Google Voice: How Great a Threat Is It?

By Fedor Smith, ATLANTIC-ACM

Google recently began inviting interested users to test its Google Voice service, and while it is far from flawless, the product will open the door to managed voice services to everyday consumers, while giving Google yet another means of delivering targeted messages.

I won't review Google Voice's features given Tara Seals' overview of the product in the most recent installment of the Google: Your New Phone Company series in March, other than to point out that the feature set for Google Voice is not just impressive – it's an entirely unique offering. With Google now beginning its measured rollout of the service, it's worth looking at the competitive implications.

From the macro perspective, Internet voice services hold significant long-term potential. So much so, in fact, that they are likely to significantly contribute to, if not lead, the industry's evolution toward the point at which the question of "paying for the pipes" becomes paramount. While video and its relatively massive consumption of bandwidth is driving growth in bandwidth usage at the present, the bottom line is that mass migration away from the traditional telephone and toward Internet solutions hits network providers at the retail level, which ultimately impacts overall network economics. Hence, long term, it is difficult to envision any scenario that does not eventually lead to bandwidth metering, and the erosion of retail wireline revenues is central to this dynamic. Google Voice is somewhat different from other solutions in that it does not explicitly drive migration from existing telephone infrastructure or providers. The fact that Google Voice serves as much to add functionality to existing voice products, rather than completely replace them, may prove to be a significant advantage depending on how business models shake out in the future.

Setting macro trends aside to look at immediate impacts of Google Voice going mainstream, common wisdom is that eBay's Skype faces the greatest threat from Google Voice. In my own firm's analysis of the potential for Google Voice to displace Skype, we have identified some advantages for Google Voice, but also some advantages to Skype. The dynamics are too complex to cover thoroughly in this column, but key observations about advantages for Google Voice include the massive feature set, low international calling rates, routing flexibility and device flexibility, and, of course, the potential for Google to generate efficiencies with Gmail and other services in its wide and deep services arsenal. Skype has first mover advantage, an enormous base of installed users and is the dominant provider, among other advantages. Although it is widely believed that all things Google become dominant, this has not always been the case when the firm has attempted to unseat established market leaders (such as Google Checkout's run at PayPal), and with Google, potential privacy concerns always linger. One factor weighing heavily in Google’s favor is its interoperability with Skype, allowing Skype users to employ the features of Google Voice in concert with their existing services, and greatly enhancing Google’s odds of conversion.

Google Voice is less a near-term threat to traditional telcos than it is to Skype and a myriad of bring-your-own-bandwidth providers. Long term, however, carriers should be wary of the possibility of Google launching SLA-backed services for paying customers, or perhaps even enterprise-grade product. Its strong feature set, routing capabilities, and connection/device-agnostic model hold the potential for Google to deliver this product – in one form or another – to businesses as a very competitive, semi-hosted PBX-style offering at a fraction of the price of existing products.

Such a move may seem unlikely at the moment, but eventually Google – and all the Internet giants dabbling in the communications space, for that matter – will exhaust new avenues to advertising revenues and may be forced to find new ways to leverage their assets, including Internet telephony products, to achieve or maintain revenue growth. With a firm like Google, which is interwoven into pop culture and consumers with unrivaled brand awareness, it's easy to overlook the reality that the firm's revenue base is businesses. For now, full-on entry into our space seems a long shot, but any time a firm with the reach and capital resources of Google sticks its nose under the tent to see what's available in our piece of the world, it's worth paying attention.

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools. In addition, he has authored several studies on telecommunications industry growth and opportunities. Prior to joining ATLANTIC-ACM, he worked at Alloy Media and Marketing in New York developing youth-oriented marketing programs around the evolving technology consumption and adoption habits of high-school and college-age consumers. He holds a degree in history and economics from Hamilton College.

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