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By Andy Kessler This is a classic high stakes Wall Street sucker punch. The buzz on the Street is that the Vonage IPO is on the rocks. They HAVE to raise money or they are in a world of hurt. Their investors don’t want to put […]

By Andy Kessler

This is a classic high stakes Wall Street sucker punch.

The buzz on the Street is that the Vonage IPO is on the rocks. They HAVE to raise money or they are in a world of hurt. Their investors don’t want to put another penny in and the company seems to still be bleeding cash, $75 million in the first quarter of 2006. Geez, Vonage is begging customers to buy 20% of the deal – not a great sign.


Ebay knows this, why not toy with the mouse before you kill it. What better way to do away with the Vonage IPO and raise their cost of capital then scare investors even more. Every prospective buyer on this deal asking the same questions: what about pricing, why will anyone pay a flat fee per month when skype connects in the US for 2 cents a minute. $25 per month to Vonage is the equivalent of 1250 minutes.

At Skypeout = zero, its infinite minutes. The value of what Vonage provides has just gone from $25 per month to somewhere close to $0, goose egg, nada. Tough to get a return on equity with those kind of numbers.

F-ing brilliant. I’d like to shake the hands of the person that thought this out. Citigroup, Deutsche Bank, and UBS now have to work a lot harder to sell this deal. Boo-hoo.

Back in my days on Wall Street, I remember working on an IPO and just as the roadshow started, some competitor filed a patent infringement suit. They could have done it anytime, but they waited until the IPO pitch was in full swing. Even though the suit ended up being baseless, it changed the game. Capitalism is not without its Department of Dirty Tricks. Not much different than your beloved Yankees overpaying for Johnny Damon – because they could!

Even the timing gives a clue – now through the end of 2006 – just long enough to sink the good ship Vonage. The effect on Ebay? Noise.
They already took the 3% or so dilution when they overpaid for Skype, they might as well have some fun with it. Lose some cash flow? So what, you’ll barely be able to find it in their income statement.

I was starting to give up hope. Maybe things really are fun again.

Andy Kessler is a former hedge fund manager who now writes on investment trends in technology and communications. His latest book, The End of Medicine will be released shortly.

  1. When do they start paying customers to use the service?

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  2. Maybe Skype can pay customers in EBay shares!

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  3. I use both Vonage and Skype. I am very excited by the free US SkypeOut, but I am not sure that it is the Vonage-killer that you make it out to be. Skype is great on a computer, but it doesn’t pass the “wife-test” It doesn’t act like an easy-to-use voice phone with extensions anywhere in my house. Vonage looks and feels like the regular Verizon service that it replaced for me. I don’t need a computer running, I don’t need to upgrade the software, I don’t need to log in. The wife just picks up the phone and dials. When Skype starts to sell a dedicated TA like Vonage and the other VoIP carriers, then it will compete directly with Vonage.

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  4. Call me naive, but I don’t see how Vonage and Skype are anything but an apple to orange comparison. Vonage provides a seamless telephone service that is easy to use, install and manage. Unless I’m missing something, I don’t see Skype offering any of that in the USA right now.

    So, how can the publicity stunt by Skype have any impact on Vonage at all?

    (I am a Vonage customer.)

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  5. ZeddZull beat to the Submit button, but I agree, Skype does not pass the test of being usable by non-tech people.

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  6. ZeddZull your comments calling it the “wife test” are very sexist and it is people like you who try to put down women and keep them out of technology. I hope some girl kicks your ass for saying that.

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  7. Moshe Maeir Tuesday, May 16, 2006

    I wonder if Zennström had anything to say about it this morning in his Keynote at VON Europe

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  8. originalvonageemployeenumerodos Tuesday, May 16, 2006

    Don’t be stupid andy.

    skpyeout alone can’t kill vonage.

    Subscribers still have to pay some carrier for a phone number to receive calls.

    SkypeIn isn’t free.

    And … oh snap… Skype doesn’t support local number portability, so instead of keeping the number by which everyone knows me, I have to tell all my friends my new SkypeIn number.

    AND EVEN BETTER… Try telling an American that they have to pay in Euros. Give me Freedom Fries any day baby.

    This ploy by skype has a short half-life. It’s all fluff and no stuff.

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  9. Thank You Skype. Your little stunt will drive down the Initial Price of the Vonage stock. This allows me to get in lower and reap higher profits later when people start seeing this dastardly deed for what it is — a two-bit shyster-act.

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  10. I would like to think that Andy is correct, however Skype and Vonage are still, at a service level, fundamentally different. Skype is a service for individuals, not families, and Vonage really is all about residential calling.

    To the extent that this invalidates Vonage’s pricing? Well, that’s somewhat true, but even so with Vonage you’re not paying for Long Distance Voice Calling. You’re paying for connectivity and some flavor of availability.

    Skype, while much cooler, is a really different value proposition. There are probably many folks who use both, for different reasons.

    -Ian.

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  11. I’m with you guys on this one– Vonage competes with SBC/PacBell, Verizon, etc., not with Skype.

    How many American households will dump the phone number they’ve had for 5 years and make phone calls from a headset wired to the computer? Not many. And unless I’m missing something, that’s the Skype solution today.

