Venture capitalists are always in search of places where they can propagate their money with healthier returns. However, poor economic planning and deep recession in the US market has made them weary of the few and far between investment opportunities coming their way. There are several vistas where new breed of venture capitalists are exploring new avenues of growing money. VoIP is one of the hot topics among many budding entrepreneurs. Ever since Google and Microsoft jumped into internet phone industry, things have changed for good. Many smaller investors are considering VoIP as one of the investment worthy ventures.
VoIP investments – A historic perspective
Initially when VoIP came to the market, it just got onto the nerves of alternate telecom service providers. Companies like Vonage reaped the benefits of first-mover-advantage though. At that time, profits were really thick since this market hadn’t been saturated to the extent it has just reached. Low level of competition was the number one reason why many new investors jumped onto the bandwagon. However, with the passage of few more mergers and acquisitions, things started becoming gloomy. Profit margins got tumbling down. During the last five years, many internet phone services arose and sunk. Only smart and intelligent entrepreneurs who understood the changing dynamics of the market were able to remain afloat. We have several examples of successful internet phone services that thrived despite of all the hardships and economic downturns. Vonage is one such fine example that has often been quoted as a “Success Story” in VoIP industry. However, we can always look back at how Vonage’s IPO (initial public offering) resulted in its devaluation from $2.6 billion to $2 billion. Despite of seeing many downfalls, Vonage is still going strong with the total Venture Capitalist investments of over $400 million received to date. Similarly, Ooma has also received around $83.3 million in funds despite of its less than satisfactory performance and a different kind of business model. One other affluent example that fits this high-profile success is Phone Power. Phone Power has received big investments since it started its operations. Among many success stories about Phone Power, it did end up acquiring Broadvox in 2009 and later VoIP.com. Despite all these difficulties several smaller providers like Viatalk, VoIPo, Axvoice etc. are still going strong and staying on top of their game.
Current situation of the VoIP industry
The overall situation in the internet phone industry hasn’t been too much encouraging. Despite of the increasing demand, total number of VoIP subscribers has slowed down during the last two years. Although, the figures for fixed landline phone service clearly suggest a decline. However, fixed landline phone subscribers do not have VoIP as the only option. Many of them are instead opting for cell phones. Cell phones cost a lot more than internet phone service. But even then, the convenience is somewhat similar to using internet phone service. Some factors have greatly contributed to the growth of internet phone. The first reason why more and more people are opting for internet phones is cost. Phone users are able to save a lot of money on their monthly phone bills. Secondly, most internet phone services can be used on a PC, VoIP ATA, and even smart phone. Lastly, yet importantly, VoIP providers offer a lot more features than offered by landline phone services or cellular networks. Mobile VoIP technology has proved to be more of a fad than anything else. The revenues in mobile VoIP industry are very low. Some of the dedicated mobile VoIP companies are still struggling to generate significantly countable profit margins.
What should Venture Capitalists do?
Well, the picture may seem a bit too pessimist but where there’s a will, there’s a way. There are some important considerations to go through while making an investment decision into VoIP industry. Competitions are very high in this industry. There are so many more internet based phone services out there with a lot less demand. Although there is growth in the total number of VoIP users every year, but the growth is slow. Total market share of the VoIP industry is poised to grow. When it comes to surviving as a newbie, a company needs to have deep pockets. New venture capitalists are advised not to think of entering mobile VoIP industry. Instead, they are advised to retain their focus on offering dedicated VoIP service. Cable VoIP industry still possesses the potential to grow. However, large investments are needed to build the infrastructure required. Payback periods for VoIP service providers will be slow. They need to remain patient and concentrate on surviving for the first few years. There is no doubt about the fact that VoIP is a futuristic option for venture capitalists. However, an entrepreneur needs to minimize the risks involved and remain focused on keeping the operating costs to their lowest possible levels.
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