decreasing Numbers of Fixed-line Telephone Subscribers
*10,000
;944
;864
;844
;764
;744
;464
;444
6P64
6P44
6Q64
6Q44
;8;9
;889
;7P;
;799
;4::
;488
6P;7
7PPP
8444
8447
8448
8449
844M
8446
It seems that a cellular phone has become a substitute for a fixed phone for some people
such as singles living by themselves; however, the cellular phone market is maturing.
The growth rate of cell phone and PHS subscribers is leveling off as the trend will be
shifting towards wireless VoIP communications.
69
The Decreasing Growth Rate of Cell Phone and PHS Subscribers
10000
9000
*10,000
8665
8000
7000
7482
8112
6687
6000
5000
4000
5114
4153
3153
3000
2000
1000
0
9146
2088
213
433
1020
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
According to an Associated Press article released October 13, 2005, Japan is preparing a
public network for mobile phones, allowing users to connect to and talk over the
internet. Officials said that following the success of fixed-line broadband infrastructures,
the government plans to introduce mobile voice-over Internet telephony, or wireless VoIP
by 2007. The service will allow mobile phone users to use VoIP service similar to what
is currently available on fixed lines. The IP phones are expected to transmit information
at speeds of up to 15 Mbps, a thousand times faster than the fastest phones currently
available in Japan148 and approximately 40 times as fast as the third-generation cellular
phones of which speed is 384 kbps now in Japan.149
Business Trends
Anticipating the prevalence of broadband infrastructure and VoIP, both VoIP system
developers and ISPs have started to establish partnerships to cultivate the VoIP market.
In April 2002, Oki Electric Industry Company organized IP Telephony Promotion Center
(IPTPC) aiming at providing VoIP engineers, sales representatives, and other related
parties with the adequate level of skills and knowledge of VoIP technologies 150 .
Subsequently, in January 2003, Oki Electric Industry Company partnered with NEC in
the IP telephony system projects, and both entities agreed to provide VoIP training
programs and examinations for the VoIP certificate. As a result, in July 2005, the number
of certified VoIP engineers exceeded 6,000. Now, IPTPC is expanding the VoIP training
programs and examinations to VoIP mobile engineers. In October 2005, Hitachi joined
IPTPC and aims at having its 2,000 employees to be the certified VoIP engineers by 2007.
Additionally, in April 2003, eight Japanese ISPs established a committee to enhance the
use of VoIP. The committee consists of OCN (NTT Communications,) DION (KDDI
70
Corporation,) So-net (Sonny Communication Network,) BIGLOBE (NEC,) @nifty
(Nifty,) ODN (Japan Telecom,) Plala (Plala Networks,) and hi-ho (Panasonic.)151 This
group is also trying to expand the VoIP market.
Consumer Trends
Japanese mobile users are used to carry multifunctional mobile devices due to the wide
prevalence of cellular phones. Dividing the number of cellular or PHS phone subscribers
by the Japanese population, it simply can be estimated that over 70% of the people carry
a cellular or PHS phone in Japan. NTT DoCoMo, the largest mobile phone service
provider in Japan, provides its subscribers with multi functions such as international
calling, video calling, videoconference, remote monitoring, live TV, music player, GPS,
and digital money. In addition, using Wi-Fi service provided by NTT DoCoMo enables
its subscribers to access the Internet and exchange data between the cell phone and a
computer with the speed of 384 kbps152. Therefore, the expectation of mobile devices in
Japan can be estimated to be quite high.
Market Growth
According to Japan’s government, along with the increase of broadband internet
connections, active IP telephone numbers have increased to approximately 8,305,000 in
March 2005. The yearly growth rate from March 2004 to March 2005 is 57.4%.
The Increasing Active Telephone Numbers of IP Telephone
7,830
9,000
8,000
6,037
7,000
6,000
5,000
8,305
7,024
5,276
4,331
4,000
3,000
2,000
1,000
0
Dec. 2003
Mar. 2004
Jun. 2004
Sep. 2004
Dec. 2004
Mar. 2005
71
Industry Analysis (Japan)
The rivalry among existing competitors is high because big corporations have already
started taking over each market. In the mobile softphone market, Microsoft has already
partnered with Sharp, which is the largest PDA manufacturer, and Willcom, which has
the largest PHS market, share in Japan.153 Moreover, in the Wi-Fi dual phone market,
NTT DoCoMo is the first mover in Japan. In the corporate softphone market, the
following giant VoIP developers are already entrenched in the market.154
Main Softphone Developers, Distributors, and Products in Japanese Market
Developer
Avaya (US)
Cisco Systems (US)
Nortel Networks (Canada)
Distributor
Avaya Japan
Cisco Systems Japan
Nortel Networks
Nortel Networks (Canada)
NEC
NEC Information Frontier
NTT Comware
Oki Electronic Industry
Hitachi Information
Technology
Hitachi! ! !
Communication Technology
Fujitsu
Nortel Networks
NEC
NEC Information Frontier
NTT Comware
Oki Electronic Industry
Hitachi Information
Technology
Hitachi
Communication Technology
Fujitsu I-Network Systems
Product Name
Avaya IP Softphone
Cisco IP Communicator
MCS5100 Multimedia PC
Client
IP Softphone 2050
Dterm SP30
WebDial for I-Teamesse
NEXIP Softphone (SV2)
Com@WILL
SIP:OFFICE Softphone
PC-IP Phone
i-station30SP
In addition to the giant developers, Softbrain Integration, which has a partnership with
Skype, has provided low cost VoIP system solutions to small and mid size corporations.
Thus, each market has started to be taken over by established companies.
The threat of new entrants will be high because of Japan’s government strategy. Fewer
entrants will be moving into this maturing VoIP market, but growth from current
incumbents in the mobile market is expected in the near future.
Regarding mobile softphones, cellular phones can be seen as the biggest substitute. The
threat of these substitutes is high because of the convenience, wide coverage, and voice
72
quality while moving at high speed.
Regarding the fixed softphone for corporate use, the threat of substitutes are low because
VoIP service providers do not see the softphone as a substitute of conventional phone
devices but try to position it as a unified system. Due to the usefulness of conventional
phone devices such as cell phones, fixed-line phones, and IP phones, according to Nikkei
Communication IT Pro, softphone service providers tend to focus on unified
communication system allowing their users to make a call by phone.155 In the softphone,
the following six features are largely expected: (1) telephone book: (2) presence: (3)
unified communication: (4) application compatibility: (5) access from outside: and (6)
video conference.156 Therefore, the threats of corporate-use substitutes are low.
As IPTPC tries to set a standard level of VoIP engineers’ skill sets, each engineer’s level
widely ranges from an inexperienced new-graduate student level to a project manager
level. In addition, VoIP technology is still at its nascent stage, a well-experienced project
manager has a high bargaining power. On the other hand, an inexperienced engineer has
low bargaining power.
Individual customers have high bargaining power because Skype, a high quality and free
softphone, is available. In contrast, corporate customers have low to moderate bargaining
power because telephone charges in Japan are relatively expensive compared to those of
IP telephones. Accordingly, corporate clients tend to pay a relatively expensive initial
investment to reliable VoIP service providers to save future costs dramatically.
Market Turbulence
Market turbulence overall is low because of the government’s strategy. As the outcome
of the e-Japan strategy indicated, this government strategy is an enormous drive to
advance a high-tech industry. Since 2001, Japan’s government focused on broadband
technologies including both wired and wireless, the increasing competition will be
expected and, as we have already discussed, some existing giant competitors are starting
to take over the VoIP market.
Japan has minimal regulations to help increase competition. Japan only requires prior
approval from the Ministry of Posts and Telecommunications before providing VoIP
services and reports on income and volume of traffic to be submitted periodically after
VoIP services are offered.157
Complementors
The biggest complementors will be the convergence of Wi-Fi and cellular functions.
Compared with the wide geographic coverage of cellular phones, Wi-Fi penetration is
limited to Tokyo area including Kanagawa, Chiba, and Saitama prefectures. However,
73
the communication fees of Wi-Fi softphone are cheaper than that of cellular phones.
Taking advantage of each benefit, the Wi-Fi/ Cellular dual function is expected to be the
largest complementor.
74
Market Segmentation (North America)
Target Market Segment Strategy (North America)
Market Needs
Softphones have become popular in corporate networks, especially among road warriors
who travel for business. Softphone clients are sold as part of a larger corporate IP
telephony solution from companies such as Cisco Systems, Avaya, Siemens, and Nortel
Networks. The consumer market, as is often the case, could be next. But before
softphones can really become widely deployed, the technology will have to be accessible
to more devices than just a laptop.158
Market Trends
The US made up 93% of the North American VoIP services market in 2004, and Canada
made up 7%; Canada will make up a greater portion of North American VoIP services
revenue by 2009, especially in the residential market.159
In North America, DSL gained almost 3.5 million new subscribers to achieve 15.1
million by the end of September 2004. The USA alone added 3.2 million to reach a total
of 12.6 million DSL-enabled phone lines, raising DSL's broadband market share by
3.8%. In Canada, DSL now has a 48% market share after adding 120-thousand
subscribers in the same third quarter of 2004.160 This broadband penetration will play an
important role in the rate of VoIP adoption.
“If everything goes as projected [by Osterman Research], VoIP penetration will increase
from 10 percent of U.S. businesses and organizations in 2005 to 45 percent by the end of
2007.”161
The VoIP Service Market
VoIP service revenue in North America will grow 18-fold between 2004 and 2009, from
$1.24 billion to $23.4 billion, according to Infonetics Research’s latest VoIP Services
report. More than $62 billion will be spent on VoIP services over the 5-year forecast
period.
“VoIP subscriber growth is skyrocketing right along with revenue growth; we’re
forecasting triple-digit growth from 2005 to 2006, with 6 million new subscribers a year
every year from 2006 to 2008, when there will be over 24 million,” said Kevin Mitchell,
principal analyst of Infonetics Research and author of the report.162 Accessing the North
American market will rely on partnering with cell phone players also looking to provide
VoIP, the major U.S. cell phone service companies are:
75
Alltell
Cingular
Sprint PCS
Verizon
AT&T Wireless
T-Mobile
US Cellular
Nextel
Business Trends
!" By 2009, there will be over 155 million business IP end points in operation in the
U.S. Over 37% of these business IP end points will be wireless.163
!" According to Terry White, InfoTech VP/ICC Program Director and study author,
“By the end of 2005, IP Telephony will account for 18% of the phones on
business phone systems and services in the U.S. Mid-Market. By 2009, IPT
penetration in the Mid-Market is projected to reach 56%, well above the 48%
level for the total U.S. market.”164
Consumer Trends
North American residential VoIP market revenue totaled $295.1 million in 2004 and
expects to reach $4,076.7 million in 2010.
According to the results of a survey by Jupiter Research in October 2005 shown below,
less than half of all US broadband users have used any kind of VoIP in the past 6 months,
which demonstrates that VoIP is still in the early stages of adoption. The respondents’
totals added up to 110% indicating some responded to multiple questions.
US Broadband Consumers who Use VoIP
PC-to-PC voice chat or IM
Voice chat in multiplayer PC game
4%
Voice chat in multiplayer console game
3%
VoIP as primary phone line
3%
Voice input on PC
2%
Voice chat with customer support via PC
2%
VoIP as second or third phone line
2%
PC-to-phone call
2%
Used none of these in the past six months
56%
I have never heard of these services
25%
165
Source: JupiterResearch
76
11%
Market Growth
!" Residential VoIP subscriber numbers have increased from 150,000 at the end of
2003 to over 2 million in March 2005. It is predicted that subscribers in the US
will exceed 4.1 million by 2006, generating over $1 billion in gross revenues for
the year.166
!" By 2010, 20.4 million U.S. households will subscribe to a VoIP-based broadband
telephony service, a dramatic increase from the 1.2 million subscribers in 2004.167
!" IDC (International Data Corporation) thinks residential VoIP subscriptions in the
U.S. will increase from 3 million this year, to about 27 million by 2009.168
The CPE (Customer Premises Equipment) base, or number of station lines, is a good
indicator of how much VoIP software has been installed. In 2004, VoIP accounted for
15% of all Enterprise CPE and 6% of all SMB CPE. The SMB (Small to Medium Sized
Businesses) VoIP base is expected to grow at a CAGR of 54% to reach 18.4 million
station lines by 2008.169
All CPEs
VoIP Station
Lines
Other Station
Lines
Enterprise
62,600,000
9,300,000
53,300,000
SMB
51,400,000
3,300,000
48,100,000
Total
114,000,000
12,600,000
101,400,000170
2004 US VoIP Business Station Lines
SMB, 3,300,000,
26%
Enterprise,
9,300,000, 74%
North American consumer/SOHO VoIP subscribers are projected to grow from 1.1M in
2004 to 17.4M in 2008 based on projections by Infonetics Research. These statistics are
mainly based on VoIP equipment sales, but this growth will drive new services as more
providers invest in the convergence market.
77
171
78
Industry Analysis (North America)
Landline phone operators, especially in the United States, have already fought VoIP
operators in a number of ways, including trying to siphon off their supply of telephone
numbers and pushing for state and federal regulation for what is, for now, a lightly
regulated industry.172
The threat of new entrants is low since the US VoIP and cellular service market is highly
fragmented with many small-diversified competitors.
The use of cell phones and e-mail are widely adopted alternatives in the U.S., but with
price sensitive consumers, their propensity to switch to Wi-Fi/ Cellular handsets is high
due to the foreseeable guaranteed cost savings.
The bargaining power of engineers to supply VoIP software is dependent upon their
relative skill. With many being VoIP trained already in the market, it is probably quite
low.
In the US, this would be high due to prices are relatively cheaper than in Europe and
Japan. The propensity to switch could be lower for small businesses in the US who
already use reliable communication service and do not need to restructure their
infrastructure.
Market Turbulence
United States
Historically the FCC has regulated telephones as a communications service. This allows
not only for the collection of taxes, but the existence of standards. The
Telecommunications Act of 1996 defined both a telecommunications and information
service. Telephone services are classified as telecommunications services and are subject
to much greater regulation. VoIP technology has attributes of both telecommunications
and information services and has not been explicitly classified as either type of service by
the FCC. A state's public utility commission has power to regulate telecommunication
79
services. As such, some states have attempted to regulate VoIP as a telecommunication
service.
On February 12, 2004, the FCC adopted a rulemaking, which called for public comments
on how to best regulate VoIP technology. The rulemaking seeks to examine the impact
of VoIP and answer questions regarding regulation and the implementation of important
social objectives, including public safety, emergency 911 access, law enforcement access,
disability access, and consumer protection. The FCC Commissioners indicated their
intent that Internet services should be subject to minimal regulation, but also
acknowledge the need for action in creating universal service standards. Additionally,
the FCC initiated a Communications Assistance for Law Enforcement (CALEA)
rulemaking to address the technical issues of law-enforcement access to IP-enabled
services.173
Canada
CRTC released VoIP decision November 12, 2005; the much anticipated decision of the
Canadian Radio-television and Telecommunications Commission (CRTC) regarding the
regulation of telephone services using VoIP was released. The CRTC determined that it
would regulate VoIP when provided and used as a local telephone service but not when it
solely resides on the Internet as a peer-to-peer VoIP service.174
Canada makes a distinction between Internet data applications, which are free from
regulation, and Internet applications that provide an alternative to public switched voice
services, which are regulated. IP telephony between telephones is subject to
regulation. Therefore, IP telephony service providers are treated like any other telephony
service providers and must contribute to universal service funds only if the service they
provide is between telephones.175
Complementors
The largest complementor will be the convergence of Wi-Fi and cellular functions as this
is the leading world complementor as well. The adoption of these, however, is not as
readily available as it is in Japan for instance, but US cities are working to improve their
wireless infrastructures such as Philadelphia and San Francisco to be ready for this
deployment.
80
Market Segmentation (Western Europe)
Target Market Segment Strategy (Western Europe)
Market Needs
According to a study conducted by research firm Ovum on September 19, 2005, the main
drivers pushing VoIP adoption are need for mobility and cost effective communication.
61% of the respondents in the survey, which was held in England in Apr – May 2005, felt
that telecommuting and teleworking were the prime reason for adopting VoIP. 47% of the
respondents felt that VoIP enabled mobility of the workforce. 41% felt that VoIP helped
in linking remote workers.
This same survey mentioned that companies in England primarily favor a premise based
VoIP deployment, with 53% opting for it. Hybrid deployments and hosted deployments
had 14% and 12% of the votes, respectively. 32% of the respondents were open to trying
out P2P networks as a business-level solution. Even though the participants in the survey
conceded the vulnerability of public VoIP networks, an overwhelming majority said that
they were satisfied with their VoIP security set-up. An important fact highlighted by the
survey was that several companies showed a strong interest in wireless VoIP. 176 This is
the sign of a maturing market for fixed VoIP in Western Europe as needs to move more
towards wireless applications if we assume England is a good representation of this
market.
Market Trends
Based on competition from mobile operators without wireline operations, Europe will be
the largest initial market for dual-mode smart-phones.177
In Q1 2005, the European IP telephone market increased to a value of $79.3 million,
compared with $77.1 million in Q4 2004, IDC says. Shipments of IP telephones
experienced higher growth than that of revenue; IP telephone shipments increased by
17.9% from roughly 250,900 units in Q4 2004 to around 297,500 units in Q1 2005, while
revenue for IP telephones only increased by 2.9% because of price erosion. This trend is
expected to continue to impact unit prices and shipment numbers over the coming
quarters. IP telephones are increasingly being deployed across multiple vertical market
segments in Q1 2005, for example in the pharmaceutical, automotive, and transport
segments.178
Europe's Banks Putting Their Money on Voice over IP (VoIP) According to
Datamonitor's September 2004 Networking in European Financial Services report from
Wi-Fitechnology.com. The number one long-term priority for finance-related companies
in Europe is the convergence of voice and data. And leading the pack is a major UK
bank, Lloyds TSB, which on December 6, 2004 went public and planned to introduce
almost 70,000 VoIP phones from Cisco Systems®, one of the largest implementations to
81
date in Europe, as part of a £500 million (US$969 million) contract with IBM.179
European Union (EU) countries currently make up the largest regional DSL population
worldwide, adding more than 9.25 million subscribers in the first three quarters of this
year, to reach 26.5 million. The EU's position as the number one DSL region is reflected
in substantial increases in both subscriber numbers and market penetration, with 11
countries in the world’s top 20. Belgium achieved the highest penetration of phone lines
19.15%, to the UK, at 9.49%, moving into the top 20 for the first time.180
Q3 04 DSL Penetration
Germany
France
Italy
UK
Spain
Netherlands
Belgium
Sweden
Switzerland
Denmark
Subscribers
5,950,000
5,253,000
3,680,000
3,335,000
2,227,805
1,552,000
983,000
751,000
717,000
594,000
Phone Lines (DSL/100 lines)
11.08%
15.45%
13.41%
9.49%
11.91%
15.52%
19.15%
11.42%
13.44%
15.89%
Adoption of VoIP is dependent largely upon broadband availability. Regulatory control,
the use of VoIP for emergency calls, and reliability remain issues stirring debate about
the viability of the service at present across the major European markets.181
Following are specific characteristics of each of the thirteen Western European countries
identified with France, the UK, and Germany currently the most advanced in adoption of
VoIP. The Netherlands, Norway, Denmark, Sweden, and Italy indicate the greatest
future growth potential. (This is further analyzed in the geographic marketing strategy
section).
France
!" As of October, 2005, France is the current leader in usage of VoIP with
countrywide adoption rates at 14% (amount of population utilizing VoIP.)
!" At the end of the first quarter of 2005, France had over 1.2 million subscribers to
retail VoIP services.
!" 74% of the French population own mobile phones, with only three per cent of the
population owning a 3G handset.
!" Network coverage in France was improved in 2005 when leading telecoms
operators Orange and SFR launched 3G mobile offerings covering 40% and 30%
of the country respectively. Improved coverage is expected to provide a boom to
adoption and customers who upgrade in France. Communications provider TSystems forecasts that 3G handset subscriptions in France is set to reach 1.18
million in 2005, up from just 133,000 in 2004.
82
!" A Hotwire/MORI study looks at the number of households that use all three
technologies (the three platforms identified for the study were the Internet, digital
TV, and mobile phone ownership) and are therefore considered multiple platformenabled. France has only 21%, or 9.8 million people, using all three platforms as
a multiple platform.182
!" Only 42%, or 20.1 million, French households have access to the web. However,
34% of French households have broadband connections.183
UK
!" As of October, 2005, Great Britain has only 7% adoption of VoIP usage.
!" Telecom operators have discovered that growth in adoption of 3G will come from
existing mobile phone users who are encouraged to upgrade old handsets in
exchange for feature-rich models capable of supporting voice and data services.
At present the highest adoption rates are in Great Britain.
!" 83% of the British population owns a mobile phone, but only six per cent of the
population owns a 3G handset. This equates to 2.8 million 3G-handset owners;
however, Great Britain has the highest adoption rate of these 3G phones, which
allow users to make videophone calls via their mobile.
!" Great Britain is a very developed market where 17.6 million people, or 38% of
households, have access to all three platforms using internet, digital TV, and
mobile.
!" Although more than 200,000 British homes are being hooked-up to broadband
every month, and electronics manufacturers are encouraging Wi-Fi to network
products around the home, a major obstacle facing telecoms, computing and WiFi industries is the lack of technical competence among average consumers. 184
!" 55% of households have internet access in Great Britain with 35% having
broadband connections.185
!" VoIP penetration remains low - current estimates from consultants Analysis
suggest only 35% of residential lines and 14% of business lines use VoIP. 186
!" Fierce Wireless announced on Nov 29, 2005 that British Telecom is fighting back
against Skype and other "free calling" services by offering subscribers free mobile
wVoIP calls. BT's new service, set to debut early next year, will combine the
company's existing Openzone Wi-Fi hotspots with a patchwork of new WiMax
networks. Although the calls will be free, there will be a flat charge to use the
network. The service will be available to customers owning smartphones made by
companies such as Nokia and Motorola.