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  12. George Chuang Tuesday, May 16, 2006

    Andy is right. This is a classic Wall Street sucker punch and it is brilliant. When I heard it this morning I immediately laughed out loud and thought about the Vonage IPO. My various businesses use Vonage and Skype extensively, each has its strengths and weaknesses (too long to list, you know what they are…). But I do have to agree that while it is not necessary the right comparison, it is close enouogh such that every knucklehead buy side fund manager and analyst is going to line up and ask that question to show how smart they are. I can just picture that junior sales person at Citigroup banging his/her head on the hoot trying to explain the difference between Vonage and Skype for the 15th time that morning! Ha ha ha!

    BTW, Vonage is getting desparate… They sent their customers this letter telliing them that they are “eligible” to participate in their IPO through the DirectShare Customer program. Hmm, I don’t think Google or Yahoo gave us that option… :) There was some chatter that Vonage shouldn’t have done that during its quiet period. But I see it as a sign of desperation.

    It is too bad that Vonage can’t make money doing this for 25 bucks a month per number. Personally it would be a pain converting the 10 numbers we have over to Skype or other services.

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  13. Where is the Skype Terminal Adapter product that will allow me to make the combination of Skype In ($30 a year) and Skype Out (free, for now) a Vonage killer? I use both and Vonage’s quality is worse than Skype. We need a Skype appliance that will get around the complaint of leaving the computer on. This is an enormous market. Why hasn’t DLink, Linksys, Netgear, or Dell delivered this specialized appliance. Now that the cost of Skype appears to be $30 a year, I’d be willing to pay $300 for it if it did not crash. The problem with buying a low end PC is the stability. I don’t want my phone service to crash at my home.

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  14. it is close enouogh such that every knucklehead buy side fund manager and analyst is going to line up and ask that question to show how smart they are. I can just picture that junior sales person at Citigroup banging his/her head on the hoot trying to explain the difference between Vonage and Skype for the 15th time that morning! Ha ha ha!

    OK, now that’s an explanation I can roll with.

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  15. I got rid of vonage a few months ago, there service went downhill from when i first subscribed a few years ago, and the support went to shit.
    I’m back with verizon for the same deal as vonage offers for a few bucks more.

    (Plus if my power or cable has issues, my phone STILL works!)

    I have skypein as well, $40 a year? for unlimited calls, free voicemail, and a number of your choice?! It is a great deal by itself, grab a plantronics headset and connect it to your laptop and you’re ready to go.

    Now Skype is offering skypeout for free for the rest of the year? Awesome..

    The telecom sector has its work cut out for it these days, and its only going to get more intense with the variety of offerings around.

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  16. I love Vonage and everyone down here at their second/third homes in Mexico use it! It is clearly a telephone system with more free options than our home landline has, by far. The voice quality is great and we can just forward our home U.S. phone to our Vonage number at no long-distance cost. Plus, I have multiple phone sets throughout our Mexico place that are wireless — making somewhat basic Mexican construction and lack of multiple outlets work beautifully!

    In addition, I’m going to be in Spain later this summer and can just bring my Vonage router with me to connect to wireless over in the hotels there and make and receive “local” calls, receive messages, as well.

    I’m buying the IPO and do best when I invest in things that I really think are great myself!

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  17. Most of the responses already covered it, but how is Skype anything like Vonage???? My 80 year old dad and 7 year old kid can use Vonage, they CAN’T use Skype.

    …and Michael, you might recall Google and Yahoo are free services, most likely the reason they didn’t send you an IPO invite, but I bet a lot of people associated with them did get a letter… I pay for Vonage and appreciate them letting me know via email, letter, etc that I can get in on the IPO. Not sure how I could have gotten in on it otherwise?

    A company I used to do biz with also invited me to take part in their IPO afew years ago and guess what! They sent me a letter!!!! Oh the shame. Well, it turned out to be a triple banger, guess it would have been better had they not told me!

    Andy, the 75 million loss is one third of their losses Q1of 2005. They also have doubled their customer base since Q1 2005. A company on that kind of trajectory is headed for profitability within two years. Don’t underestimate Vonage. They are THE largest Voip, they are in stores such as Best Buy, Officemax, Office Depot, etc… They also have THE name recognition in Voip.

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  18. Skype is a good product but I agree with others, skype can’t be compared with Vonage yet. Though I’ve no idea how Vonage is going to compete with traditional phone companies which are beginning to offer bundled services (data, voice, video).

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  19. Their announcement says this is for Skype users within the U.S. Is this for Skype users who initially signed up as a U.S. resident (for example, using a U.S. credit credit), or do you actually have to be in the U.S. at the time you make the SkypeOut call?

    I live in the U.S., but I am wondering if I can use this to make free calls to people in the U.S. when I am traveling internationally. Has anyone tried this?

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  20. All of you above that keep saying (and repeating) that Skype is no Vonage don’t understand how Wall Street operates especially in an IPO.

    Of Course Vonage is easier to operate, it cost $25/month ($300/year) more than Skype. It should be easier to use.

    Investors are buying the future. Not the obvious here and now…The Dream! If that Dream’s monetization scheme suddenly looks very shaky (and it does), who’s gonna pony up. What is Vonage’s plan B for monetization? Hmmmm? Anyone, Anyone, ??Bueller??

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  21. While skype currently can’t compete with Vonage, in terms of the “Wife/grandparents test”, there are several standalone skype phones announced, that will change this.
    One that is available for pre-order: http://www.engadget.com/2006/04/20/netgears-sph101-skype-wifi-phone-available-for-pre-order/
    This will make the difference between the two much smaller, if any.

