Sorry for the acronym. VOIP stands for voice over internet protocol.

It is one of the most disruptive technologies to come around in a long time. Although the average person probably has no idea what it means, they have probably used it many times without knowing it.

Five years ago, i fell in love with VOIP. I met a guy named Tom Evslin who had just left AT&T where he ran the AT&T WorldNet dial-up ISP business. He learned a bit about voice communications there. And by virtue of sitting on the board of an Israeli technology company callled VocalTec, he learned that you could take voice calls, turn them into data packets, route them over the Internet, turn them back into voice calls, and then get them to where they were supposed to go. That’s VOIP in a nutshell.

Tom thought that VOIP would be the future of the long distance business because instead of paying for expensive long distance calls that had to be routed through monopoly phone companies in most of the developing world, you could take those calls, turn them into data packets, send them over the Internet to a computer somewhere in the developing world, get them back onto the local phone system, and finish (terminate) the call. I thought it was brilliant. And it was.

Tom’s company, ITXC, is now a $300 million phone company, and the largest VOIP phone company in the world. Somewhere between one in ten and one in twenty long distance phone calls are routed over the public Internet, many of them on ITXC’s network.

And today we announced that we had merged it with Teleglobe, an old-fashioned long distance phone company, to create the third largest long distance phone company in the world. It’s a big deal. The new Teleglobe can take all that long distance traffic it has on its network and move it onto the Internet. It can save lots of money. It can do things with the Internet calls that you can’t do with circuit switched (old fashioned) phone calls. It can bring this technology to mobile phones. It can marry this technology with its data business. In short, its a marriage made in heaven.

But VOIP is a double-edged sword, like most disruptive technologies. It’s a lot cheaper to route phone calls over the Internet than to route them over the traditional circuit switched network. That’s great news for people who need to make long distance phone calls. But it’s really bad news for traditional phone companies who have lots of money invested in their voice networks. Because those investments are worthless. There’s a better way to do it now. And that’s why the companies with large long distance businesses are not doing well. They are losing money. They have large networks that are worthless. They need to write them off and get into VOIP. Fast.

And that’s the way it is with technology. It’s capitalism on steroids. Survival of the fittest (ie newest). That’s why i love it. Those on the cutting edge win every time.

#VC & Technology