Thursday, May 22, 2008

Do you have a business model that makes no sense?

After attending the CeBit Expo in Sydney 2008 over the last few days, it was apparent that there were some business's whose business models just didn't make sense to me. Your business model is basically how your business makes money. It is a system and a blueprint on how to generate revenue.

One of the industries I found interesting where I found the business model to be weak was in the area of Voice over Internet Protocol (VoIP). Don't let the acronym scare you. It is simply a platform on how your voice is transmitted via the internet. All this is invisible to the end-user and the most important thing to note about VoIP in countries like Australia, New Zealand and other countries where data usage is mostly tiered and capped, is monitoring your usage. If you are on a small bandwidth plan, forget about VoIP if you make many calls, downloads and uploads. Stick with your normal telephone service if this is the case.

At Cebit, I found there were many businesses promoting their services in the VoIP area yet felt there was a lot of spin and advertising falsehoods being promoted. Please any expert correct me if I'm wrong with what I'm about to say. Here's the rub. These businesses were promoting, in my opinion, expensive software and hardware to allow people to make calls via the web (ie. VoIP). Most of them promoted their business model through a longterm subscription model namely $X per month depending on what plan you use. I asked all the salespeople that approached me how they could be compete against a FREE product like Skype or Yahoo Messenger?

I can understand possibly a large business procuring hardware and software to take advantage of VoIP technology but surely small to medium sized business can get by on a FREE robust and secure softphone application like Skype or Yahoo Messenger?

I have been using both for several years now and have experienced very few technical issues. Most of my calls are from skype to skype or yahoo to yahoo so they are free. I rarely lose quality in the call as I use broadband and the receiver usually has broadband.

So tell me, how can you beat "free"? why would a small to medium size business need to purchase a new VoIP package and hardware? Wouldn't all I need is a headset and a downloaded free app like Skype or Yahoo?

Maybe Im missing something but I just don't see strong enough reasons for anyone to use an alternative that's not free.

Side note and this is a classic. When I asked the salesperson how they could beat a free zero priced service, their reply: "You only pay $25 per month for etc etc etc and you can do the same". Am I missing something? or is $25 per month cheaper than FREE?

What do you think?


Stag said...

They would have to provide me with a compelling enough reason for me to pay for such service (such as paying me to use it).

I think whatever benefits they provide would only be suitable for a larger business. We too in the UK have these jokers trying to sell VoIP by creating a tailor made service unique to your service!?!?!

Heck, your only making a phone call not a transatlantic flight!

Andrew Goulding Articles said...

You silly sausage!

Sales people like that sell the sizzle, not the sausage and frankly, a sausage connoisseur is the last thing that Joe Public wants to listen to (for now).


The Ideas Guy said...

You're right about the sizzle ADG but there's not much sizzle to that sausage when the other guy's sizzle is more 'sizzlier' (is that a word?), FREE and tastier ;-)

The 'sizzle' simply peaks the interests Joe Public. The sales person quasi connoisseur seals the deal.

Andrew Goulding Articles said...

I completely agree.

Nevertheless anything IT / Hi-tech can have massive profit margins for the first few years with Joe Public (or the trendier Joseph Publique)... until cheaper (FREE?) options become better known.


Stag said...

There are a whole heap of internet businesses with little or no business model. Some are great innovative applications but man, im getting bored with seeing ads plastered everywhere...