Across the UK, more than 40,000 miles of fiber optic cable have been laid by a wide
number of different carriers. However, only about five percent of this is currently used.
Meanwhile, regulation has forced the main operator in the UK, BT, to provide an
inflexible tariff structure, which does not meet many of the demands of enterprise
customers and makes high-bandwidth, converged voice, and data services particularly
expensive.
83
Germany
!" 67% in German households have internet access with 35% of these broadband.
!" VoIP adoption rate is 11% as of October, 2005.
!" Large companies are focused on gaining opportunities from the industry with TMobile's 38% with a market share, and Vodafone D2 comes in just behind at
37.4%.187
!" Very high composite competition
!" Deutsche Telekom is planning to migrate its network to IP technology completely
by 2012. This move highlights the anticipated impact of VoIP on the telecom
market.
!" Only 2% of consumers own 3G handsets.
!" The study of the MORI/ Hotwire for households using all three platforms reveals
Germany to be the most developed market in this respect, with 44% of households
owning a mobile phone, having internet access, and watching digital TV. This
equates to 19.58 million people.188
The Netherlands
!" The Netherlands is generally a highly developed and well-maintained market.
Domestically it has an extensive fixed-line fiber-optic network; its cellular
telephone system is one of the largest in Europe with five major network
operators utilizing third generation Global Systems for Mobile Communications
(GSM.)189
!" KPN is the incumbent telecommunications operator in Netherlands as well as the
largest operator in Netherlands with a subscriber base of over 1 million broadband
users and a market share of 44% of the total consumer broadband market in
Netherlands in April 2005. Other competing broadband providers include Cistron,
Versatel, BBNED, and UPC Nederland amongst others. 190
!" The Netherlands has the second-highest penetration at 22.5 subscribers per 100
inhabitants.
!" Mobile Cellular Users: 12.5 million (2003), Internet Users: 8.5 million (2003)
!" The Dutch market for mobile telephony (GSM) is almost saturated. There are
some 12 million users, and there is fierce competition between the
operators. New trends and technologies for mobile phones with built-in Bluetooth
functions, color screens, digital cameras, and Multi-media Messaging Services
(MMS) functionality are expected to give a new impulse to the mature mobile
telephone market.
!" The total number of business users using VoIP reportedly grew from less than one
percent in 2000, to some six percent in 2003, or about 8000 companies. The
Dutch VoIP market was estimated at about five to six million US dollars (USD)
for 2003. Rapid growth is forecasted for the IP telephony market for 2004 and
following years.191
84
Sweden
!" Home markets are undergoing a rapid migration from fixed to mobile and
Internet-based services- TeliaSonera.
!" Based on the number of customers, TeliaSonera is the largest mobile operator in
Sweden.
!" Sweden has a very high Internet penetration rate of 76.9% as of February 2004.
All the three major forms of broadband access (ADSL, cable TV, and EthernetLAN) are competing against each other in the country.
!" According to Invest in Sweden Agency (ISA), Sweden has an extensive
broadband network with its infrastructure reaching 85% of the population during
2004. It is expected to reach 98% of Sweden’s population by 2005. The
broadband penetration stood at 25% of the households in June 2004. 192
Segment
Residential broadband access
Local infrastructure
Business broadband access
Equipment makers
Network integration
Network rollout
National infrastructure
Software
Broadband Service
Hot Spots/WISP
193
Number of
companies
119
102
72
41
25
21
11
11
8
7
Example of companies
Bredbandsbolaget (B2), UPC, Bitnet, Bjäre Kraft
Stokab, Sollentuna Energi, Hemmanet
Telenor, Utfors, IP-Only
Ericsson, Lumentis, Transmode, Optillion
Telesys, Prevas, Datametrix
Dotcom Solutions, Fiberdata, Flextronics
TeliaSonera, Svenska Kraftnät, Song Networks
Operax, PacketFront, Gatespace, QBrick, Thalamus
Kamera, Smartv, Fronto, Jarowskij
TeliaSonera, Powernet, Default City
Norway
!" Norway just recently went through the privatization process of its
telecommunications industry in the beginning of 2002.
!" Telenor is the largest provider of telecommunications services in Norway, with
future growth focused on mobile operations. With roughly 80% of the market,
cable companies, electric companies, wireless carriers, and network providers are
all beginning to increase competition to capture some of Telenor’s market share
and capitalized on the newly deregulated industry over the business and consumer
markets.
!" Nera is the largest wireless information solutions company and feels there will be
significant demand in the future as markets develop and technologies converge.
Nera has built a wireless broadband network that allows access for these
bandwidth intensive devices.
!" Since 1998 the number of mobile telephones per inhabitant has more than
85
doubled. At the end of 2004 there were more than 102 mobile telephones per 100
inhabitants. (This does not however mean that 102 percent of the population has a
mobile telephone. According to Norwegian Gallup about 10 percent have two or
more mobile telephone subscriptions.)
!" In 2004, 67 percent of all mobile telephone traffic was originated and terminated
in the mobile network. Traffic to fixed networks has dropped from 52 percent in
1999 to 25 percent in 2004. This increased usage may well be partly a result of a
relatively large price reduction in 2003 compared to in 2002.
!" IP telephony service is provided for example by power companies, broadband
operators, and independent IP telephony providers. IP telephony is rapidly
growing and as on Dec 31, 2004 there were just fewer than 48,000 customers.194
!" Most cell phone VoIP software comes from start-ups such as IP Drum. Based in
Norway, this product enables cell phones to use Skype.195
Denmark
!" As of December 2004, DSL broadband was available to 96% of Danish
households and businesses, and cable was available to 60% of the households.
DSL operators aim to cover 98% of the households and businesses by October
2005. Fixed Wireless Access (FWA) is primarily targeted to business
customers.196
!" Denmark ranks fourth in broadband penetration across the world as of March
2005. In May 2005, 98% of Danish households had broadband connections and
53% of the companies in EU used broadband, of which 80% were in Denmark. 197
!" Internet Users: 2.756 million (2002)198
!" ISPs: 13 (2000)
!" Mobile phone Subscribers: 5,208,059 (June 2005) (96.2% penetration rate)199
The largest Danish mobile phone companies
Ranking
1
2
3
4
5
6
Operator
TDC
Sonofon
Telia DK
Debital
3
DLG Tele
Technology
UMTS, GSM
GSM
UMTS, GSM
GSM
UMTS
GSM
Italy
!" Cell Phone Service Providers:
H3G
TIM Italia Mobile
86
Subscribers
(millions)
2.16
1.41
1.12
0.27
0.12
0.04
Ownership
TDC
Telenor
TeliaSonera
!
Hutchison Whampoa
!
Vodafone Omnitel N.V
Wind Telecomunicazioni SpA
!" Italy has Europe’s fourth largest market for telecommunications services, with a
sophisticated mobile, broadband, and digital TV presence.
!" Although the small cable footprint is an anomaly in Europe, out of step with
developments elsewhere, the rapidly growing fiber network is enviable and
provides Italians with some of the fastest broadband accesses on the continent.
!" As a result, triple play services are well advanced, and the provision of IPTV,
Video-on-Demand (VoD,) and VoIP in 2006 and 2007 has a strong foundation on
which to develop.200
Switzerland
!" A third of the Swiss population uses the Internet, corresponding to 2.3 million
users.
!" Dial-up access in Switzerland is expensive compared to elsewhere in Europe.
!" Broadband growth is projected to be 148% as of 2004 in Switzerland.201
!" Largest ISP: Swisscom's Bluewin
!" Leading cell phone service providers:
In &Phone SA (in&phone)
Orange Communications SA
Swisscom Mobile Ltd
TDC Switzerland AG (sunrise)
Tele2 Telecommunications Services AG (Tele2 Switzerland)
!" Leading cable broadband provider: Cablecom
!" Microsoft’s efforts to make IP-based communications like VoIP a focal point in
the next versions of its flagship Windows and Office lines were evident when the
software giant announced it has agreed to acquire media-streams.com AG, a VoIP
software development company based in Zurich, Switzerland.202
Belgium
!" The Belgian mobile market is mature, with high fixed and mobile penetration
rates and competitive fixed and wireless markets. However, this does not mean
the market is stagnant. Rather, it is dynamic where operators are constantly
devising innovative strategies and services to increase their revenues.
!" For instance, during summer 2005, two breakthrough services were introduced in
the Belgian market: digital TV over DSL and mobile TV. We expect to see many
new service propositions being launched before YE2005 as operators attempt to
stay ahead of their competition.203
!" VoBB (Voice over Broadband) is still in its developing phase in Belgium.
Consumers in general are not that much excited about the new technology. Most
of the public are still to be convinced about the new features of VoIP. Apart from
that there are still certain misunderstandings about VoIP in terms of quality etc.
87
!" There has been a slow rollout of VoBB in Belgium as compared to the other
European regions, and a number of factors contribute to its slowness. The main
issue that service providers believe is affecting their business, and holding the
growth of VoBB in Belgium is the monopoly of Belgacom. Over 90 percent of
the local loop is still held by the dominant operator Belgacom, and in fact, it is
determining the prices for service providers. In addition, Belgacom offers phone
calls for free within a fixed monthly price.
!" For VoIP there is still not any regulation or license available in Belgium.
!" We do not see the Belgian market growing that fast as compared to other
countries. The main reason for this is that it is very hard for startups to compete
with the free market in form of free calls offered by Belgacom.
!" The growth of VoIP market in Belgium will obviously depend on the growth of
the availability of broadband in Belgium. The penetration of broadband in
residential areas in Belgium is expected to grow about 20-30% at the end of
2005.204
Spain
!" Cell Phone Service Providers:
Retevision Movil S.A. (AMENA
Telefonica Moviles España S.A. (movistar)
Vodafone Espana S.A.
!" Spain's broadband penetration will continue to climb through 2008:
2005
2006
59%
2007
63%
2008
65%
67%
!" Jupiter attributes Spain's high broadband penetration to the fact that the country was
one of the first markets to offer activation, modem, and set-up packages for no fee,
and that the country's dial-up experience has been very poor.205
!" According to Telefonica de Espana, there are about 1.5 million broadband Internet
access subscribers in Spain. The majority of them (about 1.1 million) are ADSL users
while the rest use mostly cable broadband Internet access. Globally, broadband
Internet users represent about 16% of the total online population in the country.
!" Telefonica expects Spain to have 3.7 million broadband customers by 2006.206
Ireland
!" A study commissioned by the Commission for Communications Regulation in
Ireland found that the average monthly mobile phone bill for Irish adults is €53
(or US$62.04 according to the exchange rate on November 12, 2005.)
88
!" The same study found that more adults have more mobile phones than fixed line
phones. 84% of Irish adults have mobile phones, and only 76% have fixed line
phones, with mobile phones steadily increasing and fixed line phones steadily
decreasing. 207 Clearly there is a trend toward mobility in Ireland.
Portugal
!" Despite the mature state of Portugal’s telecommunications market, it trails most of
its Western European peers in ICT adoption indicators. Attempting to remedy this
underperformance, the country’s ruling Socialist Party has launched “Ligar
Portugal,” a fiscal incentives program for the sector. The program may run into
funding problems, however.
!" Specific targets of the program include the doubling of broadband households and
users from their current levels by 2010, increasing the number of computers at
schools to achieve a 1 to 5 computers/student ratio and the reduction of access
prices to one of the EU15’s three least expensive, among others.
!" Much of the telecoms news flow in the country comes from the three major
mobile operators, Vodafone, Optimus and Portugal Telecom’s TMN, as well as
from the regulatory agency.
!" Portuguese mobile operators TMN and Optimus announced plans to proactively
encourage migration to 3G in the summer of 2005.
!" Portuguese regulator ANACOM has denounced what it perceives to be a
“structural oligopoly” in the mobile sector and established a mandatory schedule
for tariff decreases at the beginning of 2005.208
!" Centile, the leading hosted VoIP telephony application software developer in
Europe, announced on July 13, 2005, that Media Capital Group is launching
Centile’s Residential VoIP in Portugal. Media Capital Group is the first truly
residential VoIP provider on the Portuguese market with on-net calls IP to IP and
off-net calls IP to PSTN.209
89
Business Trends
In order to access the proprietary and patriotic VoIP market in Western Europe, ISR
would need to create local partnerships through respected European service provider’s
and/ or hire a European sales representative to execute efficient sales. Some examples of
business partnerships to gain access in the expanding European market are mentioned
here.
BT is clearly focused on targeting the Corporate and Business markets in the UK with the
BT Business Broadband VoIP offerings. Although BT has residential offerings called BT
Broadband Voice, the sales push is targeted at the enterprise sector with replacement IP
based PBX and Hosted PBX solutions. This is due mainly to lower broadband penetration
rates than the European average and BT’s strength within the Corporate and Business
sectors. BT emphasizes both hard and soft savings in promoting VoIP offerings into the
Corporate and Business sectors.210
TeliaSonera has been chosen by the Municipality of Malm for Sweden's most extensive
IP telephony undertaking thus far. Approximately 11,000 connections will be replaced
when the IP telephony system is deployed with the municipality's $3.4 million investment
expected to be recovered within four years.211
EyeP Media (Swiss), the market leading provider of Voice & Video over IP softphones,
SDKs, and Media Server solutions for OEMs, Service Providers, PC and PDA users
worldwide, announced having entered into partnership agreement with DACLEM
Solutions (a consulting company based in France aiding technology companies reach
more of the European market) to increase exposure of its Voice and Video over IP
expertise and global offering in the South European market.212
Swedish telco Bredbandsbolaget (B2) has teamed with Cisco Systems Inc. to bring highspeed Internet access and other services to Sweden. By starting in Sweden, Cisco
(CSCO) and B2 will be set to launch throughout the region's most liberalized telecom
market.213
Consumer Trends
As Forrester reported recently, only 1% of Europeans use VoIP frequently to make calls
from home, whereas 70% of consumers do not even know what VoIP is. Coupled with
relatively low broadband take-up, European consumers’ VoIP adoption will move slowly.
Forrester predicts that VoIP will capture 30% of the residential fixed voice market in
2010 and will not approach 100% until 2020.
And while big global portals like MSN, AOL, Yahoo!, and Google have recently made
acquisitions and service launches around VoIP and IM voice chat, they will never be able
to claim national consumer VoIP market leadership in any Western European country. 214
From the end-customer point of view, retail VoIP is simply another form of fixed voice.
90
An Analyses report points out that levels of usage of VoIP will be held back by – what is
in the final analysis – a declining market. Even in countries such as France and Italy, in
2010, where broadband usage is well penetrated by VoIP, retail VoIP may account for as
little as 11% of all voice minutes because fixed–mobile substitution is already well
advanced there. On the other hand, countries such as Sweden (where fixed–mobile
substitution has had relatively little effect) may see retail VoIP capture 22% of all
minutes.215
Market Growth
According to IDC, there will be 22 million Voice-over-Broadband users in Western
Europe in 2008, which will translate into $7 billion in revenues for service providers.
Analysys, a UK-based market research and consulting company, estimates that a quarter
of Western European households will have abandoned "plain old telephone service"
(POTS) by 2010.216
The Analyses report predicts that by 2010, retail residential VoIP will capture 27% of
fixed minutes in Sweden, 24% in France, and 23% in Italy, but only 9% in the UK. Wood
explains, “Mass-market local loop unbundling has provided a real spur to retail VoIP, but
in many markets broadband is dominated by players with a vested interest in preserving
traditional voice. Where the voice market is already highly competitive, smaller ISPs and
pure-play VoIP service providers will find they have very little room to price
competitively while covering their costs.” As the report shows, despite the high-profile
VoIP service launches across Europe, competitive POTS is still frequently cheaper than
VoIP.
VoIP developing at very different speeds across Europe
Retail residential VoIP set to capture over 23% of fixed voice minutes by 2010 in
France, Italy, and Sweden on the back of strong broadband competition.
!" Broadband dominated by existing POTS providers and intense calls competition
will hamper UK VoIP market development.
217
!" Impact of VoIP will be lessened by fixed–mobile substitution.
!"
VoIP will have a more limited impact in Europe than North America because of the
different mix or telephone traffic. In North America, long-distance calls, where VoIP has
its greatest potential, represent the lion’s share of traffic; while in Europe it is
predominately fixed-to-mobile and local. By 2010, VoIP will account for 9% of the
Italian market and only about 3% of total revenues. It will be about the same in Britain
and slightly higher, around 4%, in France and Germany.218
The total VoIP market is forecasted by Forrester Research in 2003 to overtake residential
broadband in Europe by 2010. Broadband is expected to be a driver for the adoption of
VoIP and set to capture 100% of the European market by 2020 as illustrated in the
following chart.
91
219
Industry Analysis (Western Europe)
Telcos like BT and France Télécom have the chance to keep dominating the future voice
markets as long as they continue with their proactive and innovative VoIP response
strategies.220
Telio AS has recently licensed CounterPath softphone technology for bundling with the
Telio VoIP and Video Service currently being offered in Norway, the Netherlands,
Denmark, and Sweden. By licensing CounterPath’s eyeBeam Software Development Kit
(SDK), Telio will build its own VoIP and Video softphone for use within their marketleading and fastest-growing access-independent Broadband Telephony network in
Europe.221
The threat of existing telecommunication companies could prohibit new entrants’ access
92
to the market. Hence, in Europe, this is assumed to be relatively high.
As mentioned above, the amount of mobile users is surpassing fixed line users and in
European countries where mobile use is higher, VoIP will be adopted at lower rates.
Countries with lower mobile infrastructure will adopt VoIP at much higher rates.
Relative bargaining power can be determined to be quite low due to the relative large
abundance of engineers worldwide. In Europe, there may be slightly higher bargaining
power as professionals tend to be highly specialized in their industry.
Bargaining power for European businesses and consumers is high when opting to
purchase VoIP due to the amount of substitutes they have had long relationships with as
well as the relative connection with national identity in trusted local providers.
Market Turbulence
VoIP service companies face huge growth opportunities in Europe with future regulatory
measures apparent. The German unit of cell phone giant Vodafone plans to take a
defensive measure and disable calls from the likes of Skype and other Net phone
operators beginning in July 2007. 222 Even though there is a lot that could change
between the end of 2005 and mid 2007, this is still a consideration to make in deciding
whom to partner with in Germany.
The Norwegian Ministry of Transport and Communications is analyzing whether the
rules relating to inter alia VoIP services should be amended. However, it is too early to
predict the outcome of these analyses. 223 In the United Kingdom, the provision of
telecommunications services using any technology, including VoIP, is permitted. There
are no technical standards or quality of service requirements imposed on VoIP
services. Yet, VoIP is regulated under the Telecommunications Act of 1984, which sets
out the licensing regime to which all telecommunications service providers are subject.224
The European Union has established criteria that IP telephony must meet before being
subject to regulation. The criteria which an Internet voice service would have to meet to
be considered voice telephony are that the service must be the subject of a commercial
offer; the commercial offer must be made to the public; the service must provide
connections to and from public switched network termination points; and the service
must involve the direct transport and switching of speech in real time. In the European
Union, IP telephony is not considered voice telephony and is not subject to the regulatory
regime of traditional phone companies. VoIP does not fit the definition of
93
telecommunications because it does not involve direct speech transport in real time.225
VoIP Marketing Strategy
ISR will use a differentiation strategy focused on the mobile market, which is best
aligned with ISR’s strengths and market trends. In doing this, ISR will focus on the
following geographic markets where the mobile softphone market has the greatest
potential: Japan, North America, and Western Europe. The PPPhone product design will
need slight modifications to better meet the needs of the mobile target focus. Distribution
needs to primarily target mobile VoIP service providers. Pricing will begin with a
penetration strategy that will undercut the competition to gain market share but should
shift to a more profitable premium strategy as PPPhone is better differentiated as the
superior mobile softphone. Promotion of PPPhone will focus on the above listed
strengths and target markets. The following pages of this marketing strategy will lay out
these plans in more detail and explain why these strategies were chosen above others.
Positioning Statements
The first step in any marketing plan is to develop a positioning strategy that presents
PPPhone’s competitive advantage, while highlighting the key benefits. Positioning relates
to perception that consumers have about the product and the company. Although ISR and
PPPhone have been around for a number of years, ISR needs to reposition the PPPhone
as a product of superior quality, numerous features, and excellent customer relationship
management at a price that undercuts the competition.
Core Competencies
Core competencies fall into three basic categories: technological know-how, reliable
processes, and close relationships with external parties. 226 ISR seems to possess
competencies of both technological know-how and close relationships to leverage and
create a strong market presence internationally.
Technological
Reliable
Know-How
Process
Technical expertise of None determined
softphone
development
Close Relationships
with External Parties
Relationships with
mobile service
providers in Japan
It is unknown whether or not ISR possesses any reliable processes that could be
considered a core competency. On the production side, such processes would probably
not produce much of a competitive advantage, due to the already low cost of reproducing
software.
Competitive Edge
94
ISR’s main competitor, CounterPath, appears to have core competencies in the same two
categories: technological know-how and close relationships. ISR can attempt to create
the perception that the above competencies are strong enough to give it a competitive
edge. However, in order to really support this image, ISR needs something more
substantial.
ISR appears to have relationships with several mobile service providers in Japan, but only
one of these companies, Fusion Communications, appears to be a current PPPhone
customer. ISR will have more of an edge if it can turn a few more of these contacts into
active customers.