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  22. Have just blogged about a $15 handset that works like a mobile phone with Skype. Total Vonage replacement for the home. See http://bombaycurry.blogspot.com/

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  23. It sure sounds like there is a lot of Vonage customers posting on here that are trying to justify their $25 per month investment. I have been a SkypeOut user for years and I am betting that this is the future! Now that there are also handsets coming out that cut the cord from the laptop or PC the Vonage killer is complete.

    Just wait and see. I also love the timing on this one given the pending IPO Vonage tried to pull off! Brilliant! They are dead in the water and bleeding through tons of money while Skype is profitable and cashflow positive! Impressive!

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  24. for all of you Skype vs Vonage ”’investors”’, just remember WHO supplies the BULLETS to all warring Voip companies…Level3
    As an INVESTOR in Level3, I dont care who wins, only that all players go VOIP WARFARE MODE and all out combat against the RBOC’s
    Voip will CRUSH RBOC’s over time led by CABLE GAINS…Vonage, Skype, Packet8, etc etc etc…they are MINOR compared to what CABLE is doing signing up PAYING Monthly Residual Customers…and Level3 carries the CABLES also! Vonage is top 10 customer of Level3
    skibare

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  25. skibare,

    It is really getting tiresome seeing all your L3 hornblowing everywhere you post. On your own blog, do what you like. I can opt to stop reading it, which I actually have. But on other fine blogs as this one, please don’t pollute.

    Your post is not pertinent. Please consider the rest of us before you hit that “Submit” button.

    Thanks,

    Sandman

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  26. I dunno, I have no plans to cancel my Vonage account just because of this announcement. I use Vonage heavily for work all day every day. It has replaced my home phone, fax line, and even communicates my alarm signal to the call station. I also have the soft phone installed on my laptop and I have used that tons of times from Starbucks and other WiFi spots without problems. I have a virtual number that forwards to my other lines for work.

    Skype’s VOiP software client has always been very choppy for me. I’ve yet to understand a clear way to use it for all of the other reasons I have a phone line in the house (fax, alarm, normal “hard” phones).

    Plus, no 911 with Skpe. Here is a quote all over their site:

    “Skype is not a telephony replacement service and cannot be used for emergency dialing.”

    Seems to me it is a totally different service until they provide a more clear, true home telephony solution. Right now, Skype is just a geek toy, in my opinion.

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  27. To suggest that Skype will run the worlds phone calls is absurd. Their system will crash when 100 million users are on the phone at the same time. It’s a stupid proposition and a whores trick of whisteling to a John across the street who’s propositioning another whore and when he looks saying…”I’m cheaper”.

    People want QoS and convenience, familiar ease of use. Vonage has a soft phone. Others will follow. There’s enough room for dozens of Skypes on the planet, there’s room for dozens of Vonages…gee – maybe that’s why T, BLS, TWTC and all the others are SELLING voice at a premium to Vonage and not giving it away…

    Too many engineers think the majority of the world sees thinks and consumes things in the same way. They’re all wrong and that’s why they say stupid things. The consumers far outnumber the engineers. Therein lies the opportunity. So tell us again why millions of consumers are PAYING cable companies a premium for voice when Skype is free? My bet is Messeure Kessler was paid to speak his bobble headed mind.

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  28. 8 Billion People on the planet and ONLY 100mm Skype downloads? How many of them are paying customers? Trust me, the number is a single digit. Skype will only AUGMENT products like Vonage, or Digital Phone, and when you can get a softphone with a USB handset for Vonage and Packet8 or Digital Phone (maybe soon) who needs Skype?

    Skype is giving itself away out of desperation. Millions are signing up to PAYING call plans between $20 and $35 a month. When will Skype comply with CALEA and E-911?

    It’s an augmenting product, not a practical replacement for primary voice solution.

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  29. As the first of what I hope will be a series of posts, I am going to talk about what Fixed Mobile Convergence is, or at least what it means from my perspective.

    There are three different areas of FMC: Marketing Convergence, Device Convergence, and Network Convergence.

    Marketing Convergence

    As the name itself might suggest, the fundamental thing happening in a marketing level of convergence is that all of the convergence is a facade. It is the ability…

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  30. Just adding to the volume on this one — if you are keeping tally. I’m a Vonage subscriber and I used Skype (complete with cordless skype phone. Fundamentally they are different right now — although either could intrude on the other’s territory with hardly a moment’s notice. Skype has got the edge on application integration (thus ebay good fit). Vonage has the edge on legacy support (thus the market opportunity for being public) — because even my dad can use it (and that’s because he wouldn’t know it’s vonage).

    Victor

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  31. Vonage is dead, not just by the Skype deal but because they will run out of cash.

    Why?

    Life Time Value = $25/mo. * 22 months (survival averge over 5 year horizon) * 40% EBITDA margins – Customer ac. cost of $200 = $20.

    Now take the NPV at a WACC of 15% and add in that nice line of SG&A with 1300 heads. BOOM. There are no economic profits. Hence there is no economic value.

    The VoIP pureplay market is a race to the bottom. 8 of 10 times low cost wins.

    Vonage VoIP trades on a per sub multiple of $1,600 at a $16-18 stock price.

    I just illustrated how this number is negative, not $100 or $1600 but negative!

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  32. The real competition to VONAGE is from the Cable companies. Geez…why do Analysts bang their head on the wrong wall. One can in no way compare in-home-telephony service from VONAGE to SKYPE. SKYPE is a joke.
    When they spend money on 911 services and other caller services, they will need a private network and a better customer support. EBAY misunderstood SKYPE service. Voice-activated buying and selling…when did that happen???

