February 2006 - What VoIP Means to You

There are two reasons for DR marketers to watch developments in Internet phone service. The obvious one: lower telemarketing costs. Less obvious: advertising potential.

By Jack Gordon

The Internet isn’t just for e-mail anymore. It has evolved into an alternative telephone system, as well, thanks to Voice over Internet Protocol (VoIP), the technology that enables phone calls to be converted into digitized data packets like e-mail, rather than transmitted in analog form via traditional phone lines.

Even among Internet users with broadband connections, nearly a third have never heard of VoIP (pronounced “Voyp”), according to market research firm TeleGeography. But a growing number of providers, ranging from AT&T to eBay, are trying to change that, bombarding consumers and businesses with offers for various types of VoIP service.

From a direct marketer’s point of view, VoIP has two major points of interest. The first, already in evidence at many major call centers, is its potential to slash the cost of inbound and outbound telemarketing. Call centers install high-end VoIP (or “IP telephony”) systems from makers such as Avaya Inc. and Cisco Systems for essentially the same reason that consumers switch their phone service from the Baby Bells and traditional long-distance companies to VoIP providers such as Vonage Corp. of Holmdel, N.J. They do it because VoIP is significantly cheaper.

The second reason for DR marketers to keep an eye on VoIP is its potential as a new medium for online advertising to consumers. “This is right around the corner-it’s only just beginning to happen,” says Paul Soltoff, CEO of SendTec Inc., an advertising and marketing agency in St. Petersburg, Fla. But it could become very significant, he says.

Let’s start with the telemarketing side.

Installing high-volume IP telephony systems isn’t cheap, but using them is. Applied Perceptions LLC, a full-service call center in Simi Valley, Calif., spent $250,000 on a Cisco VoIP system in 2005 because DR marketing clients who already had converted to VoIP “were asking for it,” says president Bruce Stone.
“We answer phones for a lot of major infomercial companies,” Stone explains. “The client receives inbound calls via an 800 number and forwards them to us. When those calls are sent over traditional phone lines, [they are subject to] forwarding charges that average two to four cents a minute. A DR marketer who gets 10,000 calls a week winds up with very expensive phone bills every month.” If both the marketer and the call center are using VoIP systems to make the handoff, Stone says, “a client who gets thousands of calls every month can save $3,000 or $4,000 monthly on phone charges.”

VoIP cuts costs even more dramatically for overseas calls, making it cheaper and easier for call centers to farm out inbound and outbound telemarketing work to operators in countries such as India and the Philippines. This is a popular option even without VoIP, of course, due to lower labor costs. At present, Stone says, he does not outsource calls: “I’ve done a lot of research with overseas call centers, and I have yet to find one that treats customers as well as we do.” If he does find an acceptable operation in a low-wage country, however, “we might explore a partnership.” His new VoIP system would make the economics even more attractive.

The ICT Group, headquartered in Newtown, Pa., is a larger telemarketing services company that has used VoIP for about five years. With 43 call centers around the world, ICT does not share Stone’s opinion of overseas agents. “There are highly educated, highly skilled individuals all over the world,” says Chief Information Officer Pam Goyke. From ICT’s perspective, she says, VoIP’s greatest advantage is that it “allows us to reach out in a cost-effective way to labor pools and call-center agents anywhere.”

For a fraction of the cost of traditional overseas calling, ICT’s VoIP system, designed by Avaya, routes calls and other digital information to places such as Manila via proprietary data lines, rather than using the public Internet, Goyke says.

Another advantage, she says, is that VoIP makes it far less costly to “create a ‘call center of one’ by extending it into someone’s home and letting that individual become a marketing agent for me.” People who work from home are likely to have broadband Internet connections. And even if they don’t, it is easier to extend broadband service alone to a home than to equip it with both broadband (for data) and additional phone lines. “If you need people with particular language skills or certifications or educational qualifications, it’s hard and expensive to set up a central call center and recruit them into it,” Goyke says. “It’s easier to take the technology to where the skills are.”

For instance, she says, ICT has clients in the pharmaceutical industry “who want us to provide registered nurses on the phone.” The cost of running additional telephone lines to those nurses would be prohibitive. VoIP makes it cheaper and easier.