ISR also claims to have a superior softphone product, but after extensive searching, little
evidence has been found that PPPhone is superior to other softphones. ISR could
strengthen its image and competitive edge by showing documentation of any kind that
proves or supports PPPhone’s better voice quality, ease of use, or performance over
narrow bandwidth. One way to strengthen this competitive edge is to provide
documented comparisons or quotes from customers stating why they prefer and use
PPPhone. A list of potential differentiators is shown in the chart below along with
evidence to support these claims and suggestions to obtain additional supporting
evidence.
95
PPPhone’s Points of Differentiation
Point of Differentiation
Current Evidence
Smallest Footprint of Any
Mobile Softphone
(Aids Engineering in Mobile
Devices)
Provides High Quality Sound
Even Over Narrow Bandwidth
(And Thus Presumably over
Wide Bandwidth Too)
Developed by Some of the
World’s Most Experienced
Mobile Softphone Engineers
As shown in the table below,
the next smallest advertised
footprint, in the CiceroPhone,
is more than twice as large.
PPPhone provided high sound
quality over PHS wireless
dialup network when tested by
NTT DoCoMo.
Before the engineers of
western competitors, ISR’s
engineers gained their mobile
softphone experience in Japan,
where the world’s first largescale wireless VoIP networks
became available years ago.
ISR engineers have experience
working with some of the
world’s first major mobile
VoIP providers including NTT
DoCoMo.
PPPhone is already doublebyte enabled, meaning it can
already support more complex
characters including Asian
characters.
Easily Localized (Translated
& Adapted) into Additional
Languages
Easy to Use
96
None
Additional Evidence to Obtain
and Publish
Search out and compare the
footprints of additional mobile
softphones not listed below.
Obtain quotes (or comparison test
results) from customers attesting
to PPPhone’s sound quality.
Survey the engineers and tabulate
more specific advantages.
Collect evidence that other
western softphones are not
double-byte enabled or are
otherwise difficult to localize.
Have an internationalization
engineer determine additional
steps needed to make PPPhone
easily localizable.
Obtain Quotes from Customers.
A comparison of other close competitors’ footprint sizes is provided below highlighting
PPPhone’s advantage.
Comparing Mobile Footprints
Company
Softphone
ISR
PPPhone
TeleSym*
Symphone227
Cicero
CiceroPhone228
CounterPath Pocket PC SIP Softphone229
SJLabs
SJphone230
*TeleSym went out of business in April 2005231
Footprint Size
500kb (2002)
400kb
612kb (2003)
1.0MB
2.97MB
4MB (2004)
Footprint Comparison
PPPhone
Symphone
CiceroPhone
Pocket PC SIP Softphone
SJPhone
0
500
1000
1500
2000
2500
3000
3500
4000
(KB)
ISR advertises PPPhone’s 400kb footprint size on its website but must emphasize that it
is the smallest footprint of any mobile softphones currently produced. As far as is known,
Symphone, the only mobile softphone with a comparable footprint, has not been
produced since 2003, and TeleSym, its producer, went out of business in 2005 without
selling the rights to the software. ISR needs to highlight this differentiation by marketing
PPPhone as the mobile softphone with the world’s smallest footprint in order to
strengthen ISR’s competitive edge.
If the other points of differentiation were documented as well as PPPhone’s small
footprint, PPPhone would stand apart from its competitors more effectively. ISR must
not only produce the best product, it must also convince potential buyers with supporting
evidence that it has the best product.
97
Generic Strategy
Michael Porter describes three generic strategies that are commonly used in business:
cost leadership, differentiation, and focus.232 The generic strategy ISR should pursue can
be determined based on ISR’s core competencies, type of product differentiation, and
degree of market segmentation. According to the argument of Dr. Yuwei Shi, professor
of global strategy at the Fisher Graduate School of International Business, strategy
professor, there is an intuitive contradiction between generic strategies233.
The Intuitive Contradiction between Generic Strategies234
Cost Leadership
Differentiation
Focus
Product
Low
High
Differentiation (Principally by price) (Principally by
uniqueness)
Low to High
(By price or
uniqueness)
Market
Segmentation
Low
(Mass market)
Distinctive
Competency
Manufacturing and
materials
management
Low
(One or a few
segments)
Either
distinctive
competency
High
(Many market
segments)
R & D,
marketing and
sales
ISR currently has and should continue to develop distinctive competencies in R&D,
marketing, and sales, for which reason it should focus on a differentiation strategy.
CounterPath has competencies in the same areas and appears to be using a differentiation
strategy in many market segments as revealed by its rather accurate tagline:
“CounterPath - Where leading communication companies come for VoIP, IP
Videoconferencing, IM and Presence SIP Softphone SDKs.”235 Since this is the case,
ISR may have more success applying this differentiation strategy more narrowly, in the
mobile market segment, where growth is strong and ISR appears to have more experience
to leverage than CounterPath.
Porter’s Generic Strategies236
SOURCE OF COMPETITIVE ADVANTAGE
Low Cost
Differentiation
COMPETITIVE
SCOPE
98
Industrywide
Single
Segment
COST LEADERSHIP
DIFFERENTIATION
FOCUS
ISR’s MOBILE FOCUS
Recommendation: Focus on the Mobile VoIP Market
ISR should position PPPhone as the mobile softphone because the mobile market is
expected to see the most growth in the VoIP industry and ISR has relevant experience to
leverage to its advantage. This will provide PPPhone with a competitive edge and solid
value proposition.
A Growing Mobile Market
The mobile market is very promising for a softphone developer like ISR that wants to
enter a growing market with an undifferentiated product. Mobile endpoints are the future
of VoIP and are expected to be the principal drivers in VoIP adoption.237 As illustrated
below, the mobile VoIP market is expected to soon surpass the fixed market that the
PPPhone could serve (which is only about 38% of the total fixed VoIP market after
excluding the portion captured by PC-to-PC softphones, ATAs, and desktop IP phones.)
In the mobile market, ISR will have the opportunity to capture newly created market
share instead of fighting to take existing market share from competitors, which is an
important opportunity for an undifferentiated product. On the same note, because the
mobile market is still much newer than the rest of the VoIP market, ISR will have the
potential to act before the mobile market is just as crowded as the fixed market.
Few direct competitors seem to have already entered the mobile market and begun
forming partnerships. A few softphone developers are working with mobile handset
OEMs, and Skype is being preloaded on handsets; however, Avaya appears to be the only
softphone developer forming partnerships with a mobile service provider (Sprint.)
M
i
200
l
l
i 150
o
n 100
s
50
0
2005
.
Mobile Endpoints
Fixed Endpoints
2006
2007
2008
2009
Year
99
Leveraging Mobile Experience
ISR has some experience with mobile companies and mobile networks in Japan, and it
can leverage this experience to create the perception that the PPPhone is a better mobile
softphone. Asia is the only geographic market where mobile VoIP has become a reality
to non-business customers. This gives ISR an advantage over European and North
American competitors like CounterPath and Avaya in that ISR can say it has years of
experience creating mobile softphones for popular use. ISR can leverage the fact that it
has worked with NTT DoCoMo, one of the few mobile companies to successfully market
mobile VoIP to consumers, PHS, one of the only widespread mobile VoIP networks in
the world.
Experience &
Partnerships to Leverage
Japan
PHS
NTT DoCoMo
Fusion Communications
KDDI
J-Phone
Kyocera
Details
World’s largest VoIP subscriber base238.
Only country with large mobile VoIP
network, PHS.
World’s first wireless VoIP network for
mass market.
Japan’s largest mobile service
provider239, the world’s 6th largest
traditional telecom,240 and Japan’s 2nd
largest PHS provider.241
Once Japan’s largest VoIP network.242
Soon to be acquired by eAccess, which
will be Japan’s fourth largest telecom.243
Japan’s 2nd largest mobile service
provider.244
Japan’s 3rd largest mobile service
provider and subsidiary of Vodaphone,
the world’s largest mobile service
provider.245
US’s 6th largest cell phone supplier
Relationship
Based in Japan with less than
1% of the Japanese softphone
market.
See below.
ISR provided some softphones
for NTT DoCoMo’s PHS
service, which DoCoMo has
since discontinued.
ISR recently closed a deal
including at least 50,000
PPPhone licenses to Fusion.
Unknown
Unknown
Kyocera owns 10% of ISR
This experience has given ISR’s marketing some momentum in the direction of being the
better mobile softphone. ISR’s actions that should be intensified to increase this
momentum including marketing aspects outlined in the promotion section.
This positive momentum toward a focus on mobile VoIP is essential since past
experience alone is not enough. ISR was named in 2004 to the “Pulver 100,” a list of the
top VoIP companies to watch in 2005, but it was left off the list this year. A boost in
marketing and the development of these new dual phone products may be enough for ISR
to regain momentum, return to the list of most innovative companies, and solidify
PPPhone’s image as the mobile softphone.
100
Options Considered but Not Pursued
The Mobile Market Will Soon Be ISR's Largest Option
300
150
100
50
0
2005
2006
2007
2008
200
Total Available Market
250
Focus
M
i
l
l
i
o
n
s
Fixed ATAs & Desktop IP Phones
PC-to-PC Fixed Softphones
Other Mobile (ATA & PC-to-PC)
Residential Fixed Softphones
Corporate Fixed Softphones
Residential Mobile Softphones
Corporate Mobile Softphones
2009
As shown in the chart above, the mobile market that will be ISR’s focus is growing faster
than other market segments. This is further explained in the first column of the following
chart which shows that the fixed market and other segments are neither growing as fast as
the mobile market nor, as shown in the next column, are they as well aligned with ISR’s
strengths.
101
Markets Considered but Not Pursued
Market
Sub Market
Fixed Overall Fixed
Market
PC-to-PC
Market
Call Center
Market
Mobile
102
Comparable Size &
Growth
Currently very large, and
the mobile market will
eventually catch up to it.
Alignment with ISR’s
Strengths
ISR has focused more on
mobile softphones in the past.
Currently very large (in
number of endpoints) but
softphone revenues will be
surpassed by the mobile
market.
Part of the Corporate Fixed
VoIP Market that will be
surpassed by the mobile
markets
ISR only has a loose
partnership to create PC-to-PC
softphones.
Fixed Hardware:
ATAs & Desktop
IP Phones
Currently very large but
will be surpassed by the
Mobile Market
Fixed Hardware
for use with
mobile devices:
TV Set Top
Boxes, Routers &
Wireless Dialup
Adapters
Car Navigation
Systems
Small. May grow, but not
as fast as the true mobile
market.
Small. Uncertain how fast
it will grow.
ISR has created some more
complex corporate fixed
softphone products for system
integration projects, but not for
call centers
ISR has the ability to produce
the SIP stack needed for these
devices, but has not done much
of this.
Same as above.
Most of these would only
require the SIP stack. ISR has
done produced some SIP
stacks for Toyota’s navigation
systems.
Other Considerations
The fixed market is more crowded
by PC-to-PC service and hardware
that does not need a client-server
softphone like PPPhone.
Most of these softphones are offered
free by the PC-to-PC service
providers.
Market
Saturation
Moderate
High
Would require much greater
investment to develop product
features.
High
The SIP stack is only part of the
PPPhone and therefore adds less
value.
High
Same as above. Also, such
hardware manufacturers would need
to partner with VoIP service
providers. The mobile VoIP service
providers will work with mobile
handset providers to commission
any softphone production.
ISR may also obtain part of this
market as it continues to focus on
the total mobile market.
Uncertain
Low
Overall, the mobile market appears to be the best option for ISR because of its highanticipated growth and its close alignment with ISR’s strengths. Certain segments of the
fixed market will be important to have as secondary targets, as described in the section on
distribution, but many players in those segments, including ISPs, cable companies, and
traditional telephone companies that provide VoIP service will also be attracted to the
PPPhone as they see that it stays on the cutting edge by focusing successfully on the
mobile market.
Product Strategy
PPPhone is a VoIP softphone application that can be used on a computer or a PDA
system. It provides similar communication features as a traditional telephone, but voice is
transmitted in packets over Internet channels. PPPhone possesses many features
including superior sound quality; PPPhone can redial your calls, as well as provide you
with voice mail. In addition to ISR’s unique Packet Loss feature, the softphone will tell
you who is calling and update new features to the phone automatically. To track your
activities, the memory log records when, who, and where incoming calls are coming from
and when and where outgoing calls have been. An offered benefit is the ease of the
application and relatively quick understanding of how to use the GUI.
Currently there are a large number of softphones on the market that come in a variety of
different sizes, shapes, colors, and features. To compete in this market, we recommend
that ISR develops a competitive advantage to differentiate the PPPhone. In addition to
recently adding the hold feature and call transfer, ISR needs to add several more
functions including: multi-way calling, multi-line conferencing, video conferencing, and
mute. For the global community to understand how to use the softphone, ISR needs to
provide PPPhone’s GUI with help menus in multiple languages.
As illustrated in the figure below, ISR needs to add conferencing, Outlook ad-in, and
mute, to compete with the top seven features offered by the 15 competitors surveyed.
103
Competitive Benchmark of Features
Number of competitors
12
10
8
6
4
2
Mute
Phonebook:Dial
from contacts
Outlook Ad-in
Call Hold
Call Transfer
Coferencing
0
Features
With these features, ISR will obtain the competitive advantage needed to be the
competitive leader in the mobile softphone industry.
Optimal Design
Changes to the GUI
The PC version of PPPhone should look more like a mobile smartphone, much like
CounterPath’s eyeBeam, X-Pro, and X-Lite, to enhance PPPhone’s images as the mobile
softphone. PPPhone already has 3-D buttons and image references on the screen, but it
needs an even more differentiated look. We recommend that ISR change the appearance
of PPPhone’s GUI by augmenting the 3-D imagery to capture the appearance of a real
smartphone. This could be achieved by contouring the sides so that it looks as if the user
could actually pick it up off the screen. Creating images that look like a real speaker and
microphone on the GUI may be superficial but will enhance this affect. Though the PC
version is obviously not mobile, this improved imagery will help point customers toward
PPPhone’s mobile strengths.
PPPhone’s GUI
on the left has
recently been
improved to look
more modern
and mobile, as
shown in the
middle image.
104
However,
PPPhone needs
more redesign to
look as modern
and mobile as
CounterPath’s
softphone to the
right.
Features Needed and Already Being Added
A Software Development Kit (SDK) is already being added to the PPPhone product line
to more easily enable customers to integrate PPPhone with their products and services.
An SDK has been key to helping CounterPath, the market leader, generate large sales.
Call transfer & call hold are also being added at the request of customers in Europe.
These features are currently offered by most, if not all of the competition. Adding these
two features will help eliminate two potential advantages that competitors can potentially
have over PPPhone.
Recommended New Features to Add
The PPPhone’s current design position is only a little above average when compared to
hundreds of other softphones.
1. Conferencing/Multi-Way Calling
Conferencing and multi-way calling is the feature not offered by PPPhone that most
competitors offer. In fact, 11 out of 15 competitors offer this feature. Furthermore, this
is a commonly recommended feature on mobile phone buyer guides online, including
guides published on multiple international websites in the US, England, and Australia by
Consumer Reports246, CNET247, ZDNET248, and other sites recommending mobile phones
for business249 or consumer use. Because it is a common feature offered by competitors
and becoming an expectation among mobile phone users, ISR should consider this as a
minimum requirement for PPPhone.
2. Contact Integration
As shown in the above chart, 6 out of the 15 softphones compared are integrated with
Outlook, and 6 out of the 15 allowed users to dial straight from the phonebook. Mobile
phones worldwide allow dialing straight from the phonebook. In order to meet consumer
needs and expectations we recommend that PPPhone integrate with a contact manager or
(click –to-call) phonebook.
3. Mute
A mute button is the last function offered by at least one third of competitors but not
PPPhone. This feature is clearly not as popular as among other competitors. Also it was
not listed as a necessary feature on any buying guides, so it is not as urgently needed as
others. Although some of the needs filled by a mute button will already be satisfied by
the hold function being implemented, it would still be a good idea for PPPhone to offer
this simple feature in order to avoid letting many competitors have any small advantage.
105
Features Considered but Not Recommended
Customization is another recommendation that ISR can capitalize on to differentiate the
PPPhone. This means giving the end user the ability to change the color, size, and shape
of the phone and the ability to add/remove widely used features to the interface. Even
though this could create an individual connection with the product, it would increase the
footprint of the software size, rendering it less competitive for the mobile market.
Other features considered, but not recommended because they were only offered by a few
competitors, can be found in Appendix B: Competitive Benchmarking.
OS Support
We recommend that PPPhone be compatible with the Symbian OS and the new Windows
Mobile 5 OS since Symbian is anticipated to dominate the smartphone market for the
next several years and some market researchers believe that only Windows Mobile 5 has
a chance at rivaling it. ISR has recently made PPPhone compatible with Windows
Mobile 5 and is currently in the process of making it compatible with Symbian. We
recommend that ISR continue with these efforts to make PPPhone compatible with these
leading mobile operating systems. Such compatibility is essential if PPPhone is to
become the leading mobile softphone.
New Product Integration
1. Seamless Transfer between Wi-Fi and Cellular Networks
In the short term, seamless transfer between Wi-Fi and cellular networks will need to be
available to get PPPhone on dual phones, which will be a strong driver in mobile VoIP
adoption. ISR should create a product to enable this seamless transfer or partner with a
company that has such a product. Offering this product together with PPPhone will help
speed PPPhone’s growth in the mobile market.
2. Video over IP
In the long term, video over IP should be integrated with PPPhone. The research firm
IDC’s camera and videophone forecast predicts that video “will become the key imaging
application on mobile handsets over the forecast period, growing from only 44 percent
penetration of global camera phone unit shipments in 2004 to 100 percent, or 766 million
units by 2009.” 250 This increase in the popularity of mobile video warrants some
attention by developers like ISR that wants to make its softphone standard on every
mobile phone. ISR should continue to investigate/ monitor this trend as video becomes
available for mobile VoIP calls. ISR should either develop something in house or partner
with another company to enable PPPhone to integrate with video.
106
New Brand Name
The PPPhone brand name must be changed before it enters the North American and
Western European markets both because people have difficulty knowing how to
pronounce it, which makes the name less memorable, and because “PP” has obvious
negative connotations in English.
When renaming PPPhone, we recommend that follow the trends discovered in a recent
survey by branding company TippingSprung. TippingSprung surveyed 393 respondents
and concluded that the “Best name for a voice-over IP service was won by Speakeasy
(39.2%), while the first runner-up was Lingo (21.6%). Packet8 came in last with a mere 6
votes.”251 According to the survey, the best names are guided by the following emerging
trends in brand naming:
!" “Authenticity and simplicity rule. The survey shows that companies are
gravitating towards real-word names like Cornerstone and Harmony rather than
coined or made-up names. This is partly due to the ongoing backlash against the
dot-com naming era, when coined names proliferated. But it also reflects the
broader trend in the market – consumers’ desire to connect with brands that
communicate authenticity and simplicity.
!" “Marketers are stuck in the middle between consumers and lawyers. Corporate
trademark lawyers may like coined names like Verizon or Altria that can be
registered and protected in multiple classes. However, as the results of our survey
show, consumers generally dislike coined names and gravitate toward familiar,
real-word names such as Harmony and Cornerstone. Savvy marketers are trying
to satisfy the needs of both audiences by developing coined names that have
instantly recognizable roots and meaning. One approach is to “embed” a real
word prominently in the new name, as in the examples of Achieva, Genworth, and
Scenium. Another approach is to bring two words together to create a new name,
as in the case of PureVision, SoundDock, or CallVantage.”
In an attempt to follow this example, we brainstormed about 80 names, narrowed the list
down to the 23 best names, and then eliminated all names that were already taken by
other companies in the VoIP industry. The following five names were what remained on
the list:
Innovoice
TrueVoice
RichVoice
Maxfone
TrueTalk
The above names are merely suggestions that can serve as a starting point for ISR
executives to have their own brainstorming session and begin the process of choosing a
new name for PPPhone. When choosing a new name, we recommend a name that helps
to emphasize the softphone’s strengths of mobility, quality, ease of use, and innovation.
A list of all the brainstormed names can be found in Appendix K: New Brand Name.
107
Geographic Strategy
Three global regions were analyzed in determining this strategy including Japan, North
America (NA), and Western Europe (WE). In determining which geographic region
holds the most potential for ISR to focus its efforts on, 23 factors were identified from
population growth to 3G handsets and can be referenced in Appendix L: Geographic
Decision Factors.
Out of this total, we chose 10 of the most important factors to be applied to a weighted
decision matrix. These were determined based on their relative importance to the
wireless VoIP mobile market potential and the applicable amount of data obtained. The
weights were determined on a scale from 2 being the lowest to 10 being the highest. For
example, government regulation was determined to be the least important factor, so it
was assigned the first with a weight of 2; we then determined that VoIP market growth
and current mobile phone usage are 5 times more important, so they each received a
weight of 10. Every other weight was then assigned on a sliding scale.
Each region received a score on a scale from 1 to 10 (1 the lowest, 10 the highest) as
pertinent to the data researched. The spread between the points was determined by the
size of the gap between the data amounts and benchmarked against global figures. Some
of the data was based on overall market research such as government regulations and
competitive saturation (the amount of VoIP service providers already with their own
softphone.) This figure was multiplied by the weight to achieve the total score shown
below.