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  33. I travel to EU frequently and I’m so pleased with my Vonage after it made calls to UK and some other European country FREE, Yes it cost as mush as a local call (NOTHING), more over when I travel any where or even visit a fiend I have my Vonage phone with me that I plug without any configuration and my phone is on. last point is all oversees customers are asking me to bring them one, I’m hesitant about that cause it is under my name but I have at least a list of 10 associate that will love to get that phone and call any where in North America and 5 country in EU unlimited for 25.00 a month. I’m definitely buying as much as I can.

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  34. Andy, I like a lot of your material but I think you’re way off base when it comes to financial scale of technology. First off – “the buzz is the Vonage IPO is on the rocks”? Give me your sources! I think you’re pulling that out of your butt! I have many many close friends in high positions in the industry and they say they’ve been getting calls non-stop about people trying to get this stock. As my comments say below – this sounds like you’re another one of those talking heads that said, before it was trading, the Google IPO was doomed! I read your Wall St. book and you said yourself, you came into the industry as a tech guy but no financial understanding. I think that’s your problem here. You’re a tech guy and yeah that sounds great, Skype is cool for us tech guys. Yet what is the real issue here? Skype service is cheaper than Vonage so that makes Vonage obsolete? Andy really I thought you’d know better by now. I mean in Accounting and Marketing 101 you should’ve learned that cheaper does not mean better. Geez – I can see why you must have fit right in with Quattrone and your other analyst buddies that you ended up selling out in your book. You make yourself out to be this better guy than them but you don’t know jack either. You trashed Mary Meeker (though she does bore me personally) as if she’s a moronic kiss-up, yet she continues to do pretty darn good and has caught on to China and Google way early on, and there was nothing to pin on her in the Nas Crash of 2000! You should read Michael Lewis’ article for the New Yorker a few years ago. He gives a much better perspective of what really caused the tech downfall.

    So here you are touting Skype (which I use and like) which Ebay pays $two billion for – and you think by cutting off what little revenue it already had Vonage is supposed to be scared. Your thinking is on par with my eighth-grade daughter, I almost thought she wrote the blog.

    Here’s what I think and others have already said this in less words than me- Wow! how this sounds like Google in so many ways! I remember when Google’s IPO was coming out you couldn’t find a positive note from anyone. ‘It’s too expensive’ ‘It’s competition will erode it’s advertising revenues’ the list went on and on. You could find articles saying just what you are saying: that they wouldn’t touch (Google) with a ten-foot-pole! So here I am again, telling everyone I know just what I told them about Google. If you can get some Vonage – get it! Now I realize it’s eating at all the VOIP and tech bloggers. Another hot IPO and you can’t get any shares. You missed out on Google and none of the Skype equivalents are offering you a piece of them despite your free promotion of their VOIP technology. So what do you do? Find every reason you can to trash this first-mover in the VOIP arena. Look, most households want cheap long distance – but outside of extreme techies, most don’t want to hassle with being tied to their computers. They like to walk around their house – be in the kitchen – watch tv at the same time. Vonage makes VOIP simple and it markets like nobody’s business. Sure the cable companies can try to compete and some surely will, but not enough to penetrate the first-movers-word-of-mouth marketing by the company with the most subscribers. My grandmother could set up a vonage system but try getting her to skype and you might as well ask her to program a vcr while she’s at it. People like tivo because it is simple – it’s easy. Sure they could get it for free by configuring their computer to become a tivo like I do. But the fact is – most won’t. It’s no differrent with Vonage. My buddy lives in Italy and is a network admin – very tech savy, has skype but most of the time prefers to use vonage with a regular phone. And yes I know you can rig your computer to use phone via skype – but it’s an extra cost and a hassle for even tech-savy gen-xers like myself. My point is Vonage is ahead in the US of Skype and any other VOIP provider when it comes to marketing and ease-of-use. Now ATT and Roadrunner and Cablevision all have or are making entrances into this market. (Not totally unsimilar to how DishNetworks offers it’s own PVR system, vs Tivo.) But this is not a real threat because I think we know how well the poor cable companies are at marketing services. They’re good about raising rates and getting us to swtich to satellite, but oh wait now they want to offer me a phone service for $19.99 and think that I won’t remember they raise rates. Again what kind of market penetration are they really going to be able to make? Now I agree that from a financial standpoint Vonage is burning through its cash yet doing so has clearly givn them an edge in visibility. I mean really, Packet8 or Broadvoice hasn’t even come close to a roll-out like Vonage.

    Now for those that can’t do math and think they know something about Wall Street pricing new issues – Here’s how I look at it – if Ebay paid 2bil for Skype, I think a company with better marketing and a simpler product for mainstream US telephone users with 1.6 million monthly paying subscribers is worth at least as much as Skype. How much revenue did Skype do last year? 24 mil and Ebay still thought it was worth 2 billion. Vonage Revenue was 118 mil this past QUARTER – that’s more than their entire 2004 revenues. A year and a half ago a VOIP expert and blogger thought Vonage was worth 2 Billion and compared it to Packet 8 to arrive at the figure (http://evans.blogware.com/blog/_archives/2004/11/22/189337.html) and that was a year and 1/2 ago before skype! So I feel we’re looking at a 4 to 5 Billion company this year and with further growth into businesses and residences at a fast pace. I tell you what though, When my shares hit 25 in the first day and you realize that this was good deal, I’ll sell them to you so you can get in on their long-term gain. AS a customer receiving shares I feel I’ll take some rewards off the table right away but I’ll keep a little for the heck of it, just to show that I can think like Ebay’s acquisition team too!

