Back when Ma Bell was broken into its constituent Baby Bells, most observers felt that the decentralization would force the companies to compete for customers but do so within geographic areas. Long distance would be AT&T’s bailiwick and the Baby Bells would own the last mile. But history has shown that the market forces that created the AT&T monolith are not only still in effect but are present with even more power and urgency. The re-accretion of Ma Bell is driven by both historical and more recent forces. Not only are long distance rates falling, new competitors like cable companies and VoIP services are forcing the Baby Bells to grow themselves ever larger to remain competitive.
All of this effort to add functionality and features to its
products is part of a larger strategy
Skype announced this week that it has released versions of its voice over IP (VoIP) software for the Mac and Linux operating systems. The company originally only offered its software and service for Windows users. The new offerings will allow Skype functionality for users of Mac OS X v10.3 or newer, running on a G3, -4 or -5 processor, 128MB of memory, and 20MB of free hard disk space. The computer will also need an Internet connection and sound card, as well as speakers and a microphone. Skype offers free calling to other Skype users and low-cost VoIP calls to standard telephones. Skype claims to have provided nearly 5 billion minutes of telephone calls to date.
As the reliability and quality of VoIP continues to improve, many consumers are taking advantage of the opportunity to make calls at much lower rates than what is available from traditional phone service providers. These cost savings are particularly notable in many non-U.S. countries where phone rates remain notably higher than in the U.S. Even with long distance charges falling monthly across the industry, Skype is offering enough savings to entice a continuing stream of new customers.
While mergers and getting bigger define the strategy for larger, traditional telecom giants, Skype and other VoIP companies are beginning to apply price pressure from the bottom up on these larger entities. The Baby Bells’ strategy of growing themselves large enough to survive against other Baby Bells works only in the context of assuming Baby Bell and perhaps cable companies will be the only competitive forces to be reckoned with. In such a world view, size does matter, but it also makes such entities vulnerable to companies like Skype and Vonage, who can offer services at a fraction of the cost of the Baby Bells simply due to astronomically lower overhead. While we do not believe the Skypes and Vonages of the world will bring down the telecom behemoths any day soon, it is interesting to consider the power of VoIP vendors when combined with other players in the marketplace. A combination of VoIP offerings and cable services could be a much larger concern to the POTS-based telecoms than they are ready to admit. The Internet revolution continues apace, more drastic and less noticed each and every passing day.
Sun Microsystems, at its quarterly Network Computing launch, surprisingly did not announce new hardware; rather, it bolstered emphasis on its grid computing vision and initiative, adding enhancements to the initial 2004 grid offering. Sun has been refining utility computing for the last several years and last Fall the company announced plans to create data centers around the world that would allow customers to access and pay for computing capacity on a per-use basis, at $1 per CPU usage hour. Sun has now added storage to the original grid offering, initially pricing it at $1 per gigabyte per month. Sun further plans to expand the offering to include applications, development, and support services. Sun's objective is to provide grid computing power to corporations, academic institutions, and government agencies, for project-specific data processing. Sun has started building new “Grid Centers” that supply the servers, storage systems, and other infrastructure to grid customers. The first centers will be located in Virginia, Texas, New Jersey, Canada, England, and Scotland, close to initial Sun Grid customers in the financial services and oil and gas sectors. Sun may also add centers in Asia and other geographies as international demand develops. Retail access to the grid will be available by Summer 2005.
Sun, over its 24-year history, has shown great ingenuity in
repeatedly reinventing itself, while retaining its initial “network is the
computer” vision and focus. Sun is hoping that grid computing will prove to be
the next company reinvention wave — following earlier workstation, application
server, and Java Web services successes — and is counting on grid to bring a
return of growth and prosperity. Sun is positioning itself as the
comprehensive, low-cost grid solution provider, versus other grid vendors such
Sun’s traditional financial services, brokerage, oil and gas, and technical computing installed base may well find the Sun grid value proposition attractive. Such a solution would augment cyclical capacity demand and incremental computing resources requirements, with a demand-driven, pay-as-you-go, no-strings-attached grid resource. This also may prove to be an incubator for new Sun hardware sales to non-Sun customers, with customers beginning as Sun grid users and evolving to a position where Sun technology and equipment have a place in their datacenters. Sun, by virtue of being a hardware manufacture and software provider, is in good position to profitably offer such low-cost grid services, and stands a good chance of winning favor with companies using Solaris and Linux x86 platforms.