Region
Factor
VoIP Market Future
Growth
Mobile phone usage
Broadband penetration
WiMax
Current Av of VoIP
Competitive Saturation
Potential Savings on VoIP
Number of cell service
providers
GDP real rate
Gov Regulations
Total
Weight
10
Score/ Total Weighted Score
Japan
NA
WE
Score
Total
Score Total Score Total
5
50
10
100
7
70
10
9
9
8
8
7
6
7
8
8
9
5
3
4
70
72
72
72
40
21
24
6
7
6
6
10
10
9
60
63
54
48
80
70
54
8
9
7
7
8
3
8
80
81
63
56
64
21
48
4
2
73
7
9
28
18
467
8
7
32
14
575
4
6
16
12
511
Each of the regions was totaled with North America leading at 37.03% out of a total of
100% (score=575/ total score= 1,553), Western Europe at 32.90% and Japan scoring
30.07%. North America, in this case including the US and Canada, and Western Europe,
108
the main 13 countries, had very close results. North America’s real advantage lies in it’s
having the highest VoIP future market growth at 25.8% CAGR, exceeding the world total
at 21.9% CAGR. North America also has substantially higher population and GDP real
growth rate than Western Europe, as well as more current Wi-Fi users, less competitive
saturation and higher savings from switching to VoIP. There are currently more mobile
phones, broadband, and estimated WiMax areas in Western Europe, but the rate of future
growth is not as significant as in North America.
Geographic Score
37.03%
40.00%
32.90%
30.00%
Results by
20.00%
Percentage
10.00%
0.00%
30.07%
1
Region
NA
WE
Japan
Wireless infrastructure growth in North America will exceed the potential of Western
Europe in wireless mobile VoIP. With major US cities such as San Francisco and
Philadelphia, poised to rollout widespread wireless networks this year and in 2006, the
necessary infrastructure will be ample for ISR’s entry into this emerging and quickly
growing market.
North America offers many possibilities with the most cell phone service providers
worldwide. These providers are diversified and segmented regionally, allowing ISR to
access multiple various opportunities. The amount of VoIP providers is close to 60%
higher than in Western Europe according to the VoIP List with 581 in the US and Canada
alone and only 253 with all thirteen countries combined.252
With a 20% share of handset sales in 2004, North America ranked third in global handset
sales, nearly on par with Western Europe but well behind the Asia-Pacific region which
already dominates the global handset market by a considerable margin. According to
Gartner, sales in North America grew by 25% in 2004. The pace of growth has continued
through the first half of 2005. Gartner tallied 35.5 million mobile phone sales in North
America in the second quarter of the year, a more than 9% increase over 2004. This total,
say Gartner analysts, represents a new record for Q2 unit sales in North America.
Motorola retained the lead in the handset race, with a 34% market share.
109
According to the UK-based ARC Group, North America also ranks high in smartphone
sales with a 25% share of the estimated 28 million units sold worldwide in 2004. The
ARC Group believes that relatively high penetration of mobile computing technology
will be the main driver of smartphone sales in North America. The Yankee Group sees a
reasonably bright future for the wireless only home, with the number of households
cutting the cord rising from 6.2 million this year to 16.1 million in 2009, representing
14% of US homes.253
The North American market requires less adaptability and altering of the product than in
Western Europe where the language and cultural barriers are significantly higher to cater
to end users. ISR will be able to carry out its market strategy more effectively and
efficiently with the large opportunity offered by North America. ISR also has relative
advantage with the PPPhone in the US with an established office and dedicated staff
already in place.
The Geographic Strategy Focus is Three-Fold:
#1: Japan (and the Asian market in general) is currently leading the world in VoIP
adoption and wireless infrastructure but is trending towards becoming saturated in the
near future. It is highly important for ISR, with its limited resources, to focus on its local
market first hand since it is the most advanced to deploy wireless VoIP.
#2: The next most important focus is to gain presence in the North American market
through partnerships as a preemptive move. Current partnerships and strategic alliances
(as have been mentioned throughout the report) are the most important business moves to
make as convergence devices gain momentum over the next few years.
#3: Western Europe indicates high potential growth in the near future and should be
entered when the product is ready (with language and feature capabilities) and ISR has
sufficient revenues to expand into these fragmented and culturally specific markets.
A weighted decision matrix can be found on the spreadsheet in Appendix M: Western
Europe Decision Matrix. The decisions were based off of eight of the most important
factors chosen in the previous geographic analysis, WiMax availability and the number of
cell service providers was left out due to insufficient data. Due to the disparity in
population size per country, this factor was given a large importance, and the amount of
internet users per country was also added and benchmarked against EU statistics.
The following chart illustrates how the Western European companies compare to one
another (after analyzing the decision matrix) with the Nordic countries rating high due to
their advanced penetration of broadband and mobile networks.
110
Western Europe Potential
Netherlands
UK
France
Germany
Norway
Denmark
Sweden
Italy
Switzerland
Belgium
0%
20%
40%
60%
80%
100%
Results by Percentage
Spain
Ireland
Portugal
Distribution Strategy
Many possible distribution channels were considered in establishing the current strategy
including: retail outlet chains, wholesalers, a sales force, and cyber marketing. Several
key factors such as cost effectiveness and positioning were used to arrive at the optimal
recommended distribution strategy.
The distribution strategy has been divided into two major sections based on the targeted
consumer. See the figure below.
Primary Targets:
Mobile service providers
- 1st Directly (Dual Phone Service Providers)
- 2nd Through hardware (OEM/ ODM)
Secondary Target:
Fixed Service Providers
- Pure VoIPs service Providers
- ISPs
- Telecoms
VoIP service providers appear to be the key decision makers in most softphone purchases
as evidenced by the customers listed on CounterPath’s website. 13 of the 23 customers
listed are pure VoIP service providers, and an additional 4 provide VoIP service in
addition to instant messaging, cellular service, traditional telephony, or internet. The
111
remaining 26% of customers include mainly software, hardware, and middleware
developers. Furthermore, mobile VoIP service providers appear to carry more weight
than fixed VoIP service providers, even though the latter may have a larger share of the
VoIP market for now. In a Sprint deal to initiate a mobile VoIP network that will involve
a mobile VoIP service provider, mobile handset manufacturers, fixed line VoIP service
providers, TV set top box manufacturers, and softphone developers, it was the mobile
VoIP service provider that decided which softphone developer to contract, showing that
the mobile VoIP service providers are the key decision makers.
To reach the primary target, a mobile service provider, ISR should employ a direct
distribution model wherein Mr. Mendez approaches the potential clients personally. We
recommend this strategy because of the executive level nature of the interaction and in
order to complement the customer relationship and negotiations necessary to close deals
of this magnitude. Person-to-person relationships are critical to product selection process.
Due to the relatively new VoIP offerings, Mr. Mendez will need to educate the customer
on the full capabilities of the product.
Furthermore, ISR will be able to reach the service providers indirectly though both the
hardware original equipment manufacturer and the original design manufacture
(OEM/ODM). This channel of distribution can be utilized through direct sales or through
partnership opportunities and will capitalize on the manufacturers’ ability to mass
produce and will leverage their existing distribution networks. Upon bundling, the
OEM/ODMs might choose to offer the bundled product to retail outlets and wholesalers.
Wholesalers’ points of distribution would be able to span the globe.
When considering the type of relationship to develop with the OEMs and ODMs,
consider the Pros and Cons of employing a relationship with a distributor.
PROS
Developed relationship with mobile
service providers
No training necessary
Quick access to potential clients
Faster market penetration
Will have a better sense of the local
environments.
Established Channels already in place
CONS
Possible low loyalty for PPPhone, if
the distributor has several other
products.
They receive an agreed upon
percentage or margin of sales.
The risk of less loyalty from the end
users
Negotiations not as personal
Since, it is not feasible for Mr. Mendez to personally talk to all potential clients, we
recommend that a qualified sales force be hired and trained to meet aggressive sales
targets that will establish the company as a leader in the industry. The staff should be able
to articulate the product’s technical and business proposition to customers with skills to
develop and maintain trusted relationships with clients. This qualified sales force
112
should continuously be working to advance ISR’s marketing strategy by researching the
local markets, updating competitive and trend analyses as new developments occur and
maintaining the customer’s needs. Additionally, continue to investigate the markets with
a focus on local distributors.
There is more freedom in the options to distribute to the second target. One option
currently being used by Jabber in sales of its SimpleAE softphone is to mass distribute
the softphone to service providers. In this model of distribution, Jabber only charges the
Service Providers for the licenses that are being actively used, which provides the clients
with a large cost saving opportunity and the flexibility to more widely distribute the
product.
Sales Strategy
PPPhone has multiple possible sales strategies. Three recommended product strategies:
ISR Branded
Offer
Co-Brand
(Powered by ISR)
A great product with Cost efficiency
low cost
ISR shares branding
and cost with the
client
By offering consumers three purchasing options, ISR will be able to meet the needs of the
varying customers and will therefore create new opportunities for increased sales. We
recommend offering a standard ISR branded softphone, and a co-branded and private
labeled solution that will be attractive to the larger mobile service providers, and the
original equipment manufacturers. The advantage to offering a co-branded and a private
label SDK is the reduction in time to market and the expense, allowing the consumers to
focus on their primary function of providing a service instead of developing software.
This will also benefit ISR by developing long-term relationships that will reduce cost.
Benefit
Quick to market
advantage
Private Label
(SDK)
Quality exceeding
expectations of end
user
Partnership and long
term low cost
Strategy Pyramid
ISR is currently positioned in the area of SIP development, as a system integrator, and a
software provider. Since ISR’s target market is the VoIP service providers, it should
penetrate this market directly through the cell phone service providers or ISPs. An
indirect method of penetration is through the OEMs and the ODMs who can directly
include PPPhone in their hardware package. The following visual layout (strategy
pyramid) summarizes how ISR can successfully position and distribute the PPPhone.
113
Birth of SIP
Solution
SIP Development
Potential
Hardware
Manufacturers
Tools + Platforms
Software
Providers
ODMs
System
OEMs
Integrators
Hardware
Providers
Potential
VoIP
Service
Providers
Enterprise
Market
Residential
Market
114
VoIP
Cell
Carriers
Careers
Service
Providers
ISPs
Deployed SIP
Solution
Pricing Strategy
Penetration Strategy
In the early stages of VoIP market growth, ISR should follow a penetration pricing
strategy. This means that PPPhone will be priced low compared to the competition to
quickly increase sales market share. Market share will be very important as this mobile
market will soon become saturated with other companies who can invest the few million
dollars needed to enter the market. The matrix below shows several industry factors that
make a penetration strategy the best choice for ISR’s PPPhone. As shown in the chart
below, this strategy will work well because of the high number of substitutes and the
relatively low barriers to entry in this market. It is assumed that price sensitivity is
somewhat high since there are so many competitors that are not always easily
differentiated. Though economies of scale should be high when using this strategy, the
fact that the cost of reproducing softphones is low puts ISR in the same situation. All of
these factors point to the need for a penetration strategy.
Pricing Strategy Options254
Strategy
Substitutes
Entry
barriers
Price
sensitivity
Economies of
scale
Goal
Premium
None
Very high
None
None
High/unit margin
Value
Few
High
Low
Low
Profit
Cost/plus
Some
Medium
Medium
Medium
Competitive
Many
Low
High
High
Protect market share
Penetration
Many
Low
High
High
Market growth and
leadership
Market share and
profit
ISR’s goal should be to eventually shift to a premium pricing strategy or a value pricing
strategy, which is to price just below premium products. ISR will be able to do this as the
market matures so that the number of substitutes decreases and as ISR strengthens the
differentiation that it can offer to sharply decrease price sensitivity. The longer ISR can
sustain this differentiation, or uniqueness, the longer it will be able to maintain premium
pricing and higher profit margins.
However, just as competitors will imitate ISR’s penetration strategy, they will also
attempt to imitate PPPhone's points of differentiation and its premium pricing strategy.
This will cause PPPhone’s price to drop relative to other softphones. ISR will be in the
cycle illustrated below, for which reason it should constantly be working to develop new
points of product differentiation to keep its prices and profits high.
115
PPPhone’s Product & Price Cycle
Competitors
Copy
Differentiation
PPPhone’s
Relative
Price
Raised
PPPhone’s
Relative
Price
Lowered
PPPhone
Becomes
Differentiated
There are other strategies listed that were also considered but not chosen. The cost/plus
pricing strategy means that price is chosen purely based on costs and the amount of sales
needed to break even. The competitive pricing strategy also focuses on decreasing costs
while pricing the product at or near competitors’ prices. These two strategies were not
chosen because of the already low cost of reproducing PPPhone and an even greater need
to focus on increasing market share while it can.
116
Pricing Structure
Structure for Large Quantities
Front
Loaded
CASH FLOW
Back
Loaded
High
Fee per
license with
minimum
quantity
POTENTIAL
RETURN
Set # of
licenses up
front
Fee per
license
deployed
Fee per
license “in
use”
(Perpetual?)
(myJabber)
(CounterPath)
(ISR)
Industry Trend
Low
Unlimited
licenses up
front
Little is know about competitors’ price structures. CounterPath previously sold unlimited
licenses for set prices up front. For example, in the three months ending July 31, 2004,
Xten (before it became CounterPath) sold unlimited licenses of its X-Pro softphone to
Deutsche Telekom for $300,000. In the following three months, it made a similar deal
with Nortel for unlimited licenses of its eyeBeam softphone for $500,000. 255 55% to
75% of revenues for the next few quarters came from large deals of this kind. However,
on February 1, 2005, Xten announced that it would be switching to a “per seat” revenue
model. The change in business model caused total revenues to drop in the first fiscal
quarter of 2006, but such a model is anticipated to provide a continuous source of
revenue in the long run. MyJabber, another competitor, has decided to go a step further
and only charge for licenses “in use.”256
This model will be appealing to service providers because it removes risk from lost
revenues and minimizes cost. CounterPath’s original “up front payment” model proved
useful in obtaining revenues early on, and ISR could benefit from doing something
similar in the early stages of growth. However, now that the industry appears to be
moving toward a “per seat” model, ISR should at least do a hybrid of these two models
just as it has done recently in a deal with Fusion Communications, in which it agreed to
charge “per seat” with a minimum purchase of 50,000 licenses. ISR should continue with
this model until it has enough cash to move to more of a pure “per seat” model, perpetual
117
fee, or revenue sharing model that will potentially be even more attractive to customers.
Based on this research, break-even analysis, and competitive comparison, it is
recommended that ISR continue to with its current price of $2.00 per license and try to go
higher if it can (more analysis on this is in the finance section), with the flexibility of
negotiating for larger contracts or on an as needed bases because of the price-taking
nature of the business. Reference to this analysis can be seen in the research gathered in
Appendix N: Softphone Price Benchmarking.
Promotion Strategy
The main goals of a promotion strategy that ISR employs should be to increase brand and
product awareness while building a brand that represents experience, high quality, and
superior customer relationship management at a competitive price. Due to the high level
nature of the proposed clientele, ISR’s brand needs to be synonymous with experience
and credibility.
Due to the introductory phase of the PPPhone, ISR needs to spend at least a
recommended 10% of revenues to increase awareness and effectively position the
product. CounterPath devotes approximately 8% of revenues towards marketing and
advertising strategies. However, since ISR needs to establish a corporate brand identity in
the new geographic regions, ISR will need to spend more money.
To maximize ISR’s marketing ROI, publicity is the most cost effective way to re-launch
the PPPhone to the targeted niche audience. Following are four potential avenues, in no
relative order, by which to introduce the PPPhone to potential consumers and partners:
#1: Sponsor VoIP conferences focused on the wireless and dual Wi-Fi segment of the
market. This will give ISR the opportunity to meet potential clients, as well as to create
brand awareness amongst a very specific audience. There are several ways that ISR can
leverage sponsorship activities at a conference. One such example is to have a hospitality
booth or suite. For a set fee, ISR could offer free coffee and bagels, or other light
breakfast items, throughout the morning of the conference. Another example could be to
promote a PPPhone software giveaway, generating hype around the product and drawing
attention. These are great ways to generate traffic and get the ISR name to the
conference attendees. Another opportunity to increase awareness while increasing
credibility is to submit proposals for a chance to speak at the conference either as a
panelist, workshop facilitator, or a keynote speaker. Plan ahead, as the deadline for most
“call for papers” is 4-6 months before the date of the event. When in attendance at these
various conferences or tradeshows, ISR should have press kits available, which contain
brochures of pertinent product overview information, CDs, and other promotional
materials.
118
Here is a list of up coming pertinent conferences ISR needs to attend.
Wireless
Related
Conferences
Q1
WCA Wireless
Communications
Association
Conference in San
Jose, CA Jan 18-20
Attend WiMax
Summit 2006 &
International SIP
Conference (at same
venue) in Paris,
France Feb 21-24
Attend Internet
Telephony
Conference & Expo
East in Ft.
Lauderdale, FL Jan
24-27
Attend Fixed Mobile
Convergence
Other VoIP Conference in
Conferences California Mar 6-10
in California
Attend Spring VON
06 in San Jose, CA,
Mar 14-17
Mobile & VoIP Conferences in 2006
Q2
Q3
CTIA Wireless
Smartphone Summit
conference Sept
at CTIA Wireless
12-14 in L.A.
Conference in Las
Vegas, NV April 5-7
Q4
Wireless VoIP
Executive Summit
(Possibly in San
Jose in September)
Attend Wireless WiFi Convergence 2006
in Paris, France May
16-19
WiMax World
Conference in
Boston, MA Oct
10-12
Attend Wireless
Enterprise Summit in
Fort Worth, TX May
8-10
Attend Wireless &
Mobile Expo &
Conference in
Toronto, Canada Jun
7-8
Spring VON 06
Europe in Stockholm,
Sweden, May 15-18
Attend VON 06 UK
in London, June 1214
Global Mobile 2006
Conference in San
Diego, CA June 1416
VON Japan in
Tokyo Jul 19-21
Internet Telephony
Conference & Expo
West in San Diego,
CA Oct 10-13
Fall VON 06 in
Boston, MA, Sep
11-14
Internet Telephony
Conference & Expo
West in San Diego,
CA Oct 10-13
Autumn VON 06
Europe in Berlin,
Germany Nov 6-9
Winter VON 06 in
Atlanta, Georgia
Dec 4-7
#2: Whitepapers and press releases are widely used marketing communication tools
designed to expose the benefits of and technology behind PPPhone and should be
designed to highlight favorable aspects of the product, including the new technology
surrounding the dual or mobile nature of the softphone, and the added benefits to the
119
VoIP industry. ISR currently has many press releases, but they are largely in Japanese
and need to be multilingual to gain this important exposure.
#3: ISR should develop an editorial and awards calendar, which contains the names of
publications, topics and dates of submission for articles or awards to submit on the
PPPhone, VoIP industry, dual phones, or SIP technology. This is a great way to get the
ISR brand into popular industry publications with minimal costs to the company.
#4: ISR should update its media kit that can be sent to journalists as a part of a
publication pitch. A media kit contains press releases, brochures, pictures, CDs, white
papers, and any other written communications that focus on the product and the
company. ISR should develop more written communications, press releases, and articles
that are centered on the PPPhone.
Web Plan Summary
ISR’s website is a primary form of communication and highly important marketing tool.
Currently the website is sub par to closest competitors. It is somewhat difficult to find
product information overall due to the amount of text on the home page making it not as
obvious as CounterPath’s and Cicero Network’s message. Following are some
recommendations to improve the competitive positioning of ISR’s website.
Website Marketing Strategy
The increasingly global nature of the VoIP business increases the importance of having a
website that effectively conveys PPPhone’s positioning and highlights all the benefits.
The following recommendations have been identified to update the ISR website. These
are in no particular order of importance for they will all increase the traffic and
productivity of ISR’s website in some form.
1. Web logs: Add a mobile or softphone blog to the website where the company can
quickly and easily communicate to end users about the product and any updates or
new technologies. If the blog proves popular, consider distributing the headlines
through RSS feeds to reach prospects without emailing and creating another way
for more potential clients to find your website. Verbally communicate the
message by offering podcasts, which enables programs to distribute broadcasts so
that consumers can listen to an MP3 file while they are near and away from their
computers. Or add another form on audio messaging, with the start, stop, and
volume under the control of the visitor.
2. Articles, Press Releases, and Whitepapers: Use these forms of written
communication to increase credibility of the product to prospective clients, while
spreading the word about ISR’s business and creating additional avenues of
contact with those interested in its industry.
3. Start an ongoing Search Engine Optimization campaign to increase search engine
120
rankings and increase the number of visitors.
4. Add multiple languages to the website to increase the understanding of ISR’s
message to wider demographics. This will be even more necessary as the
company plans to attract more overseas clients.
5.
Listing the ISR Website in appropriate directories such as the VoIP-infor.com to
provide more points of contact with potential customers while helping search
engine rankings.
6. Hold an online chat to interactively communicate with end users and generate
traffic to the website.
7. Add testimonials from ISR’s customers to illustrate credibility-building
experience. In addition, add links to the customers’ websites to create a sense of
continuity between ISR and its partners and customers.
8.
Make adobe documents with detailed information describing the competitive
advantage, benefits, features, and a user guide available so that the end user can
quickly access this pertinent information on the PPPhone. To extend this value
add ISR should provide a more competent tutorial (reference CounterPath’s
online product introduction user guide).257
In addition to the above recommended website marketing strategies, it is important that
ISR fixes bad and broken links to the website such as the PPPhone demo on the US
website (did not work when tested 11/17/05) to sustain a quality image.
Development Requirements
The development requirements to execute this web plan strategy are minimal as they can
be readily implemented in the first quarter of 2006. The most extensive change will be
providing multiple languages to the website as this would require sourcing the project to
a translation agency. Translation agencies charge an average of US$0.07-$0.20 per
character to translate from Japanese. Average costs for website designing are variable
and are likely already core competencies of the company.