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  35. Howard Roarke Saturday, May 20, 2006

    I’ve been a Vonage user over a Cox cable line for a couple years now. The only problem I’ve had was due to Cox degrading the signal to the house. I beefed and Cox cleaned-up the signal so that the minimum 100K upstream was possible. (Vonage has a good test utility at their site that shows what your up and downstream signal rate is.) I admit that I don’t know much about Vonage customer support. But, fortunately, that’s because I’ve never needed it.

    Regarding the IPO. I’m participating. And here is why. I liken Vonage’s brand to Amazon’s in the early days. Amazon was losing money right and left, but it still came out with an IPO. Both Vonage and Amazon at the time of the IPO were showing quarter after quarter of increased income. Marketing costs were killing profitability at Amazon, too. But, the gain in mindshare turned out to be worth it for Amazon. “Books on the Internet” as a topic usually brings the name “Amazon” to mind. Just like with cars, when you say “safety”, people say “Volvo”. Well, despite, Packet8′s earlier introduction, because Vonage has pumped a ton of money into marketing/branding , “Vonage” owns the mindshare for “internet telephone” or “VoIP service”.

    People are right to say that the real competitors to Vonage are the cable companies and DSL/telco companies. However, these are always more expensive than Vonage’s. And they always will be, because Vonage drops its prices (it has done that 2 times since I signed up). Who has ever heard of a cable company or DSL/telco comany dropping their prices once you buy a service?

    With Vonage, there are no yearly contracts and billing happens electronically, eliminating the necessity of even having a physical address. The portability of the phone device (Cisco’s ATA device) allows me to travel and have a fixed rate phone bill every month. My back-up phone is a cellphone which I only use for outbound calls for emergencies, or to report Cox cable problems, which happens about 3 times a year. Using a TRAK phone would be cheaper as a backup. I may switch.

    One thing I would love to see and I hope Qwest bigwigs read this. If the local phone company (Qwest in my area) were to offer DSL without requiring the customer to have a local landline phone, I would buy the DSL service at around $39 per month (or less) and use my Vonage phone, saying goodbye to Cox (those fascists killed public access TV in Phoenix by bribing the Phoenix City Council with their own government channel). Until then, Cox and Vonage saves me a fortune and allows me to have no downside surprises every month, bill-wise.

    This is IPO week (supposedly May 23, 2006 is 1st day of trading). Hopefully, there will be a lot of interested investors scooping up shares. I’ll hold mine for the long run, as most Google, Ebay and Amazon IPO participants wish they had.

    Note, Burger King (BKC) IPO came out last week during the worse week in 9 years and they traded at the end of the second day, 3% over the OPEN price. So, even in bad weather this week, Vonage (VG) may do as well or better. We’ll see.

    -HR

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  36. Cable companies will eat Vonage alive. I used to be the SVP at one and we could get new subs all day long at $35. Its $200-225 for Vonage — their marketing efficiency is 6 times worse.

    What the MSOs can do with $1 it takes Vonage $6. Thats bad.

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  37. I agree with Andy that Skype’s new free offer is brilliant in a detsroy-the-competitor’s ROE kind of way. When I speak to telco execs, who also face the destructive impact, some can envision the end of their cash cow, local phone service.

    But the separate questions remain about Skype itself:

    *Is the Skype business model one to be replicated?
    *Is Skype a business you would invest in if you could?

    I try to dig into those questions, as well as the question of whether Skype is really a disruptive innovation or just destructive innovation?

    http://www.OnDisruption.com

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  38. HOWARD does not know what he’s talking about. If cable companies were a threat I would’ve signed up long ago. but they have 0 marketing prowess. If Howard was SVP of anything it was the break-room scheduling. If they’re so good at disrupting application software companies like VOIP, why don’t cable companies do more in the form of content and application service? The answer is because cable companies don’t have any marketing skills nor do they have any ability to work with and distribute applications of their own – which is why External VOIPs like Vonage will eat their lunch!

    • As for anyone agreeing w/Andy about Skype hurting the vonage IPO -Come back to earth! People that use Vonage don’t want to talk via their computers! It will have 0 impact. It will hurt themselves if anything. I like Skype but it has nothing to offer competively with Vonage. If you want to be the Dork that sits at his computer all day and takes skype calls on a headset from StarTrek be my guest. But the 1.6 million Vonage users are just interested in cheap LD that allows them to keep their phone number and use their normal phones. Hello Vonage – Skype is for a different crowd.
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  39. I meant Jonathon doesn’t know what he’s talking about. He’s the idiot not Howard. Howard is on track.

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  40. Howard Roarke Monday, May 22, 2006

    I just saw the Vonage IPO discussion on CNBC with Sue Herera. Learned nothing from the Vonage-nayser nor the pro-Vonage analyst guests. They discussed business model sustainability. No one mentioned the “network neutrality” bills in Congress that may be important for long term growth. Very shallow knowledge of the actual environment.

