OVER THE EDGE March 14, 2007 Interview with Morris Bodnar of UNBC on VoIP JEREMY JOHNSON STAFF WRITER Morris Bodnar,-an MBA grad student at UNBC won internation- al recognition for his paper mar- - keting strategies’ for Voice Over Internet Protocol (VoIP) in Can- ada. He submitted the winning entry to a competition organized by the Pacific Telecommunica- tions Council (PTC).. He cur- rently works for Industry Canada in Prince George.. As part of win- ning the contest, he will present his paper to the PTC conference in Hawaii next year. Over The Edge caught up with Morris Bodnar to talk about his internationally rec- ognized paper. : OTE: For those who arent as big of a techie, what is VoIP? Is it something that is strictly en- compassing services like Skype or Vonage or does it extend to the audio chat feature in an instant messaging client like MSN? Bodnar: Voice over Internet Protocol, or VoIP, is an emerging innovation which allows for low cost voice communications simi- lar to conventional circuit based telephone, but over the Internet either in part or in whole. Be- cause VoIP uses the Internet as its transmission medium, it has the capacity to disrupt the more the $15 billion dollar per year Canad- ian local access and long distance telephone industry. ' While VoIP offers much po- tential for unique functionality, at its current level of advancement it underperforms conventional telephone in the areas of security, quality and reliability. As such, mainly innovators and early tech- nology adopters, which represent a small part of the overall potential market, are using VoIP. For VoIP providers, the bulk of profitability, however, lays in penetrating much larger mainstream Canadian mar- kets. Skype, Vonage and MSN audio chat are all applications of VoIP. OTE: You’re paper was inter- nationally recognized for talking about VoIP, could you give a brief overview of what the paper talks about? Bodnar: My paper synthesizes the fundamentals of innovation diffusion, disruptive technology and marketing theory, plus data collected through interviews and a focus group, to draw conclusions on how marketers of VoIP should proceed to sell their services to mainstream Canadian markets. In short, I compare and contrast what the academics recommend with what the Canadian indus- try.is presently doing. My paper culminates with several recom- mendations for marketers to suc- cessfully sell VoIP to mainstream Canadian markets. OTE: It seems in a new and emerging market, a lot of things can happen, including less pre- dicted things. Currently in the market, there seems to be more than one strategy to sell consum- ers VoIP. With Vonage, it seems to be a more traditional style of charging consumers a flat fee and promoting their service via online ads as well as TV ads. Mean- while, you have Skype that offers their service for free (is it with ads now?) and seems to rely on word of mouth more. Of course, in cases as seen in MSN, it’s simply just something bundled in to a more well known service of free instant messaging. Clearly there seems to be several different strategies to get VoIP to consumers (perhaps other strategies not mentioned al- ready as well) After this amount of time, does there seem to be more successful strategies at this point in time or has that even remotely ‘been decided? Also, are there any Canadian firms getting in to the VoIP business? — i Bodnar: Virtually all VoIP calls will need to travel over the Public Switched Telephone Net- work in addition to the Internet. This is necessary to-be able to place and receive calls to/from conventional telephone users. Some VoIP providers have more developed interfaces with the PSTN to improve reliability and quality. Most of the free. services have lesser interfaces which typ- ically results in poor sound qual- ity, jitter, and dropped calls. Few will complain if the service is free or very inexpensive. Through the course of my re- search on Canadian VoIP provid- ers, I found very little evidence of highly focused marketing strategies. Some of the more vis- ible providers are relying heavily on costly television advertising strategies. While they are acquir- ing new customers, some have suggested the acquisition cost is over $200 per new subscriber. By telecom industry standards, this is considered very costly. The most successful strategies thus far seem to be those em- “ployed by Cable Television and Internet Service providers who are adding VoIP to their suite of product offerings. It’s not a large leap to sign on a customer who already subscribes for broadband Internet access, particularly if they sweeten the pot by offering a spe- cial introductory rate, or attractive price for a television, Internet and VoIP service bundle. OTE: A little bit of looking into the crystal ball. You mention that you have looked at disruptive technologies while writing your paper on VoIP. It seems that a lot of people have seen disruptive technologies in the past several years. Big examples have been the VCR when the Sony vs Beta- Max (what ended up being the losing format-against VHS) was drug through US courts where a company decided that technolo- gies such as the BetaMax would disrupt a business model. More recently, it was MGM vs. Grokster with a major movie company hav- ing their business model disrupted by a file-sharing client developer. Will we see a phone company drag a VoIP company through a legal system as well in a high pro- file case like the others or do you think that VoIP will co-exist with the phone companies even friend- lier than that? Bodnar: The incumbent tele- phone companies are keeping a close eye on VoIP. They recognize it as a disruptive technology, and they recognize the need to start preparing for the future. OTE: Theres a number of things online that seem to be rid- ing on an issue that may become more of a popular issue in the future. That issue being the con- cept of network neutrality, People against network