121
Implementation
2006
Product
Price
2007
Q1
Q2
Q3
Begin developing/adding new
features, including multi-way
calling, multi-line
conferencing, video
conferencing, and mute
Find the new product name
Begin researching
mobile IP
videoconferencing
Complete rollout
of PPPhone with
new features
and GUI prior to
CTIA Wireless
Conference
Begin Redesigning GUI
Continue to update
PPPhone with
features and
benefits that meet
the needs of the
end user
Begin shift to premium pricing ($4 and
higher) as differentiation becomes
evident. Cycle between premium and
competitive strategies as necessary.
Hire a PR
representative in
North America to
help execute
marketing
Continue attending multiple
VoIP related conferences
globally.
Sponsor a VoIP
conference
Research and submit a proposal to
speak at 2 mobile VoIP related
conferences for the remainder 2006
Create Marketing Collateral such as
product overviews that detail the
benefits and new features of the
PPPhone
Website
122
Q4
Continue Penetration
Strategy with low $2 price
and minimum purchase
Promotion
Add a mobile or softphone
blog to website
2008
Speak at 3 mobile VoIP
related conferences (at
minimum) each year
2009
Continue to update websites
with new developments,
recently published articles,
press releases, or
whitepapers
Fix broken links on the US
website
Placement
Gain exposure in NA market
through attending the
conferences
Focus on West Coast of NA
Distribution
Dedicate sales time and
budget roughly as follows:
50% to mobile service
providers, 25% to mobile
OEMS/ODMs , 20% to fixed
service providers, and 5% to
others
Finance
Increase advertising
expenditures to a minimum
of 10% of revenue
Employee
Growth
Start holding an
online chat
Begin to gain a greater presence in
Western Europe (After IPO)
Attend industry
conferences in
Europe to begin
approaching
potential customers
and "feel out" the
appropriate time to
hire personnel in
the region
Focus more on
East Coast of
NA
Begin international
exporting plan to
Western Europe
Implement a
mass distribution
strategy
Train sales force to
articulate product's
technical and
business to
increase
distribution strategy
Implement a mass
distribution strategy
Break Even point (Based on
moderate forecast) & Initiate
IPO
Consider hiring
additional
employees in the
US
Increase employee size between 55 &
65
Reasons
Product Q3
ISR needs to show its updated version of PPPhone at the conference to gather attention and better promotion
Finance '08
After ISR reaches its breakeven point and earns profit, it is ready to initiate an IPO (financially healthy with reputation in N.A.)
Placement
'08
After initiating IPO, ISR will have enough money to expand its size and can enter into Europe, with successful N.A. brand awareness as backup
Increase employee
size between 65 &
75
123
VoIP Marketing Strategy and Implementation
Summary
ISR’s closest competitor, Counterpath, was chosen as the main benchmark in this
marketing and implementation strategy due to the success of this company and the
similar size and business model they share. This strategy is further mirrored in the
following financial plan section. The following list is in order of strategic importance;
however, each part is dependent on the other in order for the successful implementation
of the marketing mix:
!" #1: Product- Update the PPPhone to be the mobile softphone.
!" #2: Promotion- Gain awareness and establish a solid brand image; this will largely
be accomplished in attendance of various important conference and trade shows
as well as solidifying mobile positioning on ISR’s website.
!" #3: Place- Leverage this brand image strategically in the North American market;
focusing on the west coast where ISR is already situated and move to the
profitable east coast of N.A.
!" #4: Pricing- Establish a successful pricing strategy will determine the share of the
market ISR can obtain and subsequently relative profits.
The implementation of these strategies is dependent upon ISR’s financing and has been
assigned a flexible timeline to be altered at the discretion of ISR’s management as this
burgeoning market and the PPPhone product both evolve.
124
Financial Plan
Important Assumptions
Without any financial statements from ISR, we decided to use the financial information
of CounterPath, a successful competitor in the softphone market, as a benchmark in order
to forecast ISR’s financial condition with the following six assumptions.
Assumption 1
In forecasting ISR’s sales structure, we assumed that its sales are calculated by
multiplying a price per license by the number of licenses sold. According to
CounterPath’s financial information, during the fiscal year 2005, its sales consist of an
average 93.49% of software sales and 6.51% of consulting fees. Therefore, to avoid
additional assumptions without adequate financial information from ISR, we simply
assumed the following total sales formula.
Total Sales (S) = Price per License (P) * the Number of Licenses Sold (L)
CounterPath’s Sales Structure in the Fiscal Year 2005
Q1-05
1-May-04
31-Jul-04
Q2-05
1-Aug-04
31-Oct-04
Q3-05
1-Nov-04
31-Jan-05
Q4-05
1-Feb-05
30-Apr-05
2005
Total
Sales
Software
$466,651 96% $653,618 96% $838,163 90%
$941,374 91% $2,899,806 93.5%
Sales
Consulting
$20,500
4% $23,746
4% $90,445 10%
$88,378
9%
$223,069 6.5%
Fees
Total
$487,151 100% $677,364 100% $928,608 100% $1,029,752 100% $3,122,875 100%
Sales
Assumption 2
Based on limited information from ISR, we have assumed that its total sales were
$1,000,000 in the fiscal year 2005 (ended on Mar. 31, 2005) and its total costs were also
the same amount, which results in the company being in breakeven. This is important to
mention to indicate ISR’s cash flow situation and to identify total costs to be used in this
analysis.
Assumption 3
To identify ISR’s cost structure, and its cost formula, we assumed that each cost ISR
spends has the same allocation to its total costs as that of CounterPath. After eliminating
inapplicable accounts such as a foreign exchange account and a forgiveness of debt
account from CounterPath’s costs during the fiscal year 2005, we identified the following
125
percentage of each the variable and fixed costs to the total cost; fixed costs are in the gray
row, variable costs related to the dollar amount of sales (variable cost (S)) are in the
yellow, and variable costs related to the number of employees (overhead (E)) in the light
blue.
CounterPath’s Fiscal Year 2005 Cost Structure
Fixed Cost
!
Variable (S)
Overhead (E)
!
!
!
!
!
!
!
!
!
!
!
!
Advertising
Amortization
Bad debts
Computer expenses
Consulting, Professional Fees and Wages
Licenses and permits
Office and miscellaneous
Professional fees
Rent
Telephone and internet
Travel and Promotion
Wage, commissions and benefits
Stock based compensation
Warranty expense
Public Relations
Total Costs
0.0%
3.0%
0.7%
0.2%
11.1%
2.8%
2.8%
2.9%
2.6%
1.3%
7.9%
56.4%
4.0%
1.4%
2.9%
100%
Note that the rent will be increased as the number of employees’ increases; however, we
assumed that rent is a fixed cost in a relevant range. In addition, the amount of the
consulting and professional fees will shift to wages as the business matures. Without
knowing the timing of the shift, we included the consulting and professional fees in the
fixed costs.
CounterPath’s Total Percentage of the Fixed Cost and the Variable Costs S and E
Fixed Cost
Variable Cost (S)
Variable Cost (E)
Total
25.3%
10.0%
64.7%
100%
After identifying CounterPath’s cost structure, by applying each cost allocation to ISR’s
allocations of fixed costs, variable cost (S), and overhead (E), we calculated ISR’s cost
formula by taking the following three steps.
126
Step 1
Because we have assumed that ISR’s total costs in the fiscal year 2005 were $1,000,000
in assumption 2, the fixed cost is simply calculated to be $253,141 by multiplying the
fixed cost allocation of 25.3% by the total cost $1,000,000.
Fixed Cost= Total Cost $1,000,000 * Fixed Cost Allocation 25.3% = $253,141
Step 2
Next, we calculated the coefficient of the variable cost (S) to be 0.10 by multiplying the
total cost $1,000,000 by the variable cost (S) allocation of 10% divided by the total sales
of the fiscal year 2005 which were $1,000,000.
Coefficient of the Variable Cost (S)
= Total Cost $1,000,000 * Variable Cost (S) Allocation 10.0% / Total Sales $1,000,000
= 0.1
Step 3
Finally, we calculated the coefficient of the overhead (E) to be $55,204 by multiplying
the total cost $1,000,000 by the variable cost allocation 64.7% divided by the average
number of the total employees, which was 28.
Coefficient of the overhead (E)
= Total Cost $1,000,000 * Overhead (E) Allocation 64.7%
/ The Average Number of the Employees 28= $55,204
Using these three numbers, we can compose ISR’s cost formula as follows.
Total Cost
= 253,141 + 0.1 * (Total Sales) + 55,204 * (# of Employees)
= 253,141 + 0.1 * S
+ 55,204 * E
= 253,141 + 0.1 * P * L + 55,204 * E
Here, E stands for the number of employees.
Assumption 4
We assumed that ISR will have to grow as fast as CounterPath does. Especially because
the softphone market is at the nascent stage, if ISR cannot become the first mover in this
127
market, we assumed that ISR will not be able to survive. In other words, ISR must
capture a future installed base that is at least comparable to that of CounterPath.
Assumption 5
We assumed that the following Served Available Market (SAM) forecast which was
made in the Market Size and Growth section is correct.
Served Available Market (SAM) Forecast
!
SAM
2005
2006
2007
2008
2009
11,097,782 31,626,873 59,817,231 102,760,430 178,808,804
Assumption 6
We made a forecast for the feasible market share that ISR can take by referring to that of
CounterPath.
First [MSOffice1] , we made a moderate forecast; CounterPath had sold a total number of
500,000 licenses 2 years after its incorporation. Therefore, we assume ISR will be able to
sell the same number of licenses in 2006. Next, because CounterPath sold a total number
of 5,400,000 licenses 3 years after its incorporation. Subsequently, we assume that ISR
will be able to sell 5,500,000 licenses in 2007. However, growth at 1,000% annually is
not sustainable. Using a conservative approach, we assumed this would slow
significantly. Because the forecasted incremental number of licenses of ISR between
2006 and 2007 was 5,000,000 licenses, we simply assumed that the incremental number
between 2007 and 2008 would be 7,500,000 by multiplying 5,000,000 by 150%.
Similarly, we assumed the incremental number between 2008 and 2009 would be
10,000,000 by multiplying 5,000,000 by 200%. These our forecasts are described in the
following moderate forecast table.
Next, for the optimistic forecast, we used 150% of sales in the moderate forecast table.
Finally, in contrast, for the pessimistic forecast, we used 50% of sales in the moderate
forecast table.
Thus, we made the following 3 forecasts, and we used these forecasts for the subsequent
forecasts.
Optimistic Forecast
Cumulative Installed
Base
Annual License
Sales
SOM%
128
2005
52,000
2006
750,000
2007
8,250,000
2008
19,500,000
2009
34,500,000
52,000
698,000
7,500,000
11,250,000
15,000,000
0.5%
2.4%
13.8%
19.0%
19.3%
Moderate Forecast
Base
Annual License
Sales
SOM%
2005
52,000
2006
500,000
2007
5,500,000
2008
13,000,000
2009
23,000,000
52,000
448,000
5,000,000
7,500,000
10,000,000
0.5%
1.6%
9.2%
12.7%
12.9%
Pessimistic Forecast
Base
Annual License
Sales
SOM%
2005
52,000
2006
250,000
2007
2,750,000
2008
2009
6,500,000 11,500,000
52,000
198,000
2,500,000
3,750,000
5,000,000
0.5%
0.8%
4.6%
6.3%
6.4%
Key Financial Indicators
The key financial indicators that we have regarding ISR are extremely limited. Therefore,
as stated in the Important Assumption section above, we used CounterPath’s financial
statements as key financial indicators as well as those of ISR.
Regarding ISR’s key financial indicators, all we know is the following four pieces of
information which were collected through the emails from Pedro, interviews with Raul,
and ISR’s website.
1. ISR’s fiscal year ends on March 31st.258
2. During the fiscal year ended on March 31st, 2005, ISR’s net revenue was
approximately $1,000,000, which enabled ISR to be in the breakeven.259 In other
words, its net income or loss was approximately $0.
3.
On November 24th, 2005, the currency exchange rate between Japanese Yen
(JPY) and U.S. dollars (USD) was approximately 1 USD = 119 JPY. 260 Then, we
will assume that this exchange rate will not change for the purpose of this report.
4. ISR’s total capital investment is 135,500,000 JPY, which is approximately
1,138,655 USD by using the exchange rate above on November 24th, 2005.261
ISR’s Capital Investments
1USD = 119 JPY
1993
1997
2001
Total
JPY ¥10,000,000 ¥46,000,000 ¥79,500,000 ¥135,500,000
Investment
USD
$84,034
$386,555
$668,067
$1,138,655
129
In addition to the financial indicators mentioned above, ISR will have sold 52,000
licenses by the end of 2005, and it plans to hire additional 7 sales representatives in 2006.
Subsequently, the total number of employees will increase to 35 in 2006.
On the other hand, regarding CounterPath’s financial indicators, we referred to all
financial statements available on its website.262 Through these financial statements, we
also found important non-financial information that CounterPath incorporated in October
28th, 2002, sold 5,400,000 licenses by October 2005, and now has 40 employees at the
beginning of its fiscal year 2006.
The number of CounterPath’s Employees
Fiscal Year
# of Employees
2003
2004
3
2005
12
2006
30
40
Break-Even Analysis
Using the assumption 1, 2, and 3, we calculated the following formula to forecast the two
variables respectively at a break-even point: (1) the number of the licenses sold (L): (2)
the number of the employees (E).
At a break even point;
Total Sales
= Total Cost
P*L
= 253,141 + 0.1 * P * L + 55,204 * E
0.9 * P * L
= 253,141 + 55,204 * E
Or
L
= (253,141 + 55,204 * E) / 0.9 P
E
= (0.9 * P * L -253,141) / 55,204
Because there are three variables, when one variable is calculated, the other two variables
must be fixed. Therefore, to forecast the variables L and E respectively from the year
2005 to 2009, we fixed the other two variables as indicated in the following tables in the
subsequent sections (1) and (2).
(1) Forecasting the Number of Licenses, L
Forecasting the Variable L from 2006 to 2009
2006
L
E
P
130
35
$2.00
2007
2008
Variable
35, 45, 55
45, 55, 65
$2.00
$2.00
2009
55, 65, 75
$2.00
As stated in the Financial Indicator section above, ISR plans to hire seven additional sales
representatives in 2006. Therefore, we assumed that the total number of employees will
increase to 35 in 2006.
In addition, using the incremental number of employees of CounterPath, 10, from its
fiscal year 2005 to 2006 as indicated in the Financial Indicator section above, we placed
three fixed numbers of employees for each year from 2006 to 2009 as specified in the
table above.
Moreover, we fixed the price per license to be $2.00, which ISR currently provides.
Based on our SAM forecast in assumption 5, the size of SAM will be 31,626,873
subscribers in 2006. Therefore, to breakeven and keep the current price per license at
$2.00 each, with 35 employees, ISR has to seize approximately 4% of the SAM share
which is approximately 1,265,075 of additional subscribers. With this market share,
ISR’s total sales will be $2,530,150.
The Year 2006 (E=35, SAM=31,626,873)
E
35
SAM
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
L (Y2006)
31,626,873
316,269
632,537
948,806
1,265,075
1,581,344
1,897,612
2,213,881
2,530,150
2,846,419
3,162,687
Price/L
$7.68
$3.84
$2.56
$1.92
$1.54
$1.28
$1.10
$0.96
$0.85
$0.77
Similarly, the size of SAM will be 59,817,231 subscribers in 2007. Therefore, to
breakeven, ISR has to seize an additional approximate 2% of the SAM share with 35
employees, approximately 2 to 3 % of the market share with 45 employees, and
approximately 3 % of the market share with 55 employees.
The Year 2007 (E=35, SAM=59,817,231)
E
35
L (Y2007)
SAM 59,817,231
1%
598,172
2%
1,196,345
3%
1,794,517
4%
2,392,689
5%
2,990,862
Price/L
$4.06
$2.03
$1.35
$1.01
$0.81
131
The Year 2007 (E=45, SAM=59,817,231)
E
45
SAM
1%
2%
3%
4%
5%
L (Y2007)
59,817,231
598,172
1,196,345
1,794,517
2,392,689
2,990,862
Price/L
$5.08
$2.54
$1.69
$1.27
$1.02
The Year 2007 (E=55, SAM=59,817,231)
E
55
SAM
1%
2%
3%
4%
5%
L (Y2007)
59,817,231
598,172
1,196,345
1,794,517
2,392,689
2,990,862
Price/L
$6.11
$3.05
$2.04
$1.53
$1.22
Likewise, the size of SAM will be 102,760,430 subscribers in 2008. Therefore, to
breakeven, ISR has to additionally seize approximately 1 to 2 percent of the SAM share
with 45 employees and approximately 2 percent of the market share with 55 and 65
employees.
The Year 2008 (E=45, SAM=102,760,430)
E
45
SAM
1%
2%
3%
4%
5%
L (Y2008)
102,760,430
1,027,604
2,055,209
3,082,813
4,110,417
5,138,022
Price/L
$2.96
$1.48
$0.99
$0.74
$0.59
The Year 2008 (E=55, SAM=102,760,430)
E
55
132
SAM
1%
2%
3%
4%
5%
L (Y2008)
102,760,430
1,027,604
2,055,209
3,082,813
4,110,417
5,138,022
Price/L
$3.56
$1.78
$1.19
$0.89
$0.71
The Year 2008 (E=65, SAM=102,760,430)
E
65
SAM
1%
2%
3%
4%
5%
L (Y2008)
102,760,430
1,027,604
2,055,209
3,082,813
4,110,417
5,138,022
Price/L
$4.15
$2.08
$1.38
$1.04
$0.83
In the same way, the size of SAM will be 178,808,804 subscribers in 2009. Consequently,
to breakeven, ISR has to additionally seize approximately 1 % of the SAM share with 55
and 65 employees and approximately 1 to 2 % of the market share with 75 employees.
The Year 2009 (E=55, SAM=178,808,804)
E
55
SAM
1%
2%
3%
4%
5%
L (Y2009)
178,808,804
1,788,088
3,576,176
5,364,264
7,152,352
8,940,440
Price/L
$2.04
$1.02
$0.68
$0.51
$0.41
The Year 2009 (E=65, SAM=178,808,804)
E
65
SAM
1%
2%
3%
4%
5%
L (Y2009)
178,808,804
1,788,088
3,576,176
5,364,264
7,152,352
8,940,440
Price/L
$2.39
$1.19
$0.80
$0.60
$0.48
The Year 2009 (E=75, SAM=178,808,804)
E
SAM
1%
2%
3%
4%
5%
L (Y2009)
178,808,804
1,788,088
3,576,176
5,364,264
7,152,352
8,940,440
Price/L
$2.73
$1.36
$0.91
$0.68
$0.55
133
(2) Forecasting the Number of Employees , E
Forecasting the Variable E from 2007 to 2009
2005
2006
2007
2008
2009
(A)
Optimistic
698,000 7,500,000 11,250,000 15,000,000
(B)
52,000
Moderate
448,000 5,000,000 7,500,000 10,000,000
(C)
198,000 2,500,000 3,750,000 5,000,000
Pessimistic
E
28
35
Variable
P
$2.00
$4.00, $2.00, and $0.84
L
Based on the assumption 6, we used 3 different ways to forecast the numbers of licenses
which ISR has to sell by 2009: (A) the optimistic forecast: (B) the moderate forecast: and
(C) the pessimistic forecast.
Regarding the price per license, we also used 3 different prices: $2.00, which is the
current price: $0.84, which is the lowest price among the competitors: and $4.00, which
will be the benchmark of a higher price than the current price.
As a result, we calculated the following number of employees with different variables.
(A) Optimistic Forecast
The Number of Employees: Optimistic Forecast
L
P
$4.00
$2.00
$0.84
2005
2006
2007
2008
2009
52,000 698,000 7,500,000 11,250,000 15,000,000
41
485
729
974
28
18
240
362
485
5
98
149
201
From the result of the optimistic forecast in 2007, the forecasted numbers of ISR’s
employees with all 3 prices will increase dramatically in order to maintain the breakeven
point. Because the number of employees of ISR in 2006 is known to be 35, the numbers
of employees in 2007 stated in the table above are unrealistic. In addition, because
CounterPath sold 4,400,000 licenses with 40 employees in the 2nd quarter of 2006, ISR
simply would not need more than 80 employees to sell 7,552,000 licenses in 2007.
Therefore, we concluded that, if ISR increased its market share according to the
optimistic forecast, it will start making a profit in 2007.
134
(B) Moderate Forecast
The Number of Employees: Moderate Forecast
L
$4.00
$2.00
$0.84
P
2005
2006
2007
2008
2009
52,000 448,000 5,000,000 7,500,000 10,000,000
25
322
485
648
28
10
158
240
322
2
64
98
132
Similarly, from the result of the moderate forecast, even though ISR will have a net loss
in 2006 because it will have 35 employees in 2006, it will start making profit in 2007
because it would not need more than 40 employees due to the same reason mentioned
above.
(C) Pessimistic Forecast
The Number of Employees: Pessimistic Forecast
L
P
$4.00
$2.00
$0.84
2005
2006
2007
2008
2009
52,000 198,000 2,500,000 3,750,000 5,000,000
8
158
240
322
28
2
77
118
158
(2)
30
47
64
Likewise, from the result of the pessimistic forecast, ISR will start making a profit in
2007 with the license price of $4.00 and $2.00 and from 2008 with the license price of
$0.84 because it would not need more than 40 employees due to the same reason above.
