David and the VoIP-Goliath

Let’s play the pyramid game. You remember the Pyramid, no? One of Dick Clark’s best game shows, hands down. Plus, anytime you pair stars with average Joe’s — well, let’s just say Foundation for Excellence. So, enough introduction, let’s play pyramid.

F.W. Woolworth Company. Apple. Walgreens pharmacy. 

• Stores with agricultural names? (buzzer)
• Stores with automatic doors? (buzzer)
• Industry leaders who have since fallen from the top of their industry or floundered like fish at a deli? (ding ding ding)

Woolworth’s

F.W. Woolworth Company, or Woolworth’s, originated the entire five and dime concept. How big was Woolworth’s? The owner (interestingly enough named Mr. Woolworth), bought prime land in New York City and built the tallest building in the world. Oh yeah, the entire project — paid for in cash. We can’t even pay cash for a decent SUV; how sad is that. Anyway, Woolworth plowed itself into America (get it? America farmland? Plow? Oh well…) becoming one of the largest retail chains in the world.

If history teaches us anything, the bigger success you achieve, the bigger target you become. Rivals came out of the woodwork like cockroaches in Patrick’s car. In fact, after seeing Enchanted, Patrick tried to sing to his roaches to help clean the car — but that’s another story. As we were saying…

Woolworth’s became a target and competition created a rich marketplace. As others reaped the benefits of copying Woolworth’s model, the company tried to diversify to specialty stores in order to continue to earn a revenue. Well, this decision led them to buy Champs, which led them to make some other decisions that basically ended the entire company. The only thing remaining? Foot Locker stores in every mall. The great and mighty Woolworth has been replaced by an in-store basketball net and a non-flattering black and white striped uniform.

Walgreens

Walgreens (which doesn’t have an apostrophe for some annoying reason) entered the pharmacy business way back in 1901. Yes, 20 years before Al Capone, Walgreens made it’s move on Chicago — establishing a firm hold on the drug trade. In fact, while Capone was fighting hard for power in Chicago, Walgreens branched out and started to take over the world.

With innovations such as the malted milkshake, Walgreens steadily increased numbers, reaching more than 6,600 locations in 2008. And, considering that an average Walgreens store generates more than $8 million in sales, that’s not too shabby. And with all of those new CVS stores, they must really be pulling in the cash.

Wait, what? CVS isn’t the same as Walgreens? Huh? They seem so similar. (oh and on a side note, in like 5 more paragraphs we actually talk about voip… but much like our chats, we kind of digress here and there. Where were we again? Oh yeah… Walgreens)

Walgreens established firmly the franchised corner store model and by the 1960’s had been filling prescriptions for more than 60 years. Well, in 1963 CVS/pharmacy thought to itself, “Self, anything you can do I can do better.” And, even worse, they probably sang it with a bunch of kids in a really annoying phar-musical style. Steadily, through acquisitions and growth, CVS/pharmacy has taken on the gentle giant and although CVS may have fewer stores than Walgreens, they have managed to grab a larger share of the market.

Apple

And let’s not forget our third corner of the triangle. Apple, Inc. In the 70s and early 80s, if you thought about computers you were thinking about huge spinning devices with big lights encompassing rooms, if not floors of a building — for just a single computer. Portability was not even a consideration. But hey, you could still get some wicked cool tye-dye shirts and bell bottom jeans.

As technology increased and size was determined to matter, computers became increasingly smaller. Steve Jobs started thinking that software plus hardware equals fun and profit; and Apple was born. Apple Computer, Inc. incorporated and quickly started advancing the concept of graphical user interfaces. They were the pioneer of the PC and, well you guessed it. Long story short, Apple became a giant and then BOOM! Microsoft swoops in with Bill Gates’ nerdy glasses and sweaters and Apple goes down like Rocky Balboa when first fighting Mr. T.

Apple got hit so hard, they’re not even Apple Computer, Inc. anymore — they changed their name to just Apple, Inc. But, just like Rocky, Apple refused to throw in the towel. Apple decided to reinvent itself and take on the giant replacing them. This time, by creating a new unheard of brand loyalty and innovating the marketplace with new and desired products (think iPod, iPhone, iAnything for that matter).

Isn’t this called VoIP Tech Chat?

And of course, there’s VoIP. Simply put, Vonage put VoIP on the map. The entire reason VoIP went from project to industry rests upon the giant shoulders of Vonage. And there’s that “giant” word again. We can easily argue that any company was bound to breathe life into the VoIP industry; after all Packet8’s been around for like a thousand years or something. But the bottom line is Vonage took a great amount of seed money, an enormous IPO, and created an industry for VoIP. Plus they have that jingle. Which brings us to this question: How recognizable is Vonage to VoIP?

When we walk the streets at night (trust us, not in that context, this isn’t called Fred and Patrick’s Voip Confessions after all), anyway, when we’re out and meeting new people, we inevitably get asked the standard meeting of a new person question: What do you do? Here’s how an example conversation might go:

New Person: “So, what do you do?”
Patrick/Fred: “We work with VoIP telephone systems.”
New Person: “What’s a veeop?”
Patrick/Fred: “VoIP. It’s Internet Telephone.”
New Person: Stares blankly
Patrick/Fred: “Like Vonage.”
New Person: “Vonage! Doo doo, do – do – dooh.” (singing)
Patrick/Fred: Sigh

Vonage spent millions on building an industry to make people understand that VoIP service can be used to save money on telephone bills. With hundreds of millions of dollars being spent on television, email, search engine ads, and more, Vonage has become the VoIP giant. And, it’s a ferocious giant at that.

The first to attack this giant was SunRocket. SunRocket quickly became the second largest VoIP company and followed Vonage’s game-plan so well, that they outspent Vonage and quickly built an enormous debt. The problem, however, was that SunRocket failed to get the Vonage sized pocket book before spending the money and quickly exploded; leaving the giant unphased by such an attack.

Today, smaller companies like Lingo, ViaTalk, Voip.com, and PhonePower are starting  to build a considerable customer base. And, learning from SunRocket’s example, quickly changed their attack. And, the smaller companies seem more than happy to stay as low key as possible.

Why? The highest guy on the flagpole is the target for every kid with a slingshot. Vonage is more than 10 times the size of the next biggest VoIP provider, which means that right now Vonage gets all of the lawsuits, foots all of the cost of “market recognition,” receives the most complaints, and gets raked across the coals whenever there is new legislation. 

The smaller companies are gladly letting Vonage take all of the shots and are waiting anxiously for the right time to strike. And when they do, another giant will fall.