neutrality say that Internet Service Providers (which is needed for VoIP to be success- ful in the first place) need to favor - certain kinds of traffic (types of traffic include e-mail, web-surf- ing, etc.) to maintain the best pos- sible performance to consumers. Those for network neutrality say that by not favoring any kind of traffic at all, it will allow small- time businesses and consumers to innovate and make new kinds of technology for the internet. Is this an issue that could have an impact on VoIP? Bodnar: You’ve hit on an im- portant issue. Generally speak- ing, the Internet does not widely incorporate Quality of Service considerations. This is largely the reason for VoIP’s quality and performance problems. VoIP is a real-time internet application. While a half second delay has lit- tle noticeable impact on an email message, web page, or even MSN text message, it can be devastating to a real-time VoIP call. Delays transmitting and receiving sound packets are the root of the under- performance sometimes seen with VoIP. Some pundits believe VoIP will not’ take off until QoS con- siderations are introduced to Intra and Internets. ‘ Net neutrality is an emerging issue with potential to impact VoIP and other Internet usages. If the network operators controls QoS, the implications for VoIP are obvious. OTE: There are stories that have been floating around the internet that suggest some Asian countries have a huge penetration © rate for VoIP. In fact, some are ‘wondering if VoIP will simply re- place a regular land-line for some consumers. Do you think that with an increase in broadband pene- tration in Canada, VoIP providers could possibly see a market place of that magnitude here as well? Bodnar: While VoIP has the potential to disrupt the $15 billion dollar per year Canadian local ac- cess and long distance telephone industry, there is little evidence to suggest VoIP providers are em- ploying the most.effective mar- keting approaches. At least they are not using the approaches for introducing a new technology that are recommended by academics. My research suggests VoIP pro- viders should be targeting early adopters of Internet communica- tion technologies in order to even- tually make inroads into larger mainstream Canadian markets. However, I found little evidence providers were effectively target- ing early adopters. Rather, they seem to be falling into the often repeated trap of employing broad marketing approaches targeting the entire population. The prob- Jem with this is that technology introducers invariably spread their resources too thin and fail to reach their goals. They fail to diffuse ef- fectively within a population and never manage to penetrate main- stream markets where the bulk of the customers and profits are. One of the recommendations I make in my paper is for providers to offer low cost VoIP service trials to early adopter of Internet tech- nologies, for example university students. Internet savvy students maintain opinion leadership with- in their social communities which helps to further the diffusion pro- cess. Unfortunately, I found little evidence of this approach being employed. Regarding the ~ broadband question . . . in my view high bandwidth is simply not enough for VoIP and other real-time ap- plications. For the foreseeable future, VoIP performance and reliability will hinge on QoS be- ing incorporated in networks. Ob- viously bandwidth helps, but it is not a complete solution. OTE: Some people might see ~VoIP as simply a service where you just sit in front of a computer and talk - and in many instances today, that is the case. Mean- while, there seems to already be new innovations such as the Asterisk open source project where you turn your actual com- puter into a receiving device so you can actually plug your own cell phone into the system and use your cell phone to make calls. At the same time, there seems to be a gap between calling from a VoIP provider to a land provider. Even though eBay owned Skype seems to be bridging that gap by offer- ing free phone calls to land-lines within North America, is this still a major obstacle for bridging the ‘typical 7 digit phone’s to VoIP networks? Is there any other in- teresting innovations you’ve come across for VoIP? Bodnar: Quite to my surprise I found there are a lot of misconcep- tions about VoIP. Many persons believe a computer is necessary to use VoIP, some believe special software needs to be installed to use VoIP. This simply is not the case. All that is needed is a broad- band connection point (excluding Skype and other more basic ser- vices). OTE: For those reading this article, would you recommend jumping onto the VoIP bandwagon right now if they have an internet connection? Any recommenda- tions or advice for them? Bodnar: A decision to adopt VoIP is dependant on what your individual needs are, For those with specific needs, VoIP may just answer. For example, if you would like your land line phone number to be transportable as you travel, or move between communities, VoIP may be the best solution. Or; if you rack up many hours of long distance speaking with fam- ily members or a significant other, VoIP may be for you. What may make VoIP even more compel- lmg for some in the introduction of dual-mode cellular and WiFi VoIP handsets. Apple’s iPhone is the first major product offering in North America with this capabil- ity, but it will not be the last. Many of us already spend much of our days in WiFi coverage areas (aka HotSpots.) How compelling a customer-value proposition would it be to have flat rate long distance and wireless telephone service using a dual-mode VoIP enabled cell phone? Cellular coverage at UNEC is spotty, however WiFi coverage is almost seamless. OTE: Any other thoughts you might have? ' Bodnar: No other thoughts at the moment. Over The Edge would like to thank Morris Bodnar for taking - some time aut of his busy schedule to provide us with this interview.