Wednesday, August 22, 2007

GigaOM column on the relaunch of FWD by Daniel Berninger, President FWD

Daniel Berninger
president, FWD
GigaOm: FWD relaunches to break the telco trance

Written by Daniel Berninger

The media educator John Culkin remarked: "We don't know who discovered water, but we're certain it wasn't a fish." The observation summarizes why I recently pitched Jeff Pulver on relaunching FWD, the VoIP operator formerly known as Free World Dialup. (Disclosure: I am helping Pulver relaunch FWD.)

Though not as well-known as Skype or Vonage, FWD, now 12 years old, is the longest-surviving VoIP company in the world. From the beginning, FWD distinguished itself through advocacy efforts (e.g. FCC Pulver Order) and enabling tools (e.g. free SIP device registration), which helped the company attract some 700,000 registrations.

FWD does not seek to provide a communication service as much as empower amateurs to create their own communication solutions. The do-it-yourself ethic saves end users from waiting for the so-called experts to awake from their telco-trance and figure it out for us.

A decade into an Internet-enabled communications era, most communication offers remain bound by 20th century definitions. Consider the examples of SunRocket and the newcomer, Ooma. We can debate the technical innovation or pricing advantage(s) of their respective products, but both companies viewed the world through a telco lens focused on one thing: Getting a share of profits enjoyed by entrenched telcos.

The usual business theory that success depends on providing better value to consumers falls short in the case of telco startups. It fails due to two line items on the income statement: 'marketing expenses' and 'COGS (cost of goods sold). Marketing is expensive because it's hard to win customers.

New entrants like Ooma will spend far more on customer acquisition than incumbents ever have, because incumbents acquired their customers in a monopoly context and now need only invest in retaining them. Incumbents own the telephone network, too, which puts new entrants at their mercy for interconnection, inflating COGS. There are still more expense traps for new entrants that survive the marketing and interconnection gauntlets (just ask Vonage.)

The death rate of start-ups that touch the telephone network remains near 100%, but startups pursuing new ways to enable voice communication need not limit their efforts to improving the telephone call, because "communication" is not synonymous with "telephone call." After all, a telephone call falls woefully short as an alternative to meeting someone in person. The audio quality of telephone calls compares unfavorably to even AM radio.

FWD sustains itself through a membership option to keep the focus on communication rather than billing systems. Ooma represents a step in the right direction. It trades the usual services model for a consumer electronics model, but the Ooma device still has to compensate for a ton of telephone network baggage.

The arrival of the Internet can release us from the limitations of the telephone network, yet so far we have been inexplicably unwilling to use this key to our freedom to venture outside the telephone network prison. Even as the experts tell us the price of a voice call will drop to zero, both AT&T and Verizon managed to enforce price increases in the last 12 months.

This is one reason why calling costs still leave two thirds of the world's population with few, if any, communication options. Yet all this can change for those following FWD's lead: Imagine a communication future as if the traditional phone network never existed.

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