    One thing about the true competition to Vonage, (the telcos and cable companies) is that it’s unlikely for them to offer VoIP solutions over a competitor’s infrastructure. Vonage is delivery neutral. I use it on Cox. My sister uses it on Comcast. My girlfriend uses it over her Qwest DSL line. So, how can these competitors make much inroads, other than bundling with cable and high-speed internet services? Still, I do the math, and I’m still saving a significant amount per month with Vonage. That’ why I reject Cox’s VoIP phone service, even though I receive cable and internet from them. Their monthly pricing is the same as Vonage’s but they charge $.05 per minute. I also like the ability to travel with my Vonage/Cisco ATA box and phone, allowing me to receive and send calls wherever I travel (that there’s a high-speed internet connection).

    One thing to remember. While Vonage is great at retail marketing, their real boom in sales may be when DSL providers bundle Vonage with their service.

    If telcos offered a $39 per month high-speed internet connection without requiring a basic landline phone contract, their sales would boom and it would be perfect to offer a bundled Vonage solution. Qwest in my area is a pig on pricing, bundled or not. When they offer a just-DSL connection, I will gladly dump Cox.

    So, look for Vonage growth to take-off as last-mile telephone companies see the profitablity benefits of selling “just DSL”. It could happen.

    Oh, did I mention Philadelphia, San Francisco and Tempe? As cities Wi-Fi their entire areas with high-speed internet, Vonage can piggyback that perfectly, without any bundling with actual competitors, relying again on retail customers to do the math and easy installations.

    That may be Vonage’s biggest hope – the WiFi-ing of cities, eliminating the need for potential customers to connect through cable or telcos! Perhaps they should focus their marketing efforts in these areas. I bet they would receive a lot more new subscribers per dollar spent on marketing.

    Best wishes for a happy Vonage IPO day (pricing Tuesday, opening Wednesday?).

    -HR

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  41. I agree—comparing Vonage and Skype is same as comparing apple and Orange. I have both Skype and Vonage. My wife never felt comfortable with Skype so we eventually settle with Vonage. We call a lot in England, Canada, and Bangladesh. Both cable phone and Skype have higher rates than Vonage for these countries. After switching from conventional phone to Vonage, we are saving about $200-$$250 each month.
    So, just a note to the rest of the posters, not every one pay only $25/per month! We pay about $100-$120 per month for using Vonage. I have 9MB cable connection and so far, I am very satisfied with Vonage service. You can see, why we just can’t have Skype or cable phone. So, I think Vonage will do okay in the IPO. I will buy them as I need Vonage.

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  42. I bough $11k of Vonage stock at the price of 16 or 18 bucks a share. I like Vonage because they don’t follow standard FCC bs. Skype is okay but it lacks the flexible web interface and virtual numbers that vonage offers. If I wanted to dial out for free, I would be using a number of free lan dialers available for download.

    BTW, didn’t the government “FCC” put some limitations on free phone calls after the big companies cried about it?

    I can’t see skype taking off as a great solution seeing that their paypal solution and ebay solution are such a pain in the arse. Skype just adds one more tool to the fraudulent individuals looking to call up customers from their anonymous outgoing line.

    Maybe it’s just the fact that skype copied so many other companies, MSN IM, Yahoo IM, AOL IM, Dialpad, net2phone, etc… And all the loyal customers out there act as if they’re the ONLY solution. I will never be a skype customer.

    I like vonage because it’s simple, it has the virtual phone numbers, it emails me my voice mails, and it just works.

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  43. I think Howard is right on. I’ve had Vonage for over a year and love it. When I travel I can bring my phone with me and if I don’t have it I can get my voice mail from any computer connected to the internet. When I have guests over and they use the phone they have no clue its voip.
    As the popularity of Vonage increases via advertizing, word of mouth, and easier access to high speed (WiFi-ing of cities, packaging of DSL, etc.), you will see the marketing budget more inline with revenues. As of now the marketing expenditure is the largest portion of their operating expenses. If you compare the numbers from 1Q 2005 and 1Q2006 their operating expenses roughly doubled however their revenue nearly trippled. If this trend continues they will be profitable in less than two years.

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  44. “The wife test”? Haha! How about the parents and grandparents test? Vonage is just a phone, my grandma and mom can setup and use it!

    The features offered between Skype and Vonage are totally different? Skype does not offer any of the features that Vonage does for free. Vonage has many more free features than Skype and there are too many to list out. They are both cross platform and browser independent.

    I’m a businessperson and I travel so I need a phone that will give me the ability to have numbers in different area codes. I also like having the ability to have relatives call a local phone number instead of calling me long distance. I love that Vonage lets me have multiple numbers, which ring directly to my cell simultaneously and my home Vonage phone. If I setup business internationally in Europe, I can setup a local Euro area code and number that rings the same. This is the kind of feature I have been searching for and Vonage is the first to offer it, called Simulring.

    I had some connectivity issues with my Vonage service but realized that it’s the poorly coupled coax cable installed by Comcast. I just have to avoid looking at the cable wrong. I am anxious for the city WiFi to kick in, 802.11n. I pay a crazy amount for my Comcast high-speed internet; once I can get an alternative solution, I’m ditching Comcast. I had COX too (name says it all).

    There’s no installation drama with Vonage because you just plug your phone into the base station and it works! No crazy installation dates.

    I wouldn’t put it past these internet service providers to try to lower the quality of service of Vonage. If they do that though, the FCC is standing by with some hefty fines, according to previous lawsuit from Vonage towards a Minnesota local provider that tried blocking the Vonage port to its internet customers. I hope that Vonage keeps its low cost business model and begins to offer other services as well.