Projected Profit and Loss
To estimate ISR’s incremental number of employees, we referred to 3 different
incremental numbers of licenses per 1 employee increase based on CounterPath’s data in
the fiscal year 2004, 2005, and 2006: (1) #12,222 licenses / #1 employee: (2) #49,444
licenses / #1 employee: and (3) #440,000 licenses / #1 employee. Using these 3
numbers, we found out which growing stage ISR will achieve.
CounterPath’s Incremental Number of Licenses and Employees
2003
License
Employee
#L/#E
Total L
"L
Total E
"E
0
0
3
2004
110,000
110,000
12
2005
1,000,000
890,000
30
2006
5,400,000
4,400,000
40
9
18
10
12,222
49,444
440,000
135
(1) "12,222 licenses / "1 employee
Using CounterPath’s incremental number of 12,222 licenses per employee, ISR’s
total number of employee calculation resulted in 649, 444, and 240 employees
respectively in 2007 with the following 3 types of forecast: the optimistic forecast, the
moderate forecast, and the pessimistic forecast. However, all these numbers are
unrealistic compared with the total number of employees in 2006. Therefore, we
concluded that ISR will not be at the growth stage where CounterPath was in its fiscal
year 2004.
ISR’s Estimated Incremental Number of Employees: Optimistic Forecast
P
L
E
2006
698,000
35
2007
7,500,000
649
2008
11,250,000
1,569
2009
15,000,000
2,796
ISR’s Estimated Incremental Number of Employees: Moderate Forecast
P
L
E
2006
448,000
35
2007
5,000,000
444
2008
7,500,000
1,058
2009
10,000,000
1,876
ISR’s Estimated Incremental Number of Employees: Pessimistic Forecast
P
L
E
2006
198,000
35
2007
2,500,000
240
2008
3,750,000
546
2009
5,000,000
955
(2) "49,444 licenses / "1 employee
Similarly, using CounterPath’s incremental number of 49,444 licenses per employee,
ISR’s total number of employee calculation resulted in 188, 137, and 87 employees in
2007 with the 3 forecasts correspondingly. Nevertheless, all these numbers are also
unrealistic compared with the total number of employees in 2006. Likewise, we
concluded that ISR will not be at the growth stage where CounterPath was in its fiscal
year 2005.
136
ISR’s Estimated Incremental Number of Employees: Optimistic Forecast
P
L
E
2006
698,000
35
2007
7,500,000
187
2008
11,250,000
414
2009
15,000,000
718
ISR’s Estimated Incremental Number of Employees: Moderate Forecast
P
L
E
2006
448,000
35
2007
5,000,000
136
2008
7,500,000
288
2009
10,000,000
490
ISR’s Estimated Incremental Number of Employees: Pessimistic Forecast
P
L
E
2006
198,000
35
2007
2,500,000
86
2008
3,750,000
161
2009
5,000,000
263
137
"440,000 licenses / "1 employee
Similarly, using CounterPath’s incremental number of 440,000 licenses per
employee, ISR’s total employee calculation seems to be highly realistic. Therefore,
we pursued a further calculation to forecast ISR’s net income with the 3 different
forecasts and 3 different prices, which are $4.00, $2.00, and $0.84 as follows.
ISR’s Estimated Incremental Number of Employees & the Net Loss/ Profit:
Optimistic Forecast
L
E
P
$4.00
$2.00
$0.84
P
$4.00
$2.00
$0.84
2006
2007
2008
2009
698,000
7,500,000 11,250,000 15,000,000
35
52
78
112
Revenue
$2,792,000 $30,000,000 $45,000,000 $60,000,000
$1,396,000 $15,000,000 $22,500,000 $30,000,000
$586,320 $6,300,000 $9,450,000 $12,600,000
Revenue/Employee
$79,771
$576,419
$39,886
$288,210
$16,752
$121,048
$579,795
$289,898
$121,757
$537,131
$268,566
$112,798
The Number of Employee (to keep the Highest Revenue/Employees)
P
$4.00
35
52
78
103
$2.00
103
103
$0.84
P
Net Profit / Loss
$4.00
$327,798 $23,876,742 $35,966,776 $48,040,081
$2.00
($928,741) $10,375,242 $15,714,526 $21,037,081
$0.84 ($1,657,534) $2,544,372 $3,968,221 $5,375,341
As shown in the table above, the number of employees will increase up to 78 from 2006
to 2008. In 2009 however, the sales per person starts decreasing. Therefore, to keep the
highest revenue per person pursued in 2008, the number of employees in 2009 will be
decided by dividing the each revenue amount in 2009 by the corresponding highest
revenue per employees in 2008. Subsequently, the number of employees will be 103 in
2009.
Next, according to our sales and cost formula, we can calculate the following net income
formula. Using this equation, we also find the net profit and loss as indicated in the table
above.
Net Profit
138
= -253,141 + 0.9 * P * L - 55,204 * E
Using this formula, we concluded that if ISR set the license price at $4.00, it will make
profit from 2006. If it sets the price at either $2.00 or $0.84, it will make losses in 2006,
but it will be able to recover from the losses in 2007.
ISR’s Estimated Incremental Number of Employees
& the Net Loss/ Profit: Moderate Forecast
L
E
P
P
$4.00
$2.00
$0.84
$4.00
$2.00
$0.84
2006
2007
2008
2009
448,000
5,000,000
7,500,000 10,000,000
35
46
63
86
Revenue
$1,792,000 $20,000,000 $30,000,000 $40,000,000
$896,000 $10,000,000 $15,000,000 $20,000,000
$376,320 $4,200,000 $6,300,000 $8,400,000
Revenue/Employee
$51,200
$431,373
$25,600
$215,686
$10,752
$90,588
$473,118
$236,559
$99,355
$464,380
$232,190
$97,520
The Number of Employee (to keep the Highest Revenue/Employees)
P
$4.00
35
46
63
85
$2.00
85
85
$0.84
P
Net Profit / Loss
$4.00
($572,302) $15,189,401 $23,249,424 $31,083,612
$2.00 ($1,378,791) $6,188,401 $9,747,924 $13,081,612
$0.84 ($1,846,555)
$967,821 $1,917,054 $2,640,452
Similarly, in the moderate forecast indicated above, the sales per person will be the
highest in 2008. Therefore, to keep this high amount, the numbers of employees in
2009 were calculated to be 85.
As a result, we concluded that ISR will make a net loss in 2006. However, if ISR sets
the price at $4.00 or $2.00, it will recover the losses in 2007. In contrast, if it sets the
price at $0.84, it will take ISR more than one year to recover from the loss.
139
ISR’s Estimated Incremental Number of Employees
& the Net Loss/ Profit: Pessimistic Forecast
L
E
P
$4.00
$2.00
$0.84
P
$4.00
$2.00
$0.84
P
2006
2007
2008
2009
198,000
2,500,000
3,750,000
5,000,000
35
41
49
61
Revenue
$792,000 $10,000,000 $15,000,000 $20,000,000
$396,000 $5,000,000 $7,500,000 $10,000,000
$166,320 $2,100,000 $3,150,000 $4,200,000
Revenue/Employee
$22,629
$245,810
$11,314
$122,905
$4,752
$51,620
$304,850
$152,425
$64,018
$330,206
$165,103
$69,343
Net Profit / Loss
$4.00 ($1,472,402) $6,502,060 $10,532,071 $14,405,253
$2.00 ($1,828,841) $2,001,560 $3,781,321 $5,404,253
$0.84 ($2,035,576)
($608,730)
($134,114)
$183,673
On the other hand, in the pessimistic forecast, the sales per employee will keep on
increasing. Therefore, ISR can continue to increase its employees.
In conclusion, ISR will make a net loss in 2006. Nevertheless, if ISR sets the price at
$4.00 or $2.00, it will recover the losses in 2007. On the contrary, if it sets the price at
$0.84, it will take a net loss from 2006 to 2008, and ISR will recover from the loss in
2009.
Projected Cash Flow
Because of the lack of financial information from ISR, we were unable to adequately
project its cash flow.
Projected Balance Sheet
Because of the lack of financial information from ISR, we were unable to adequately
project its balance sheets.
140
Business Ratios
CounterPath’s Business Ratios in the Fiscal Year 2005
COUNTERPATH
SOLUTIONS, INC.
Business Ratio
Liquidity Ratios
Current Ratio
Receivable Turnover
Ratio
Profitability Ratios
Gross Profit Margin
Ratio
Net Profit Margin on
Sales
Return on Sales
Ratio
Total Asset
Turnover
Return on Asset
Return on Equity
Solvency Ratios
Debt to Equity
Working Capital
Days Sales
Outstanding
Q4-05
Q3-05
Q2-05
Q1-05
Mean
1-Feb-05
1-Nov-04
1-Aug-04
2005
30-Apr-05
31-Jan-05
31-Oct-04
1-May04
31-Jul04
3.0
3.0
2.3
5.2
2.9
1.1
15.1%
19.5%
18.9%
-29.3%
-9.6%
-29.3%
-43.0%
-27.8%
-29.3%
-9.6%
-29.3%
-43.0%
-27.8%
54.0%
44.6%
34.2%
49.0%
45.4%
-15.8%
-22.1%
-4.3%
-6.8%
-10.0%
-14.4%
-21.1%
-38.6%
-12.8%
-20.5%
39.7%
60.4%
44.0%
83.4%
56.9%
$1,091,223 $1,037,139 $1,155,986 $349,803
121.37
69.21
322.82
292.08
$908,538
201.37
1.8
1.2
2.5
2.6
17.8%
This market is at the nascent stage, so applicable information is not available. However,
we can see the tendency of this nascent market by analyzing the leading softphone
company’s financial structure. CounterPath’s financial data is, in this sense, applicable
for ISR because of its similar business model. However, this financial ratio analysis is
based on CounterPath’s financial condition. Thus, this financial ratio analysis is
calculated only for ISR reference use. Analyzing CounterPath’s position in this market,
we will refer to application software industry benchmarks retrieved from Yahoo! Finance.
263
141
Liquidity Ratios
Current ratio is one of the best-known measures of financial strength. It calculates how
many dollars in assets are likely to be converted to cash within one year in order to pay
debts that come due during the same year. During the fiscal year 2005, the mean of
current ratio is 2.5. In other words, CounterPath has 2.5 times as much current asset as to
cover its current liabilities. Acceptable current ratio varies from industry to industry, but
in general, an acceptable current ratio is 1.5. In this sense, CounterPath has no problem.
Receivable turnover ratio indicates how well accounts receivable are being collected. A
high Receivable Turnover Ratio indicates a tight credit policy. A low or declining
Receivable Turnover Ratio indicates a collection problem, part of which may be due to
bad debts. During the fiscal year 2005, CounterPath’s mean of receivable turnover ratio is
2.6. Considering the fact that CounterPath suffers from net loss, CounterPath needs to
shorten this number by reviewing its collection policy.
Profitability Ratios
Gross profit margin ratio represents the percentage of revenue remaining after cost of
goods sold is deducted. Since this ratio only takes into account sales and variable costs
(costs of goods sold), this ratio is a good indicator of a firm's efficiency in producing and
distributing its products. The higher the ratio is, the higher the efficiency of the
production process is. During the fiscal year 2005, the mean of CounterPath’s gross
profit margin was 17.8%. Considering the business model, application software
companies do not necessarily distribute their software physically, so its cost of goods sold
is lower than that of other industries. To reduce its cumulative deficit, CounterPath needs
to increase its gross profit by either reducing its cost of goods gold or increasing revenue.
Net profit margin and return on sales ratio represent net income per dollar of sales. The
higher a company’s net profit margin or a return on sales ratio compared to its
competitors is considered to be better. During the fiscal year 2005, the mean of net profit
margin and return on sales ratio were -27.8%. This means that CounterPath loses 27.8
cents by making every dollar sales. This may be caused by its expensive cost of sales
compared to its sales amounts or its too low sales compared to profit. Industry average of
net profit margin is 20.8%. Compared with the manufacturing industry, software
companies can reduce or lower cost of goods sold. Considering CounterPath’s increasing
market share, we can conclude that CounterPath is going to take market share first by
sacrificing its profit to have first mover advantage.
Total asset turnover ratio measures the total sales for every dollar of assets a company
owns. An asset turnover ratio measures a company’s efficiency in using its assets. The
higher the number is, the more efficiently the company is utilizing its assts. During the
fiscal year 2005, the mean of total asset turnover ratio was 0.45 times. Even though the
benchmark varies from industry to industry, this number is really low. CounterPath does
not utilize its asset to generate sales. Referring to its financial condition, CounterPath has
enough cash and assets. Therefore, CounterPath needs to increase its sales by using its
142
assets efficiently, such as increasing advertisement cost and so on.
Return on asset (ROA) provides how much profit a company generated for each $1 in
assets. During the fiscal year 2005, the mean of ROA was -12.8%. In other words,
CounterPath loses 12.8 cents for every $1 of assets. Similarly, this negative amount can
be considered to come from CounterPath’s strategy to take the market first.
Return on equity (ROE) provides how much profit a company earned in comparison to
the total amount of shareholders’ equity found in the balance sheet. During the fiscal year
2005, the mean of ROE was -20.5%. In other words, CounterPath loses 20.5 cents for
every $1 of shareholders equity. CounterPath does not use its shareholders equity
efficiently to earn money. Considering the fact that industry average ROE is 19.5%,
CounterPath needs to improve its condition. Negative ROA and ROE is due to its greater
use of debt (leverage) in its financial structure. We will examine debt in the following
section.
Solvency Ratios
Debt to equity measures how much money a company should safely be able to borrow
over long periods of time. Generally, any company that has a debt to equity ratio of over
40 to 50% should be looked at more carefully to make sure there are no liquidity
problems. During the fiscal year 2005, the mean of the debt to equity ratio was 56.9%.
CounterPath has reduced its deft to equity ratio by increasing paid-in capital, but still its
ratio is high. CounterPath needs to raise equity with the same way as stated above or
decrease its debt to keep a safe financial structure.
Working capital tells what would be left if a company raised all of its short-term
resources, and used them to pay off its short-term liabilities. The more Working Capital,
the less financial strain a company experiences. During the fiscal year 2005, the mean of
CounterPath’s working capital was $908,538. This looks like enough to cover its finance,
but CounterPath has over a 1 million dollar deficit. Thus, CounterPath needs to increase
current assets or decrease the current liabilities to make its financial structure healthy.
Days Sales Outstanding (DSO) indicates the length of time a firm takes to collect its
credit sales. The longer the DSO is, the greater the risk of running out of cash is. During
the fiscal year 2005, the mean of DSO was 201.4 days. This number is directly related to
the company’s collection policy. Even though CounterPath is suffering from cumulative
deficit, CounterPath has over $1 million cash in hands. Therefore, DSO is not really
significant for CounterPath.
In conclusion, CounterPath has been making net losses in order to become the first mover
in this market. In fact, it had approximately $1.4 million deficit in its 1st quarter, 2006.
Because CounterPath has captured approximately 50% of the market share, however, this
deficit might easily turn into profit by attracting investors rather than going into
bankruptcy.
143
Long-term Plan
Considering the net profit and loss section above, ISR will make net losses in 2006 unless
it raises its license price up to $4.00 taking the optimistically forecasted market share.
However, because ISR is a price taker and there is a competitor whose license price is
$0.84, it should not raise its license price at this point. Therefore, it will most likely make
net losses in 2006.
On the contrary, in 2007, ISR will make profits unless it lowers its license price down to
$0.84 taking the pessimistically forecasted market share. To lower the price is one way to
capture the market share fast, but it also creates losses. Therefore, if ISR does not have
enough financial confidence to keep the low price and stay in the losses until it takes the
market power, it is better not to lower the price. Moreover, once ISR lowers its license
price, the market might start going into price competition reducing the profit margin, and
ISR might not be able to recover from the net loss. Therefore, it is better to keep the
current price, which is $2.00 per license.
After 2006, keeping the current price will lead to net profits in the all three forecasts.
However, considering the 52,000 licenses, which ISR has sold so far, ISR needs to obtain
clients, which have more than 1 million end users as CounterPath did. Once it can
successfully capture its market share and brand recognition, ISR will be able to increase
its price and expect higher profit margin.
Launch an Initial Public Offering (IPO)
To drive future growth, ISR should consider the possibility of initiating and
implementing an IPO as the mobile wireless VoIP takes off as Infonetics estimates
predict to be soon, around the beginning of 2006. If ISR is able to maintain growth by
hiring more employees by the end of 2007, an IPO would be a beneficial option.
Conclusion
ISR will be able to successfully market in North America and Western Europe if it can do
the following: act now to gain the early mover advantage in the mobile market that ISR
management desires; promote PPPhone as the leading mobile softphone; target leading
mobile VoIP service providers in high growth areas with a penetration pricing strategy to
gain market share; pursue points of product differentiation that appeal to the mobile
market; use those points of differentiation to shift to a premium pricing strategy that will
increase profit margins. As forecasted, implementing these strategies will enable ISR to
increase its market share and profitability significantly.
144
Appendix A: Export Assessment
Foreign Entrance Assessment (Conducted 9/21/05)
The consulting team for ISR has used several frameworks to assess the degree to which
the company is ready to export PPPhone. A FASonline264 survey indicated that ISR is
well on its way to being a successful exporter; CITD provided less optimistic results with
its ERAS test, 265 rating ISR overall “weak to neutral”; the CORE assessment test
provided us with a “moderate” score. Details of these results follow below.
The FASonline assessment provided a fairly basic assessment recognizing that if ISR
exports, it needs to be able to meet the demand it is creating and needs to be able to have
adequate knowledge in international transaction costs since it is currently not exporting
overseas.
The CITD report was more extensive indicating that ISR has a lot more hurdles to
overcome regarding financial resources and current domestic market penetration. With
limited finances, the company has recently gotten back into the black; its capability to
compete in overly competitive markets will be limited without additional funding since
large marketing resources are required internationally. ISR has established relationships
with key partners in the domestic market to provide PPPhone software but do not seem to
have established a strong competitive edge in the Japanese softphone market. A large
segment of the Japanese market could be untapped and this moderate market positioning
could hamper success internationally. Since ISR does little domestic advertising and
promotion, a high-promotion strategy will greatly enhance efforts in exporting.
Recognition and acceptance are valuable assets internationally and partnering with a
well-recognized global brand will help significantly in order to establish market presence
internationally.
Core Assessment (Conducted 9/21/05)
Competitive Capabilities in the Primary Market:
Moderate 56%
ISR has already managed the complexity of a sales force with limited domestic sales.
ISR’s low growth rate is a sign of problems in the domestic market and a negative
indicator for foreign market development; it may be difficult for ISR to have the cash
resources required to develop sales in foreign markets. The current goal to hire seven
more sales staff will prove an asset and ease the workload for others for the international
expansion as ISR’s management organization would be in a better position to undertake
the significant effort required to enter foreign markets.
Motivation for Going International:
Excellent 99%
ISR is very motivated to expand the business into key world markets. ISR’s motivation
for success includes the following factors which add spirit to the growth process: desire
for significant long-term presence in foreign markets, exploitation of the company's
145
unique technologies, and improvement of the company's return on investment which add
spirit to the growth process. Also, ISR is striving for over 30% of its business to come
from lucrative foreign markets within the next 3 to 5 years.
Commitment of Owners/Top Management:
Moderate 66%
Though ISR management scored low in this test, our team recognized in our interview
with them that they are very enthusiastic. ISR management feels confident in the ability
to go international and the desire is strong. Its management ideally wants to give any
support necessary, but its work on current core competency projects may interfere with
efforts towards to export PPPhone.
Skills, Resources & Knowledge:
Moderate 76%
ISR is rated moderately in its skills as related to international marketing and exporting in
performing international transactions, tariffs, and regulations. However, ISR has
excellent experience in languages, traveling, and working abroad with international upper
management.
As far as resources are concerned, ISR has indicated a difficulty getting funds to expand.
This problem is likely to present significant problems and inhibit growth.
Experience & Training:
Moderate 75%
ISR’s experience is mainly in Japan, but it has attended select events and trade fairs in
foreign countries. Being a software company, ISR has regularly tried to attend domestic
shows to keep current on trends while gaining exposure. ISR is committed to provide
after-sales support in foreign markets, which will at least help it be at par with local
competitors in foreign markets if not give it an advantage over other importers in those
markets.
Product Readiness for Foreign Markets:
Excellent 94%
ISR dedicates 10-12% of revenues annually to PPPhone research and development.
PPPhone’s little or no shipping costs and small size, (downloadable or in CD form)
makes penetration and storage in foreign markets easier. PPPhone also does not require a
special license to export. The major advantages are ISR’s ability to provide training and
after-sales support, ability to adjust to personal needs and capabilities, willingness to
modify product and packaging, and ability to meet standards and regulations in foreign
market(s).
© CORE, Copyrighted by Center for International Business, Education and Research,
Michigan State University.
146
Appendix B: Competitive Benchmarking
Features
ISR
PPPhone
Softphone Name:
Conferencing
Acoustic Echo Cancellation
Acoustic Echo Suppression & Cancellation
Cisco
Cisco IP
Softphone
CounterPath
Eyebeam
eBay
Skype
Vonage
Vonage
Softphone
X
X
X
X
w/3rd party
option
w/3rd party
option
X
X
X
Adaptive Jitter Buffer
X
Add, Edit, Delete from your Received or Dialed
Auto Update
Cicero
Cicero
Phone
X
X
Automated Outbound Calls
Automatic Call Distribution etc.
Automatic Log-on to Public Hotspots
X
Backspace/Clear/Delete
X
Call Hold
(X)
Call Redial
X
X
X
X
Call Return
X
Call Timer
Call Transfer
X
(X)
X
X
X
Call Waiting
X
Caller-ID
X
Click-2-Call
X
X
X
X
X
Combine IP & PSTN calls together in a 3-way call
X
Comfort Noise Generation
Dial, Hang-up & Redial
X
X
X
X
X
Dialing from Microsoft Outlook and Lotus Notes Contact List, LDAP database, or Web page.
