All communication equipment giants
VocalTec, once the great hope of Vocal Tec’s history is reminiscent of the identified Class 4 softswitches for in-the VoIP industry, ultimately failed to story of Goldilocks and the Three Bears. land telephony as a major strategic mar-fly high. Indeed, in the last few months The company initially approached a mar- ket for their future development. These the company seemed to be on the verge ket that was much too small. When it softswitches became their core business, of a shutdown. In mid-October, however, found out that this market didn’t have which means that they had to provide ina privately-held Israeli company called significant growth potential, VocalTec ternal softswitches.
Tdsoft came to the rescue. The two com- moved to another market, only this time, Some of the giant vendors developed panies signed an agreement pursuant it was much too big. such softswitches in-house, while others to which Tdsoft’s owners will hold 75% About two years ago, Vocal Tec finally acquired companies that developed these of the merged company, and VocalTec’s found a market that fitted its size and softswitches. This trend left no room for share holders will hold 25%. growth potential perfectly. Unfortunately, any OEM agreements (with the smaller
When Vocal Tec took its first steps in by that time it was already too late. Class 4 softswitch vendors), nor did it the VoIP industry, its prospects looked Vocal Tec started with Class 4 soft- leave any room for small players to com-rosy. In February 1995, the Wall Street switches and gateways, for supporting pete in this market.
Journal praised a software program called The competition over tenders became
Internet Phone, developed by Vocal Tec, VocalTec’s problem almost impossible for small and medium
then an unknown small Israeli company. was not its technol- size vendors. A VoIP equipment vendor
The publication placed Vocal Tec on who wants to compete with large players
the fast track to become one of the most ogy, but mainly its over their core business needs both very
famous IPOs of Israeli companies on Wall marketing strategy. deep pockets and a wide customer base.
Street. At its peak, Vocal Tec’s market cap- Vocal Tec had neither.
italization exceeded half a billion dollars, very low-cost international calls over IP Vocal Tec had two or three large custom-
and the future seemed promising. networks. However, since the number ers of Class 4 softswitches for the interna-
No doubt, VocalTec’s technology start- of international lines is relatively small tional calls market, including Deutsche
ed a revolution in the telecom industry. compared to domestic lines, the growth telecom, ISM (a Telecom Italy subsidiary),
This, however, did not prevent its down- potential of this market was not as great Data Access, and few small customers. But
fall. The pioneer of the VoIP industry as they had thought. all in all, its customer base was not big
somehow missed the market and faded. In addition, other market players en- enough. Still, Vocal Tec was battling over
Following the merger with Tdsoft, tered this market one-by-one: Clarent this market for a very long time. In the
Vocal Tec’s shareholders will get “nickels (acquired by Verso), Cisco, Nuera, Sonus, meantime, equipment giants like Nortel
and dimes” compared to the company’s ArelNet and others. Increasing compe- networks, Alcatel, Ericson, Siemens and
value in its glory days. tition left even fewer opportunities for others, took over this market. It seems
So how did it happen? It seems that each player, and if this weren’t enough, that the wise thing to do–insteadfighting
Vocal Tec’s problem was not its technol- the market eventually reached its satura- the giants– would have been to approach
ogy, but mainly its marketing strategy. tion point. a niche market that wasn’t worthwhile fi-
The company failed to recognize the most nancially for the giants to enter.
profitable markets for companies of its Entering the Big Guy’s Playground Israel’s Gallery IP Telephony (www.
kind, and failed to estimate correctly its Vocal Tec was forced to look for new and g-ipt.com), for example, is focusing on
abilities in the competition against the bigger target markets. The search brought Class 5 softswitches for cable telephony.
communication equipment giants. it to softswitches for inland (national) This is an emerging market which holds
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