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  45. Don’t you all realize there are only 4 million shares going to subscribers and plenty of people including myself wanted the full 5,000. Most people under 1500 shares won’t be getting filled at all and I will probably only get 1300.

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  46. Good Luck with the IPO, I just got cold feet and bailed out after watching all the commentators saying not so promising things.

    Vonage is sure to to go up, I am the mush anyway

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  47. Where are Andy’s replies? Maybe he’s waiting for Vonage to spike before he offers his apologies and admits being wrong. Well I never saw his apologies about him being wrong on Google so I guess we won’t see any for Vonage either. I look forward to coming back here after I’m up 50m and seing what Andy has to say then.

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  48. That’s Andy Kessler obviously – not the Andy above the post.

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  49. I think some of you are missing the point here.

    The issue is not whether Vonage and Skype offer the same thing – obviously they do not.

    However, I think Andy is right in that Skype offering free calls WILL affect Vonage’s ability to attract new signups, as well as cause a lot of uncertainty regarding the future outlook for Vonage. I am also sure that the timing of this Skype promotion was not a coincidence…

    The market does not trade on hard facts alone. If it did, I think it is unlikely that Vonage would have been priced as high as $2.65 billion after its IPO. Vonage: What is a Phone Line Worth?

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  50. JJ,

    First of all lets learn how to read. Howard is NOT me. You need to learn how to read right and left, up and down. Once you pass english and remedial reading then we can talk.

    See? I am the person at the BOTTOM. Not the Top. Howard is not me.

    Ok, lets get some facts straight because you need a VoIP marketing education.

    1. Cablevision passes 4.5MM HH’s

    2. Vonage can market to 88MM High speed passable HH’s

    3. Cablevision has 900K Optimim Voice Subs

    4. Vonage has 1.65MM subs

    5. Cablevision has a sell through rate of 40%, what does that mean? 40% of those Cablevision HSD subs have Cablevision VoIP

    6. Cablevision markets a upsell to its CATV and HSD combo subs a $14.95 — far far lower than Vonage’s $24.95 price point. How is that for marketing. CVC markets to sub populations in Russian, Hispanic, Turkish, does Vonage?

    7. The triple play is like shark repelant – you would not know what this means

    8. 1 out of 7 people move each year. 50% of those move outside their zipcode

    9. The rest of the market outside of CVC’s footprint is 18-24 months behind the rest of the US in terms of adoption

    10. Once the other MSOs catch up and the effect of #8 over time, movers will settle in with a Triple play – one bill, bundled, cheaper.

    11. The market agrees with me or better stated, I agree with the market:

      VG down from $17.25 to $13.10. 25% of the market cap has evaporated in the past 24 houts.

    12. How much will remain in 3, 6, 12 months from now.

    You too JJ can get an education and be the SVP of bathroom breaks with a dual PhD and MBA.

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  51. Skype should not have a major impact of Vonage like the MSOs will. Cordcutters are at 10% this year and index up to 25-30% for the 25-34 age demographic which are more likely not to use anything other than their cell phone.

    Skype should garner incremental revenue from this market with minor effects to the 25-34 demo with landlines. The propensity for one to switch to skype should be higher coming from VoIP like Vonage than straight from POTs. Of course all of these statements are hypotheses not facts at all.

    If Vonage was smart when they finish their merge purge for each DM campaign they should do some splits and keys to determine the impact of Skypes new offer over time to see if the response rate is stat-sig lower for Skypes target demo. Additionally kick off focus groups.

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  52. Howard,

    Why on earth would any DSL companies EVER bundle Vonage??? They are competitors not compliments. DSL companies are slowly rolling out their own VoIP in a fashion to minimze canibilization of their cash cow to fund FTTH and FTTP initiatives.

    Right now the only weird marketing scenario is the DSL providers (e.g., SBC) bundling Direct TV / Dish to have their OWN 2-team triple play as a place holder until they get franchise rights from each town to compete with MSOs for fiber optic TV.

    Earthlink is the only major consumer broadband reseller than I can think of that bundles a white label Vonage service and they are not a RBOC, MSO, they are like AOL.

    <

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  53. Stock closed at 13 after two days of trading.
    There is a difference of good stock, good business model, and good product. Vonage is a good product – hey, I use it heavily myself. Where else can you make 2000 minutes of calls per month for 25 bucks? It has more challenging business model, acquisition cost is through the roof, closest competitors are cable guys with large existing customer base to sell into, Skype giving away calls for free.. blah blah blah. As a stock, I have to say not so good. This has got to be one of the weakest IPO for a while. Losing 23.5% in two days has got to be maddening. I wonder how far this is going to slide? Support seems to be around 13 today. Wonder how much of it is Citi propping up the stock. I didn’t check how oversubscribed it was, but I am pretty sure that some of the hedge funds in for a quick flip are smarting now. All joking aside, Andy, good call.

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  54. VG subcribers who wanted shares before the IOP had 3 days from the IOP date to fund their limited brokerage accounts. I bet a few wish they had waited 2 days.