On the telemarketing side, then, VoIP’s advantages boil down to (or result from) a potential for significant cost savings. For a direct response marketer, this can mean one of two things, observes Larry Leikin, sales vice president for VoiceLog LLC of Rockville, Md., a call-recording company. “If you operate your own call center, your direct costs will go down,” he says. “If you use an outside call center [that employs VoIP], there is a possibility you can negotiate lower rates because the vendor has lower costs.

“How many businesses do you know that do that?” he asks. I assume you’d rather not [outrage] call centers by making that point more explicit.”

To understand how VoIP might serve as a new advertising medium, it helps to know something about the rapidly evolving market for VoIP services. On the consumer and small-business side, VoIP comes in two basic forms. Both require broadband Internet connections to work approximately as well as traditional phone service.

In the first model, the user connects an ordinary touch-tone phone to a high-speed Internet connection using a special adapter. The phone then operates the same way it did before-with features such as voicemail, call waiting and caller ID-except that signals are transmitted via the Internet rather than through phone wires. Calls can be received from any other phone, regardless of whether the other party is using VoIP. Thus, VoIP replaces a household’s traditional phone service.

According to industry estimates, about 3.6 million U.S. phone subscribers have made such a switch. Vonage, with about 1 million customers, is the largest provider operating under this model, though companies, including AT&T, now compete on similar terms. As of December 2005, Vonage offered unlimited calling within the United States, Canada and Puerto Rico for $25 a month. Calls to other Vonage subscribers anywhere in the world are free-a typical enticement offered by VoIP providers of all types.

The second basic model is so-called “desktop VoIP,” in which a downloadable software application allows your computer to serve as a telephone. Typically, explains SendTec’s Soltoff, the dial pad appears on your computer screen, and you use a mouse to dial. (Some desktop providers, including Skype and tglo, also offer the option of a phone handset.) Most of these applications allow you to talk for free to other users or subscribers-i.e., people who have downloaded the same application, such as Google Talk-anywhere in the world. Some services go further: for various rates and charges, they let your desktop VoIP system receive calls from any traditional or mobile phone, as well.

Desktop VoIP users may or may not choose to cancel their traditional phone service. In fact, concerns by the Federal Communications Commission (FCC) regarding the emergency 911 system threaten to slow the proliferation of both the desktop and touch-tone-phone VoIP models, at least temporarily.

Among desktop services, the largest is Skype, with some 54 million worldwide users. Skype was acquired for $2.6 billion last year by eBay, which announced in December that it will add video calling to the service. Claiming second place, with 5 million subscribers, and also planning to add video calling, is tglo (formerly Voiceglo), a subsidiary of TheGlobe.com of Fort Lauderdale, Fla.

Desktop VoIP providers can offer long-distance and international calling for extremely low rates because they don’t have the infrastructure costs of the traditional telcos, says Ed Cespedes, president of TheGlobe.com. For instance, tglo offers unlimited calling within the U.S. and Canada for $10 a month. How? “BellSouth has 12 million landline customers and 80,000 employees,” he says. “I have 5 million customers and 35 employees.”

This is where the advertising angle comes in. Applications like Skype and tglo “reside on desktops-and the desktop is where online marketing happens,” says Cespedes. “This will be powerful for marketers because it’s a platform that will live with [consumers] for a long time. You don’t walk away from your phone number. Plus, we know where [our subscribers] are and what their interests are [because subscribers fill out interest profiles].”

Ads of all sorts could appear on the computer screen-or on the screens of smart cell phones or PDAs, which also can use VoIP-whenever users make or receive a call, Cespedes says. It could be as simple as, “This free tglo call brought to you by Company X.” Or, if you live in Southern California, it might be, “Disneyland admission half-off today!” Or, if you live within 10 miles of a Wal-Mart store, it might be a notice of a special sale on some item. Or, of course, it might be an offer from a direct response advertiser.

Soltoff predicts that advertiser-supported VoIP service will not only fuel the industry but create tiered pricing models. “The cheaper the service, the more advertising people will get,” he says. “Some users will pay higher subscription fees to get less advertising.”

Jack Gordon is editor at large for Electronic Retailer magazine. We would appreciate your feedback. To submit comments, point browser to voipfeb06.marketing-era.com.

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