Where is VoIP in 2007? Rapidly gaining consumer acceptance. Increasing reliability to attract holdout business users. VoIP is already big business in business, but it's still not making money in the consumer market despite changing dramatically and changing telecom with it. Here's an overview of the state of VoIP in early 2007. An in-depth overview of the ever-changing VoIP market for early 2007.

Where is VoIP in 2007? Rapidly gaining consumer acceptance. Increasing reliability to attract holdout business users. VoIP is already big business in business, but it's still not making money in the consumer market despite changing dramatically and changing telecom with it. Here's an overview of the state of VoIP in early 2007.

Size

The VoIP market is sufficiently fragmented that it's tough to find reliable numbers for its size and growth rate.

Rich Tehrani estimates the size of the U.S. consumer VoIP market at around $ 1.2 billion today, based on 4-5 million users paying an average of $ 25/month for various VoIP services,  but while user numbers will increase, Tehrani thinks voice itself will become commoditized. That said, in September 2006, analyst firm Analysys predicted that cellular VoIP revenues would surpass those of fixed-line VoIP by 2012, generating some $ 25.9 billion in the U.S. and Europe.

Regarding the business VoIP market, in early 2006, Yankee Group director Paris Burstyn predicted a compound annual growth rate (CAGR) of a mind-blowing 31.4 percent, adding that the market would reach nearly $ 3.3 billion in 2010.

Every two-guys-and-a-credit-card plus many better-funded operations are starting a VoIP business for the chance to be in the most rapidly growing sector of a $ 1.2 trillion global telecom market that's projected to grow to $ 1.6 trillion by 2010.

Major Players

Vonage remains the leading U.S. consumer VoIP provider, but some analysts doubt its prospects, saying it's stuck in a "VoIP 101" rut, where consumers see it as just a cheaper phone service. That's a deadly position when Skype undercuts you on price while cable companies fly overhead with triple-play (TV, VoIP and high-speed Internet) packages. Still, Vonage has two million registered users, and as Russell Shaw notes , there are 223 Americans with broadband connections, meaning nearly that many potential VoIP customers.  But will the cable companies get there first?

Scott Sleek, director of broadband advisory services at Silver Spring, Md.-based Pike & Fischer, a broadband analyst firm, recently edited a report that sees cable companies in the VoIP driver's seat, reducing prices for the VoIP component of triple-play bundles to within $ 10/month of independent providers:

"Cable companies have been advertising triple play, where everything's packaged into one bill. They're making some pretty big inroads with that, and VoIP is a big element that's helping them penetrate that market."  Sleek adds that satisfied cable customers are unlikely to switch to cable newcomers like AT&T, which in any event isn't heavily marketing any VoIP capabilities.

"You're getting the infrastructure and customer service support that companies like SunRocket and Vonage may not be able to deliver on the same level. Say what you want about cable customer service, but they are equipped to respond to problems with transmission over the network, because they own the network."

Sleek cites another cableco advantage: the ability to prioritize traffic to ensure voice calls get proper bandwidth in a house that may be using its broadband connection for everything from downloading iTunes to conducting VoIP business calls.

Currently, Time Warner Cable and Cablevision each claim about 1 million VoIP customers, with other providers like Cox Communications, and Videotron and Shaw Communications in Canada, also turning cable subscribers into new VoIP accounts.

Interestingly, small and medium-sized businesses don't seem to be getting much of their VoIP capability from traditional telcos, according to a 2006 survey by Boston-based Savatar -- just 14 percent, with most of the rest buying either directly from equipment vendors (39 percent) or VARs (20 percent). This may be because the telcos don't yet have their marketing story straight.  As Lisa Vaas wrote in eWeek last fall, "Calling the 800-number for AT&T, BellSouth or Verizon and trying to purchase VOIP led all too often ... to the disheartening response: 'Do we sell that?'"

Where does that leave Skype? That depends on whether you look at users or revenue. Skype's owner, eBay, recently posted 3Q06 numbers and said Skype has 171 million registered users, a 179 percent increase over 3Q05. But revenue, while more than doubling from $ 25 million to $ 66 million, indicates Skype isn't performing for eBay as well the auction giant might have hoped: just $ 0.38 per Skype account per quarter.

eBay is a deep-pocketed owner, and Skype is the best-known VoIP brand.  Skype is increasing focus on the business market via audioconferencing and account-management tools, and has the ability to buy sequential blocks of phone numbers, as well as the advantage of a growing ecosystem of companies making Skype-friendly third party products.

Smaller Companies, Big Tools

Lots of smaller companies are making high-quality tools for VoIP. SightSpeed remains the market leader for multiparty IP videoconferencing,  and v6.0 was released in February with improved video quality and the ability to record and play back two-party video calls. Gizmocall offers ad-based consumer VoIP, opening the door on a new profit model. And eStara's business-focused push-to-call product claims 3 million unique users.

Most of these only address the consumer market.  We are starting to see the first companies starting to address the business markets. On the open-source front, Digium provides an Asterisk business package. Asterisk is a tiny player here compared to Cisco, Avaya, Nortel, Siemens and Toshiba.

Other Major Trends

Companies such as Nimbuzz have released IM clients that carry voice, leading some cell companies to ban VoIP traffic altogether rather than watch fat international-calling tolls evaporate. But the cell companies face a conundrum: They want to attract people to their premium services, but those services tend to involve Web access and IM.

Others are taking an if-you-can't-beat-'em-join-'em approach, says Pike & Fischer's Scott Sleek:  "You've got cable companies cooperating with Nextel or whoever to provide a fourth element