Digital quality phone calls
X
Dynamic Routing in the Handset
X
E-mail
Fast Access Point Roaming
X
For Remote-Workers Attended Call Transfer
Full Device Integration
X
G.711 [GSM Codec optional]
X
Help
X
X
Improved Audio Support.
X
In ISDN networks with CAPI
In-call Codec Re-Negotiation
X
Information and Announcement Lines
In-Network Calls
X
X
Instant Messaging (IM)
X
X
Integrates with local phonebook
X
Intelligent NAT Traversal
X
X
X
X
X
International Call Block
X
X
Message Waiting Indicator
X
Microphone & Speakers Levels
X
X
X
X
147
X
Multiple Profiles
Avaya
Avaya IP
Softphone
Nortel
IP
Softphone
2050
X
X
SJ Labs
SJ Phone
Xpremium
i2telecom
Voice
Stick
Jajah
Jajah
X
Linspire
Phone
GAIM
X
Terasans
Teravoice
M2X
M2X
Lite &
Pro
Persona
Persona
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
148
X
X
X
X
Features
ISR
PPPhone
Cisco
Cisco IP
Softphone
CounterPath
Eyebeam
eBay
Skype
Vonage
Vonage
Softphone
Cicero
Cicero
Phone
Softphone Name:
Multiple Skins
X
Mute
Optimized for Wireless Bearer Networks
X
X
X
X
Outlook Ad-in
Packet Loss indicator
X
X
Phonebook - Add, Edit, Delete and Dial right from your contacts
X
X
Portable Adapter or USB
X
Predictive-Dialer
Presence
X
X
Programmable Interfaces and/ or Softkeys
Productivity tools: Local Phone Directory/Call Log/ Redial List.
X
X
Received, Dialed and Missed Calls
X
X
Repeat Dialing
X
X
X
X
Ring Lists and Call Hunt
Silence Threshold & Tail Length
X
Single Dialer Supporting Wi-Fi and Cellular Calls
SIP
X
X
X
SIP MD5 Authentication
X
Superior Audio Quality
X
Support of Multiple Languages
X
X
X
X
Telex
Toll Free Plus
Touch Tones (DTMF)
X
X
X
X
Unattended Call Transfer
Use IP Softphone application for directory dialing on IP or DCP
telephone.
X
Video Calls
Virtual Phone Number
X
Voice Activity Detection
Voice Mail
X
X
X
X
X
VoIP Gateway
Waiting Queues for Call Centers and Hotlines
Wi-Fi Signal Strength Monitoring
Wi-Fi/GSM Roaming
X
X
X
149
Avaya
Avaya IP
Softphone
Nortel
IP
Softphone
2050
X
X
SJ Labs
SJ Phone
i2telecom
Voice
Stick
X
Jajah
Jajah
Linspire
Phone
GAIM
Terasans
Teravoice
M2X
M2X
Lite &
Pro
Persona
Persona
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
150
Appendix C: Global VoIP Subscriber Distribution
These estimates are provided by ZDNet on 7/18/2005.266
Global VOIP subscriber distribution
Region
Company
Number of customers, 000
Q4 2004
Q1 2005
185
203.5
Korea
Hanaro
Japan
Japan Other
2490
2739
Yahoo Japan
4396
7071
4517
7459.5
50
France Telecom
Free
Neuf
144
600
270
158.4
660
297
Tiscali France
freenet.de
sipgate
FastWeb
UGC
BlueCom
Telio
B2
100
200
110
220
480
70
1864
273
45
20.5
380
64
528
140
3.2
50
77
2293.6
364
49.5
23.4
413
70.4
219
0
388
1389.2
450
10300
372
14.9
535
1841.8
500
11500
3500
550
4050
14400
5300
605
5905
17400
Asia Pacific
France
Germany
Italy
Netherlands
Norway
Sweden
Europe
N America
Cegetel
Cablevision
Charter
Covad
Cox
Insight
Time Warner
Videotron
Vonage
N America
Others
Retail VOIP
Soft clients
Skype
VoiceGlo
Soft clients
Total
151
Appendix D: VoIP Softphone Market Survey
VoIP Softphone Market Survey
Purpose: to gain awareness of how this market is perceived and utilized from an
international consumer end user perspective.
Thank you for helping us by completing all the questions to the best of your ability!
Age:_____
Country of Origin:________________
Gender: M F
1) Are you familiar with VoIP (voice over the internet protocol)?
Very familiar Familiar
Somewhat familiar Unfamiliar
If you have answered unfamiliar turn the page, if not, continue and if you can, answer the
questions on the flip side.
2) How were you exposed to it?
3) What does VoIP mean to you?
4) Have you used a softphone (the soft ware that enables you to use VoIP)?
Yes
No
Not Sure
5) If no, which VoIP systems have you heard of?
6) If Yes, which VoIP software do you use?
7) Why do you use this type of software?
8) How often do you use VoIP?
Every day
Several times a week
Once a week
Once a month
9) What benefits do you get when using VoIP?
10) What type of difficulties have you had in using VoIP?
* Any other comments and suggestions specifically or generally in regards to softphones
and the VoIP market? ie. Different features you would like, recommendations, or any
other personal point of view…
Thank You for Participating!
152
We would appreciate if you could let us know:
1) What are your top 2 forms of communication in order of importance?
2) Which one do you prefer and why?
3) If you could talk for free over the internet, would you change your form of
communication?
4) What was your last, or what is your current full-time occupation? (If student, reference
your last full time employment experience)
5) What is the main form of communication in your organization?
6) How could converging communications systems into wireless platform benefit your
organization specifically? (For example: if you could link all your sales personnel to one
network how would it increase efficiency?)
* Any other thoughts or concerns
Thank You for Participating!
153
Appendix E: 10-5 Survey Results
Consumer awareness and utilization of VoIP survey results
10/5/2005
Demographics:
A total of 63 students were surveyed on the MIIS campus during the lunch hour
Age range: 20-37
Average age: 27
Amount of male respondents: 22
Female: 41
Country of Origin: United States: 51%
International: 49%
(Home countries included: France, Canada, Iceland, Denmark, Spain, Germany, China, Thailand, Korea, South Korea, Japan, and
Taiwan)
Results:
1) Are you familiar with VoIP?
International
students
US students Total
30= 47%
Very familiar/familiar
18
12
24= 38%
Somewhat familiar
1
8
9= 15%
Unfamiliar
12
12
The results of each category are expanded
further in the next four worksheets:
From the total who responded they were familiar with VoIP:
47% have used a softphone/are familiar with the software
40% have
not
13% were not sure/did not know what softphone software is
Those that responded somewhat familiar responded to both sides of the survey.
Some of the unfamiliar respondents filled out the reverse side of the survey.
Analysis: From this preliminary survey we have identified that awareness of VoIP is only
slightly skewed towards international students having heard more about the service than
US students. International students also have a higher usage rate than US students due to
the fact that they are away from their home country. With the results being almost 50/50
as to if consumers are aware or not aware of VoIP, it leads us to conclude that VoIP is
still not a very well recognized form of communication available to the average
consumer.
Growing awareness is a trend especially with the popularity of Skype and the eBay
acquisition. With 78% of respondents using or having used Skype, 100% have heard of it
that know VoIP, and 89% would like to or are planning to download Skype.
From the responses related to forms of communication: 75-80% of these respondents
prefer the phone to e-mail or messaging since it is more personal and immediate.
95% of these respondents also mentioned they would either probably or definitely switch
to VoIP if given the incentive to do so. These results indicate there is a large willingness
for consumers to seek more efficient and cost-effective uses of communication; the
154
market potential is high.
The main downside to VoIP was the necessity to be connected to a PC with a compatible
microphone; need for smartphone devices are high.
Outliers:
The fact that there are almost twice as many female respondents as male did not seem to
have an effect on the outcome of the results.
The pool of respondents we assessed are probably more well informed than the majority
of the population due to MIIS's international graduate community; therefore, we
recommend to eliminate some ambiguity by addressing this survey to other audiences.
155
Appendix F: Porter’s Five Forces
The model of Porter’s five forces provides a fundamental strategic tool to analyzing
relative components of the firm’s competitors and understanding the industry context in
which the firm operates. It analyzes forces that affect the industry so that a firm can
identify where it can competitively position itself. These forces include: threat of
substitutes, threat of new entrants, threat of closest competitors, supplier power, and
buyer power. Our following analysis also identified, market growth, market turbulence,
and complementors as additional forces ISR needs to identify with.
Composite Composition
Substitutes
!
ATAs (Analog Telephone Adapters)
and Telephone Combination
Tel
Cell*
Email
IM
Satellite
Snail Mail
Video Conference
Express Mail
CB+
Morse
Word of Mouth
Face-to-Face
Pen + Paper
*Cell depends on location
Key
Price
Performance
$ Higher than VoIP
~
$
$
%
%
$
~
$
$
$
$
$
$%
~
~
~
~ or $
%
%
~
%
$
%
%
%
%
$%
%
% Lower than VoIP
$High propensity toward Tel/Cell/Email/IM
Overall High threat of substitutes
New Entrants
EOS (economies of scale): $requirement
Absolute Advantage: Cheap commodity $
Capital requirement: Medium
Product differentiation: %
Access to distribute channels: $
Gov & Legal barriers: % (depends on country i.e. China)
156
~ Comparable to VoIP
Retaliation: %
Overall moderate to low barriers to entry
Competitors
Concentration: %
Diversity: Moderate
Product differentiation: Moderate to low (Need to talk with Pedro)
Excess capacity: %
Exit barriers: %
Cost condition: $ = Fixed Cost Variance
Overall moderate to low rivalry among competitors
Suppliers
Price Sensitivity: Moderate
Bargaining Power: %
Buyers
Price sensitivity: Extremely $
Bargaining power: $
Market Turbulence
High (Big company i.e. Microsoft get into market …can not compete with it)
--Nascent
--Someone could take over at any moment
--Coming Government intervention unknown
Market Growth
High CAGR 36% or more
Depending on segment Enterprise, SMB (small to medium business), or Residential
Complementors (Pretty much parallel to Buyers)
Service + hardware are needed
Bargaining power: $
Conclusion
ISR is competing in an industry with many substitutes but low to moderate barriers and
threats in existence. Its competitive positioning will be high if it decides to differentiate
in the mobile wireless VoIP market.
157
Appendix G: Traditional Telecom Company Profiles
NTT (Nippon Telegraph and Telephone) – Japan
NTT is the largest telecommunications company in the world in terms of revenue. It had
been government owned until its privatization in April 1985. NTT plans to invest $47
billion in its fixed-line network to partially replace traditional phone lines with fiber-optic
lines. NTT owns NTT East, NTT West, and NTT communications. Each company
provides its own VoIP services using NTT’s fiber-optic lines.267
Both NTT East and NTT West are local communication service providers. In addition to
their conventional fixed-line service, they provide an internet service called FLET’S
using fiber-optic lines. Moreover, they offer a VoIP service called Hikari Phone (“Hikari”
makes reference to fiber-optic lines in Japanese) combined with FLET’S to individual
customers. The main strengths of their Hikari Phone are:
1. Enabled to use with original fixed-phone number and conventional phone device
2. High voice quality
3. Enabled to call emergency numbers
NTT communications provides long-distance communication services. It also provides
an internet service called OCN to individual customers and business entities. OCN.Phone,
its VOIP service, can be used with NTT Communications’ fiber-optic lines or ADSL
service. 268
Deutsche Telekom – Germany
Deutsche Telekom is the top telecom company in Europe. It is also Germany’s top fixedline telecommunication service provider with about 58 million access lines. Its T-Com
unit provides this fixed-line service including domestic and international long-distance,
data transmission, carrier services, and sales or leasing of customer premise equipment.269
158
Duetsche Telekom 2003 Sales(million)
Adjustment,
$16,131 , 16%
Other revenues,
$5,181 , 5%
T-Com, $37,129 ,
35%
T-Online, $2,590 ,
3%
T-Systems,
$12,937 , 13%
T-Mobile, $28,494
, 28%
270
271
Verizon Communications Inc. – U.S.A.
Verizon is the top telecom service provider in the U.S. with approximately 145 million
access lines. Verizon is in the process of acquiring MCI, the second largest long-distance
telecommunication service provider in the US, and expects to expand its B2B business
along with the acquisition. Verizon’s operations are mainly categorized into the following
four divisions: (1) Domestic Telecom, (2) Domestic Wireless: (3) Information Services:
and (4) International.272
Verizon Communications Inc. 2004 Sales (million)
International,
$2,014, 3%
Information
Services, $3,615,
5%
Domestic Wireless,
$27,662, 38%
Adjustments, $559,
1%
Domestic Telecom,
$38,551, 53%
273
Verizon aims at expansion of its broadband services. It obtained a partnership with
159
Microsoft for its MSN contents. Verizon has also established a national IP network based
on multi-protocol label switching (MPLS) technology, and it is improving its voice
network to accommodate VoIP service. Moreover, to compete with cable companies that
also provide broadband services, Verizon is installing fiber optics. 274
France Telecom
France Telecom, of which 46% of stocks are still owned by the French government,
provides fixed-line and wireless services. The number of its fixed-line customers is
approximately 50 million. France Telecom established New Experience in Telecom
(NExT) Services, a three-year restructuring strategy to be implemented in 2006, in order
to position it as the most integrated telecom services provider domestically and
internationally.275
Telecom Italia
Telecom Italia, a former state-owned monopoly, is the top fixed-line and wireless
provider in Italy. In 2003, Telecom Italia merged with Olivetti, which is Telecom Italia’s
former rival, and, now, Olivetti is a subsidiary of Telecom Italia. It also provides Internet
services as an ISP and information technology services. However, to restructure its
organization, Telecom Italia is selling its fixed-line assets outside Italy and has sold 62%
of its ISP business shares while acquiring shares of Brazil Telecom from an investment
bank in Brazil for $441 million.276
Telecom Italia 2003 Sales % of Total
South America,
3%
IT, 3%
Olivetti Tecnost,
2%
Internet&Media,
4%
Mobile, 27%
Fixed line, 50%
277
Telefonica
Telefonica, a former monopoly, still dominates phone services in Spain. It owns 44
millions fixed lines, of which 19 million lines are in Spain. It is also an ISP with over
160
one million subscribers and provides ADSL high-speed Internet connections for its
broadband services.278
Telefonica is trying to expand its business in South America. It agreed to acquire the
assets of BellSouth Latin America Group for over $5.8 billion. This acquisition would
make Telefonica the largest telecom company in Latin America. Telefonica is also
installing an undersea fiber-optic line between the US and Latin America. 279
Directories
Business, $665,
2%
Telefonica
Conenidos,
$1,555, 4%
Telefonica
Data&Emergis,
$2,011, 5%
Telefonica 2003 Sales (million)
Terra Netw orks,
$615, 2%
Atento, $555, 2%
Other Revenues,
$665, 2%
Telefonica
Moviles, $11,770,
31%
Telefonica
Latinoamerica,
$7,197, 20%
Telefonica de
Espana, $11,531,
32%
280
SBC Communications Inc.- U.S.A.
Currently, SBC communications (SBC) has 52 million fixed lines, and it is the second
largest telecommunications company in the US However, its acquisition of AT&T would
make SBC the top in the US. Moreover, its acquisition of AT&T Wireless also made
SBC the top company among wireless telecommunication providers in the US with over
50 million subscribers.281
Regarding broadband services, SBC has approximately 6 million subscribers for its DSL
services. Furthermore, SBC plans to invest $4 billion to install fiber-optic lines in 13
states to provide 18 million households with broadband services such as high-definition
TV, VoIP service, and high-speed Internet connection by the end of 2007. SBC also
agreed to a 10-year contract priced at $400 million with Microsoft to develop nextgeneration TV services using Microsoft’s Internet Protocol Television (IPTV) Edition
software platform. 282
SBC is also partnered with Wayport to provide Wi-Fi service that will enable SBC’s
wireless service customers to access the Internet in 6,000 McDonald’s restaurants. 283
161
SBC Communications Inc 2004 Sales (million)
Other
Revenues,
$1,878, 5%
Directory
Advertising,
$3,832, 9%
Voice (Local),
$20,796, 51%
Data, $10,984,
27%
Voice (LongDistance),
$3,297, 8%
284
BT Group plc- U.S.A.
BT Group provides local and long-distance phone services, Internet access, and other
data services. It owns nearly 30 million fixed-lines for its 19 million individual customers
and more than 1 million business clients. It divided its fixed-line business into wholesale
and retail businesses. 285 Regarding acquisitions, Infonet, a leading corporate service
provider of voice and data network, became a part of BT Group as BT Infonet. BT Group
also acquired SkyNet Systems, which provides IP-based LAN systems, to expand its
MPLS capacity in North America. 286
In addition to the aforementioned expansion, BT Group is focusing on growing its
broadband business. It obtained a partnership with Microsoft to provide broadband
applications through MSN 8 Web browser. In addition, it established BT Openworld to
provide its broadband IP business and operate as an ISP. 287
BT Group 2004 Sales(million)
BT Global Service,
$19, 19%
BT Retail, $45,
45%
BT Wholesale,
$36, 36%
288
162
Appendix H: ISP Company Profiles
America Online (AOL) - U.S.
America Online, the Internet division of Time Warner (previously AOL Time Warner), is
the world's largest Internet access provider with some 29 million subscribers in the US
and Europe. It also owns CompuServe Interactive Services (part of its AOL Access
Business) and has operations in foreign countries. Struggling in the wake of an industrywide downturn America Online under the leadership of CEO Jon Miller, AOL is
expanding into new services including the creation of a wireless division.289 AOL said its
Total Talk VoIP service, which will be available on Oct. 4 in the U.S. and Canada,
offering full-featured VoIP services to broadband users of any broadband service. Total
Talk uses Triton, AOL's next-generation IM client, as its softphone application.290
T-Online- Germany
T-Online International is the #1 ISP in Europe, with more than 13 million subscribers,
almost three million of them paying for DSL service. The Internet arm of Deutsche
Telekom, Germany's former telecommunications monopoly, T-Online, maintains the
most visited German-language portal service. It also owns ISPs in France (Club Internet)
and Spain (Ya.com), though it is exiting the Austrian market and may sell Club Internet
as well. Deutsche Telekom originally spun T-Online off and retained a 74% stake, but,
much like France Telecom did with Wanadoo, Deutsche Telekom has announced plans to
buy out other investors and fold T-Online into the T-Com division.291
Wanadoo- Europe
The company provides Internet access to more than 9.7 million customers, roughly half
of which are in France, where Wanadoo is the #1 ISP. The company also operates in the
UK, where the company's Wanadoo UK (formerly Freeserve) unit is a top ISP, as well as
in Morocco, the Netherlands, and Spain. Wanadoo is also heavily involved in the
directories business, selling to more than 641,000 advertisers. France Telecom took full
ownership of the company in 2004.292
Comcast- U.S.
Comcast Corporation engages in the development, management, and operation of
broadband cable networks, as well as provision of programming content in the United
States. Having about 7.7 million subscribers it has one of the largest customer bases
behind AOL. Comcast’s most recent success in becoming a global ISP provider was its
2002 acquisition of AT&T broadband.293
Tiscali- Italy
Tiscali has become one of Europe’s top ISPs, along with Deutsche Telekom's T-Online
and France Telecom's Wanadoo. The company has spread its offer of Internet access
163
to other European countries through acquisitions, and, as of December 2004, the
company had 7.4 million subscribers, of which more than 1.6 million are broadband
users. Various voice services are also offered, and Tiscali provides related broadband
Internet services, virtual private networks (VPNs), and more to corporate customers.294
Korea Telecom
KT, a Korean telecom operator, claims to be the largest provider of ADSL (Asymmetric
Digital Subscriber Line) services in the world. The company had 6,193,275 subscribers at
the end of May 2005. Its major competitors include Hanaro Telecom, Thrunet, Onse,
Dreamline and Dacom. In May 2004, KT also launched Home N, a home networking
service for its broadband subscribers. The service allows subscribers to connect multiple
computers in their homes, order videos on demand, monitor homes remotely through
security cameras mounted on computers that can be accessed through mobile phones, and
receive enhanced traffic, weather and stock market information through a PC or a TV
set.295
SBC- U.S.
SBC Communications, Inc. provides telecommunications services primarily in the United
States. It offers various services and products, such as local exchange services, wireless
communications, long-distance services, Internet services, telecommunications
equipment, and directory advertising and publishing services. SBC’s subscriber base
totals 6 million.296
Earthlink- U.S.
