So where is the upside in voice communications?

All too often what is a declining business for some is in fact a growth business for others. I sit daily with what we would refer to as “telephone companies” who bemoan to me that their voice business revenues are declining. I offer various suggestions and provide viable companies actually growing in this space. “But that would mean we would have to invest and take risk”, is the normal reply. Well yes.

One segment of the voice communications market that IS GROWING is the companies providing virtual phone systems. Virtual phone services are a way for typically a small business to manage their incoming phone calls in an intelligent & professional fashion. Companies in this space include phone.com, 8×8, Grasshopper and Ringcentral (amongst others).

These companies provide an easy online configuration tool to set-up your business. You assign yourself telephone numbers (from their available inventory), create employee extension and determine how calls to those numbers are routed, set up IVR menus, various voicemail boxes and time of day routing.

There is nothing in the very least remarkable about these services. In fact, traditional telephone companies have offered these “features” for years. The difference? These new companies have made it easier to utilize these features by focusing on the overall solution and solving the real problems that small businesses have.

Further, these are online self service companies allow you to sign-up online, manage your entire account online and when you activate some functionality – it’s instantly available. In fact, this is exactly what you expect from a web centric offering.

Telephone companies haven’t truly embraced the Internet, they complain that their back office systems are too complicated to try and do instant provisioning, web portals require some understanding of user interfaces. The whole system is based upon creating bespoke solutions manually. Unfortunately that doesn’t work in a web world.

These virtual phone companies are charging $0.04 to $0.06 per minute of BOTH incoming and outgoing phone calls. This is a gross margin of 300-400% (or perhaps more). It’s a great business.

The issue is these virtual phone companies are unknown names and businesses need to be exampled about how they work. Thus despite the great margins, they spend an incredible amount of money on marketing. Traditional telephone companies, with a reputable brand, would do good to look at this companies as a potential acquisition target or a model for the development of their own virtualized services.

While commodity voice may well be free, value added voice services well packaging continue to command huge margins and potential for upside.