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  55. Sorry I guess I should have copied a link to the article so you can see what I am talking about:
    http://www.cnn.com/2006/TECH/internet/05/25/the.web.toll/index.html

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  56. Why pay for something i can get for free.As far as hardware i went to the Source and bought a usb phone.,plugged it in and made a call.I found the wire too short so i bought a box for 30 bucks that plugs into a usb port and i plug my regular cordless landline into the box.i walk around the house outside every where.I had no problem with1- 2cent per min,now it is free.However i have to pay telus 16.00 for high speed lite and 24.00 for a landline per month,so much for free.I can eliminate the landline,however i will have to pay telus an extra 15.00 per month(greed money) for internet service,making my hi lite service 31.00 per month.This is the route that i will take.Pay telus 31.00 per month for highspeed lite and get free phone service with skype. Bottom line is a savings of around 10.00per month.I also have a skype in # which costs 40.00 per year.However it is an american # because skype does not have canadian numbers yetI do not use a landline much which is why i like alternatives to fixed rates.Skype is more like pay per use per minute.But remember if your friend has the skype program installed Computer to Computer is free,zero.Try to convince all your friends to download the program however.Geez im gettin dizzy just typin this.Bottom line is it works for me and about 100million more people worldwide.At the end of2006 when skype charges a penny per min again,telus will have voip.But i will remember telus and there surcharge for internet accsess without phone service and stick with skype,because skype is cool and telus is greedy.

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  57. VG 11.64 -0.38 (-3.16%)

    Impressed by the Bankers, this was all about getting out their capital. They succeded well.

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  58. Well, I only recently developed an interest in VoIP when I moved and found myself without a landline (and desperately not wanting to pay for one). My goal was to find a cheap home phone and Skype is finally providing that for me. But, if I truly wanted a cheap “landline replacement” I would have went with Vonage.

    Vonage provides all of the traditional phone services and it just has the feel of a real phone. Skype is a great alternative personal phone number to give to people who you don’t want to give your cell or work number.

    Another thing working against Vonage is the start-up cost, despite the free month it’s still way higher than Skype’s $38US (for a full year).

    So, I do agree that Skype is competition, taking some of the people who’re “on the fence” from Vonage. Those who like the idea of having an extra line without the added cost or need for extra features.

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  59. Perhaps sexism is not a common issue over here, but the “wife test” is very offensive. If your wife can use it, then is easy? Sure, women are so dumb that they are not able to use more complex things…this kind of generalisation is offensive and dangerous. But is also WRONG. I am a women, and more knowledgeable of my partner on internet issues. Also think that sometime women get home and have to do so many things, that they do not always have the time to stay there playing around with Internet, VoIP and the like, as many husbands still do.
    Next time, use another kind of example, this one is sexist, inappropriate and definitely inaccurate.

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  60. Isn’t this sort of funny and like an oxymoron in a way? “People Do Stupid Things” Vonage does stupid things like create the worlds worst loyalty program to hoodwink its best customers.

    Vonage Receives Effie for Advertising Effectiveness
    PR NEWSWIRE
    HOLMDEL, N.J., June 9 /PRNewswire-FirstCall/ — Vonage Marketing Inc., a subsidiary of Vonage Holdings Corp. (NYSE: VG), a leading provider of broadband telephone services, today announced that it has won a Bronze Effie Award from the New York American Marketing Association in the Telecom Services category for its “People Do Stupid Things” integrated marketing campaign.

    “Sometimes doing stupid things has its smarts. Vonage’s “People do Stupid Things” marketing campaign, which highlights some dumb things that people do, turned out to be a very intelligent brand direction for us. It educated consumers on the new VoIP category, while urging consumers not to be stupid when selecting their phone service,” stated Mike Snyder, CEO, Vonage Holdings Corp.

    Created by Arnold Worldwide and MPG, the fully integrated marketing campaign, which included print, TV, online and direct advertising, began in December 2004. The TV advertising featured home video footage, touting ridiculous scenarios like children throwing baseball bats through home windows, photographers falling into fountains while snapping their photos and a skier using his roof as his slope, and winding up on top of a truck. Vonage compared these actions to paying too much for traditional phone service in efforts to convince people switch to Vonage.

    vg-e

    About Vonage

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  61. Vonage Holdings (VG)
    10.33 -0.63 (-5.75%)

    Where is the bottom? Will there be support at $10? Once below…who knows…$3

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  62. 8.81 -0.79 (-8.23%) UNREAL. Is this dog going to ZERO??

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  63. Bob Dobalina Monday, June 19, 2006

    I am a women, and more knowledgeable of my partner on internet issues.

    Your partner handles the grammar issues, I suppose.

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  64. Thanks and wish you better luck! I have found your page and liked it so much.

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  65. Gizmo and Free Phone Calls…

    GigaOM: Voice, Now Nearly Free First it was Skype, then came Jajah, and now it is the turn of Gizmo Project to offer almost free voice calls to the old PSTN numbers. We are seeing the price of plain vanilla…

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  66. If you do a simple search with your favorite search engine on Vonage coupon codes or Sunrocket coupon codes the results will be flooded with offers to save you big money, easy setup, etc.

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  67. future is here Monday, December 25, 2006

    Andy,

    Where are all the apologies from those you almost called you “stupid” for posting such a precised article. It is now Dec. 26 an Vonage is still SINKING!!!! Again, come out, be brave, an apologize. It is SO easy so tell others how “wrong” they are, but SO difficul to admit it when we are wrong!!!

    Good work, Andy!

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  68. Did we say that Vonage is a dog of a stock?

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  69. I just signed up for Vonage yesterday for their FREE 30 day trial and I also downloaded Skype, could anyone tell me what I should expect from both of them, how the free Skypeout works, etc., without all the stock market talk?

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  70. [...] Kessler follows up his guest post a week ago on GigaOm: Vonage Sucker Punch. "Here’s how not to do a deal. Citigroup raised the [...]

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