As one of the largest ISPs in the US, EarthLink is trying to bridge the gap between dialup users and high-speed Internet access. Formerly EarthLink Network, the company has
more than 5 million consumer and small-business customers. The company has expanded
its product offerings with the addition of wireless access offerings and Voice-over-IP
(VoIP) telephone services, allowing customers to make and receive local and longdistance calls. 297 EarthLink Wireless email and voice service with Treo™ 650
smartphone from palmOne, Inc. combines voice, email, Internet access, Bluetooth®
wireless technology, digital camera, world-class Palm Powered™ organizer functionality
and EarthLink's best-in-class protection tools into one incredibly sleek device.298
NIFTY Corporation-Japan
NIFTY Corporation is the operator of @nifty Internet service. @nifty provides Internet
dial-up and broadband access, portal and premium content, community, e-commerce and
other services to Japanese consumers and businesses. @nifty has the largest subscriber
base in Japan with over 5 million subscribers. For the business partners, NIFTY
Corporation provides net business opportunity and platform. NIFTY Corporation is
privately held by Fujitsu Limited. It was established in 1986 and, since the launch of the
NIFTY SERVE, the Japanese online service in 1987, has grown to become Japan's
164
largest full range online content and services provider. NIFTY Corporation moved its
main platform to the Internet in the mid-1990s and is currently the largest comprehensive
online service provider in Japan.299
Yahoo BB- Japan
Yahoo Japan is a Joint Venture between the Softbank group and Yahoo. The group
markets one of Japan’s largest Internet portals under the name, Yahoo Japan. The total
number of Yahoo Japan VoIP subscribers increased from 4,630,000 at the end of June
2005 to 4,674,000 at the end of July 2005. On 25 April 2002, Yahoo Japan launched ‘BB
Phone’ an IP telephone service and had around 4.3 million subscribers at the end of
October 2004. The company offers Voice over IP services bundled with its ADSL
offerings. The package includes internet access (with downstream speeds 8 Mbps / 12
Mbps / 26 Mbps / 50 Mbps), free calls to other Yahoo customers, local numbers, and
reduced rates for national and international calls.300
165
Appendix I: Dual Phone Offerings by Mobile Providers
T-Mobile
In July 2004, Hewlett-Packard Co. and T-Mobile USA Inc. introduced an iPaq H6315
handheld computer301. The iPaq H6315 allows its users to switch between GSM/General
Packet Radio Service (GPRS) and Wi-Fi networks. "The device automatically notifies
you as you enter a Wi-Fi hot spot and switches to the fastest network available, allowing
you to maintain your Internet session as you travel from your home, to Starbucks, to the
airport, to a business meeting and to your hotel," says Todd Achilles, director of handset
product management at T-Mobile302.
NTT DoCoMo
In July 2004, NTT DoCoMo announced the N900iL (from NEC), which is a dual mode,
Wi-Fi and 3G handset and carries Linux instead of Symbian. NTT DoCoMo targets at
business users with this dual phone. For example, the N900iL enables its users to make
VoIP calls over the wireless network in an office and to switch over to 3G outside of the
office. The N900iL's users always have access to Internet servers. Consequently, instant
messaging and status information are available. The handset's battery lasts about 160
minutes on 3G303.
British Telecom / Korea Telecom
ABI Research senior analyst Philip Solis says that some of the giants of global
telecommunications, British Telecom, and Korea Telecom included, plan to offer dualmode services by the end of 2005, causing a very large ball to start rolling.304
British Telecom
According to the announcement at the Smartphone Show in London, BT plans to
introduce 20 different converged Wi-Fi and GSM -phone models from BT Fusion
service. The converged phones, many of which will support 3G, will be produced by such
manufacturers as Nokia, LG Electronics, Motorola, and HTC. BT launched Fusion at the
beginning of this year; however, it currently provides its VoIP service via a Bluetooth
connection to BT's broadband service instead of Wi-Fi networks.305
166
Appendix J: GPS Providers
Fastrax, Oy
Fastrax, the world leader in GPS Software Development Kits and OEM GPS receivers
based out of Finland, has a promising slogan: “smart positioning.” Its expertise in
programmable OEM GPS receivers significantly shortens the design cycle from
conception to full production.306
RF Micro Devices
Established in 1991, RF Micro Devices® (RFMD®) is currently the world’s leading
provider of power amplifiers for cellular handsets and trusted power amplifier (PA)
suppliers to every major handset manufacturer. RFMD has gained traction in the GPS
accessory market through the successful launch and subsequent volume shipments of the
industry’s only converged Bluetooth/GPS solution with associated software.307
TravRoute's CoPilot
TravRoute, based out of Sydney and Melbourne, Australia, is an expert in the field of
GPS navigation and mapping, receiving international recognition for its current product,
the CoPilot. The CoPilot is a complete GPS mapping system for use with a laptop for a
top of line traveling assistant. Versions are available for laptop and palm-held computer
systems including pocket PCs and smartphones.308
Garmin International
Garmin International Inc. is a member of the Garmin Ltd. group of companies that
designs, manufactures, and markets navigation and communications equipment for the
aviation and consumer markets. Garmin’s products serve aviation, marine, automotive,
wireless, OEM, and general recreation applications at affordable prices.309
Magellan
Magellan® is the consumer brand of Thales Navigation, one of the world's leading
developers and manufacturers of positioning, navigation, and guidance equipment with
operations throughout the U.S. and Europe. Magellan was the brand that introduced the
first consumer handheld GPS solution in 1989, and it has maintained its place as a
leading global GPS brand for consumers.310
DeLorme Earthmate GPS Receiver
DeLorme is a leading provider of mapping products and technical solutions for the
consumer and enterprise markets. It provides one of the very few GPS receivers and
mapping software systems designed to use with a Macintosh Laptop.
167
Appendix K: New Brand Name
In brainstorming a new brand name, we wanted to find names that conveyed the message
of mobility, quality, value, ease of use, and innovation. The first list below shows all the
names that came up in a brainstorming session (in which no suggestion was considered
wrong). The second list shows the names we thought were best. The bottom list shows
the top names that appear to have not been taken by other VoIP industry companies.
Brainstormed Names
Mobiphone
AirPhone
Govoice
Poketphone
Luxur
W-phone
Glo Phone
V Port
V trans
Phuturefone
Voice Lux
True Sip
RichVoice
WinPhone
Swell Phone
Chillmobil
Deja Phone
E Voice
Innovoice
Freedom Phone
SI Phone
Mobifone
EasyPhone
Valuephon
TrueVoice
Hotphone
Japphone
WISR
Firephone
I talk
BlinkPhone
Sky Phone ISR
EasySip
Paradise Phone
Fly Phone
Voicee Groove
Max Phone
Yak Phone
Mod Phone
Me Phone
E-Dial
Powerphone
Q-Mobile
Mobiteck
CheapPhone
TechMo
Tera Phone
KoolPhone
Handivoice
DVOphone
EasyVoice
Phone ISRimobi
SipCell
Save Phone
Liqui Phone
Groovy Phone
Fuji
E Phone
Advance
Voice Tech
Virtual Phone
FuturePhone
VPhone
Mobitek
Econophone
Futuristic
GlobalPhone
CoolPhone
VoiceCell
Wiferiphic
LuxPhone
ISR IP Phone
True Talk
My Phone
Nifty Phone
Sun Phone
Fisher Phone
NuPhone
InnoPhone
Intelliphone
Virteck
Vir Tech
Myvoice
Global Phone
Fly-Phone
Cyber Phone
Rich Voice
Max Phone
Q-mobile
I talk
TrueTalk
Fly Phone
Maxfone
Mobifone
Govoice
e talk
Q-mobile
My phone
Top Names
E Dial
TrueVoice
Value Phone
Innovoice
Govoice
Intelliphone
Top Names that Are Available
TrueVoice
168
Innovoice
TrueTalk
RichVoice
Maxfone
Appendix L: Geographic Decision Factors
Region
Population
Globally
6.45B (July
05)
Japan
127,417,244
GDP per
capita
Pop
Growth
GDP real
growth rate
Total GDP
VoIP Providers/
Adoption
4.9% (2004)
$29,400
Western
Europe (WE)
0.05%
2.90%
0.35%
2.16%
$3.6B(03) to 21.6B(12)
@21.9%
CAGR
Total GDP
real growth
rate
1.04309E+1
3
YahooBB
France
60,656,178
$28,700
0.37%
2.10%
0.35% 14% adoption
Spain
40,341,462
$23,300
0.15%
2.60%
Portugal
10,566,212
$17,900
0.39%
1.10%
Sweden
9,001,774
$28,400
0.17%
3.60%
0.23%
0.02%
0.09% TeliaSonera/
East Asia:18.6%CAGR
from 1.2B(03)
to 5.9B(12)
17.9%CAGR from 1B (03)
to 4.6B (12)
with POTS cheaper than
VoIP
24% of residential minutes
in 2010
27% of res minutes in 2010
Telio&
CounterPath
Telenor
4,593,041
$40,000
0.40%
3.30%
0.06%
Italy
58,103,033
$27,700
0.07%
1.30%
0.20%
UK
60,441,457
$29,600
0.28%
3.20%
0.55% BT/ C&W with
Norway
VoIP Market Growth
23% of res minutes in 2010,
9%
of total market, 3% of
revenues
9% of res minutes in 2010
7% adoption
10,364,388
$30,600
0.15%
2.60%
0.08%
7,489,370
$33,800
0.49%
1.80%
Germany
82,431,390
$28,700
0.00%
1.70%
Netherlands
16,407,491
$29,500
0.53%
1.20%
0.04%
0.39%
0.06%
Denmark
5,432,335
$32,200
0.34%
2.10%
0.04%
Ireland
4,015,676
$31,900
1.16%
5.10%
0.06%
Belgium
Switzerland
North America
(NA)
US
Canada
3
295,734,134
$40,100
0.92%
4.40%
32,805,041
$31,500
0.90%
2.40%
25.8%CAGR from
637M (03) to 5B(12)
169
Retail
VoIP(1Q05)
Bus VoIP
(1Q05)
2,119,877
5,136,122
1,090,000
2,655,000
372,657
902,742
3G Handsets &
IP Telephones
3G: 30million
(35%) (July,05)
& IP: 8,305,000
(3/05)
35% (04) to 86%
(08)
1.18M(2005)
Number
of VoIP
Providers
4
DSL
Subscribers
WiMax (ref:
global stats
chart)
85,267,384
12.2M (2010)
13,676,000
(05)
Asia 4M (10)
2.4M (10) WiFi=66% (bus)
Wi-Fi users=
24,877,000
24
5,253,000
29
2,227,805
Hot Spots
% of
WE
27,000
3,200
11.85%
5
22,330
54,670
2
15,428
37,800
2
153,120
374,880
16
3,680,000
35% of lines
14% of lines
105
3,335,000
9,100
33.70%
20
983,000
465
1.72%
5,700
21.11%
2.8M(2005)
751,000
Wi-Fi Co: Nera
717,000
64,865
157,134
23
5,950,000
40,600
99,400
13
1,552,000
5
594,000
9
880,000
2,132,000
2.2M (10) WiFi users=
30,235,000
473
108
170
12,594,346
9,100
Region
Mobile
Broadband
Broadband
subscriptions/10
0 inhabitants
Fixed
Line
Users
Mobile
Phone
Users
Number of
Cell Phone
Providers
Grown 165% from 2002005,
15% globally
75M (ICT: 2004)
Globally
Japan
68%
14M subs (4/04)
76,548,405 (5/05)
Western
Europe
(WE)
90%
penetration
23M subs(4/04) &
22M (2008) Voice
Users
34% pop
France
16.4/100 11th
88,000,000
(July,
05)
70% of pop
30%
of
residential
market in
2010
12.8/100 14th
EU:49%pop=225m (9/05)
2Q05:
75.2% pop=
45M
42% pop=25.6M(9/05)
8.394
million
(1999)
37% pop=16.1million
(9/05)
Spain
9.3/100 22nd
Portugal
9.9/100 21st
71% (2004)
3M (2004)
16.5/100 10th
TeliaSonera
74% pop=6.6M (9/05)
102.4/100
inhabitants
4Q04: 750,000 dial up +
600,000
broadband
=1.3M
10.0/100 19th
71% (2004)
49% pop 28.9M (9/05)
13.5/100 13th
83% pop
55% pop 21.8M (8/04)
18.2/100 8th
66% (2004)
2.09M: 1.6 Residential,
398,00 Bus/ 4.2M (ICT:
2004)
Switzerland
20.3/100 5th
55% (2004)
3.3M (8/04)
Germany
10.2/100 18th
57% pop=47.1M (9/05)
22.5/100
2nd
highest in OECD
74.1M
(06/05)
12.5 million
(03)
KPN dominant
market
10M (04)
21.8/100
3rd
highest in OECD
5,208,059
(June 2005)
6
major
companies
3.7M (04)
4.3/100 24th
94%
171 (Aug 04)
1.1M (04)
14.5/100 12th
62%
Hundreds
69% pop=203.3M (9/05)
19.2/100 6th
43% (2004)
Sweden
B2 and Cisco
Norway
4Q04:
600,000
over
Italy
40% enterprises/
35% residential
94%
enterprise/
82% residential
UK
Belgium
Netherland
s
75%
penetrat
ion
Denmark
96.2%
penetr
ation
Penetration
in
Household 98% in
business 60%
Ireland
US
Canada
28M
4/04)
subs
(NA
18.2/100 9th
17.336
million
(1999)
Internet Users
2003 res:
1,683,180
2003 bus:
518,646
20M (2004)
171
Appendix M: Western Europe Decision Matrix
Factor
Weight
VoIP Market Future
Growth
10
Mobile phone usage
10
Broadband penetration
9
Population Size
9
Current Av of VoIP
8
Competitive Saturation
8
Potential Savings on
VoIP
7
Amount of Internet
Usage
6
GDP real rate
4
Gov Regulations
2
Total
73
Score
70
90
72
18
56
48
35
48
12
18
467
172
Switzerland
6
4
7
3
8
5
5
6
3
9
France
Score
Netherlands
Score
Sweden
Score
Norway
Score
8
7
4
8
9
6
80
70
36
72
72
48
10
8
9
5
7
9
100
80
81
45
56
72
7
8
5
4
5
8
70
80
45
36
40
64
9
10
6
2
5
9
90
100
54
18
40
72
7
49
6
42
6
42
6
6
7
9
36
28
18
509
7
3
9
42
12
18
548
9
4
9
54
16
18
465
4
4
9
Score Belgium
60
5
40
5
63
6
27
4
64
8
40
4
35
6
36
4
12
4
18
9
395
Score Germany
50
7
50
8
54
3
36
9
64
8
32
4
42
7
24
7
16
7
18
7
386
Score
70
80
27
81
64
32
49
42
28
14
487
Spain
4
3
2
7
8
4
5
5
6
9
Score
40
30
18
63
64
32
35
30
24
18
354
Italy
6
6
3
8
7
5
5
6
6
9
Score
Denmark
8
8
4
8
8
5
80
80
36
72
64
40
7
9
8
2
7
6
42
7
49
5
24
16
18
474
7
9
8
42
36
16
515
8
3
9
Score Ireland
60
6
60
9
27
1
72
2
56
6
40
5
35
4
36
4
24
3
18
9
428
UK
Score Portugal
60
4
90
6
9
2
18
4
48
4
40
6
28
5
24
4
12
2
18
9
347
Score
40
60
18
36
32
48
35
24
8
18
319
Appendix N: Softphone Price Benchmark
SINGLE UNIT PRICE
Company
CounterPath
Product Name
Price Per Unit
X-Pro
Range
Free
Trial?
$60.00
no
Website
http://www.pure-mac.com/VoIP.html
http://products.nortel.com/go/product_content
.jsp?segId=0&parId=0&prod_id=24043&loca
le=en-US
Nortel
IP Softphone 2050
not stated
SJ Labs
SJphone Premium
not stated
i2telecom
Voicestick
$3.99
Peerio
PeerioBiz
$99.00
Buzzfon
Buzzfon p2p 0.21
Pingtel
Pingtel
$35.00
Snom
Snom Softphone
$29.00
TheKompany
Empower
tkPhone:
Empower
Internet Phone
VocalTec
Internet Phone 3.5.26
$49.95
Yes http://www.pure-mac.com/VoIP.html
Haxial
NetFone
$15.00
http://www.sjlabs.com/products.html
http://www.voicestick.com/Downloads/Press
Releases/04-06-05.doc
$19.99
Yes http://www.peerio.com/Biz/pbpurchse.html
Yes http://www.download.com/Buzzfonp2p/3000-2349_4-10325844.html?tag=lst-0-5
$1.00
$9.95
http://var.abptech.com/s.nl;jsessionid=
http://var.abptech.com/s.nl/sc.2/category.32/it.
A/id.72/.f
http://www.thekompany.com/products/cart/in
dex.php3
$14.95
http://empowerprophone.com/?page=products
Pro
Licensed Deals
Company Name
Cicero
Cisco
Com@WILL
Product
Price Per Unit
softphone
Unit
Max Minim
um
Range
$4,303.00
Cisco IP Softphone
for PC
IP
Convergence
Server
50
$110.00 $144.00
$184.00
each
CounterPath
eyeBeam v1.1
$40.00
CounterPath
eyeBeam v1.1
Pocket
PC
Softphone
$25.00
18142
100249
$25.00
$60.00 250+
CounterPath
Web Address
http://reviews.cnet.com/Cisco_IP_Softphone_
CD_50_licenses/4014-3535_7-5093369.html
http://www.dealtime.com/xPOCisco_IP_Softphone_Full_Version_PC_SW_I
PSOFTPHONE1~CLT-HSNLF
SIP
http://www.CounterPath.com/index.php?men
u=buy
u=buy
u=buy
173
eStara
eStara Softphone
$75.00
Sep-49 https://as00.estara.com/softphone/buy/
eStara
eStara Softphone
$40.00
eStara
eStara Softphone
$35.00
eStara
eStara Softphone
$30.00
50-99 https://as00.estara.com/softphone/buy/
100199 https://as00.estara.com/softphone/buy/
200399 https://as00.estara.com/softphone/buy/
ISR
PPPhone
SJphone
Basic
(annual license)
$2.00
50k http://www.isrus.com/ppphone1.html
$1,999.00
http://www.sjlabs.com/products.html
SJ Labs
PLUS HUNDREDS OF FREE SOFTPHONES
COMPANY
AdoreInfotech
Avaya
Dialexia
174
Product
Web address
ActXPhone
:
http://www.pernau.
at/kd/VoIP/ActXPh
one/
Adore
softphone
http://www.adorein
fotech.com/
http://www.avaya.c
om/gcm/masterAvaya SIP
usa/enSoftphone
us/wowtopics/sip/si
p.htm
http://www.VoIPBonePhone info.org/wiki/view/
BonePhone
http://www.broadbroadtel.com/index_en.p
tel.com hp
http://www.VoIPCornfedSIP
info.org/wiki/view/
UA
CornfedSIPUA
http://www.dialexia
Dialexia:
.com/pub/products/
dial_com.jsp
http://www.laser.co
DIAX
m/dante/diax/diax.h
tml
http://www.xtreme
networks.biz/home.
Ephone htm
COMPANY
Product
IaxTalk
iaxLite:
TABLETmedi
a
Ifon
Web address
http://iaxtalk.com
/index.php?main_
page=index&cPat
h=6&zenid=47a1
6785f78e8f5e7c5
0c93d38ae9b45
Idefisk:
IAX2
IP Blue
IP Blue:
http://www.ipblu
e.com/
Hotfoon:
LTP
Jajah
IXC
SoftPhone:
http://ixcaccounti
ng.com/?MenuId
=4
JahJah
http://www.jajah.
com/en/index.asp
JsPhone
http://snad.ncsl.ni
st.gov/proj/iptel/
Kiax:
eStara:
http://www.estara.c
om/softphone/index Wirlab
.php
Simon
Morelant
eyeP Media:
EyeP
Phone
Hughes
EZ-Phone
Virbiage
Firefly:
Freenet
Freenet
iPhone 1.3
Gizom
Gizmo
project
http://www.gizmop
roject.com/
Gnome meeting
GnomeMee
ting:
http://www.gnome
meeting.org/
https://www.virbia
ge.com/download.p
hp
megapin
MailVision
OABSoftware
GPhone by http://bmobilenetw
VLI:
orks.com/
IAXComm
:
Focus
Mint
COMPANY
Quick Net
Product
Express
Talk
OpenPhone
Linspire
phonegaim
Heiko
Sommerfeldt
Phoner
NCH
Skype
Aimsoft
Seimans
SJ Labs
Java Script
http://iaxclient.sour
ceforge.net/iaxcom
m/
KPhone:
http://www.iptel.
org/products/kph
one/
Linphone:
SIP
LoudHush:
IAX
M2
Softphone:
SIP
MailVision : http://www.mailv
.
ision.com/
http://www.marcc
harbonneau.com/
MediaX
asterisk/mediaxp
Phone:
hone.php
MCE
SIP http://mcesipphon
Phone
e.oabsoftware.nl/
Microsoft
Windows
Messenger:
MiniSip
minisip:
http://www.minis
ip.org/
SourceForge
Mobile
IAX:
http://sourceforge
.net/projects/miax
Web address
http://www.openh323.org/
http://www.linspire.com/lindows_products_details.php?package_name=p
honegaim
http://www.phoner.de/index_en.htm
PhonerLite http://www.phonerlite.de/index_en.htm
ReadyToPh
http://www.readytophone.de/
one:
Skype
sip dailer
Seimans
sip
softphone
SJphone
299a
Sip
Communic https://sip-communicator.dev.java.net/
ator
175
SipStar
Sipfoundry
Sipfoundry
SoftJoys Labs
Teligent
Michel de Boer
Ubiquity
CounterPath
Evolve
CounterPath:
Zultys Techno
176
SIPPS:
SIPSet:
sipXphone:
sipXezPho
ne:
SJphone:
Telgent
Softphone
Twinkle:
TerraCall
X-Pro
Business
Edition:
SIP Center
Wavigo:
X-Lite
Xphone
X-Lite
Zultys
phones: -
http://www.nero.com/sippstar/en/index.html
http://www.sipfoundry.org/sipXphone/
http://www.sipfoundry.org/sipXphone/
http://www.sjlabs.com/sjp.html
http://www.twinklephone.com/
http://www.wavigo.com/
http://www.CounterPath.com/index.php?menu=X-Series
http://www.xten.net/index.php?menu=products&smenu=xlite
http://www.zultys.com/index.jsp?tab=partnership&category_id=9
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International Systems Research Co. International Business Plan

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