Comments on: Vonage IPO - Good News or Bad News?

By: Michael Urlocker

Michael Urlocker — Sat, 03 Jun 2006 01:39:24 +0000

Thanks, Jon, I would be pleased to learn more about Telio.

I will buy you a coffee if you run side-by-side Disruption Scorecards of Telio vs Vonage.

Coffee Donut if you post the results and tell how you interpret them!

By: Jon Arnold

Jon Arnold — Sat, 03 Jun 2006 00:56:58 +0000

Hi Michael - I left a comment about this directly on your post, and thought I’d close the loop by responding here as well. The scorecard is pretty neat, and I agree with your assessment. Check out my post from yesterday about Telio and their IPO. I’ll bet they’d score a lot higher!

By: Michael Urlocker

Michael Urlocker — Mon, 29 May 2006 20:52:02 +0000

John:

Do you think Vonage has some elements as a market disruptor that other businesses should emulate?

We tried to answer this question by looking at Vonage using a Disruption Scorecard, and it fell short, earning a ‘C’ grade. Why?

Vonage has some positive characteristics as a market disruptor (new business model with no legacy network, low prices, new features) but it fails by these measures:

Vonage is not creating a new market;
Vonage business model looks like high-growth now, worry about profits later;
Vonage service doesn’t stand on its own in terms of attributes

What do you think of these criteria or of the rating system?

Check out the complete Disruption Scorecard at http://www.OnDisruption.com

By: Paul Jardine

Paul Jardine — Sun, 28 May 2006 02:25:28 +0000

The IPO was certainly not a disaster from Vonage point of view, they raised $500 million for around 20% of their shares.
As has been mentioned, that gives them breathing space to get their business model creating some return on the $200/customer investment.
Personally I don’t think they will be able to do it, unless there are some significant changes in their strategy (but the fact that they were able to place at $17, will vindicate their strategy in the current management’s eyes, and the price will have to drop further before they get off their arses - and newly purchased playthings).
There are some positives though: They have 1.6 million subscribers and $500 million to spend on creating worthwhile services that will extract value from them.
It’s not going to happen on a pure VoIP play, that’s for sure.

By: Alex Osterwalder

Alex Osterwalder — Sat, 27 May 2006 18:20:59 +0000

I'm a bit puzzled. Hasn't anybody compared business models in this field? If they had, they would understand why Skype sold at such a high price and Vonage is creating so little enthusiasm.

Vonage is spending way too much on customer acquisition. Besides that they have to maintain a reasonably expensive telco-like infrastructure. Skype in contrast has virtually no telco-infrastructure and is a almost a pure software-play. They spent practically nothing on customer acquisition and are still growing like hell…

So the baseline is almost too easy to mention: Compare "income/custmer - fixed costs - cost/customer" at Vonage and then think of the same thing at Skype (even if the numbers are not public we can reverse engineer a cost estimate from their visible business model)… at Skype cost/customer is extremely low while at Vonage it is quite high.

IMHO Vonage is doomed from the start… It'll be a slow and steady death walk. Except… if they radically change their business model.

Cheers from Switzerland, Alex

By: Jon Arnold

Jon Arnold — Sat, 27 May 2006 01:55:48 +0000

Really appreciate the comments, everyone! I’ll try to respond in order…

Gerald - thanks for welcoming me! Not sure what you mean here. Sounds like you’re talking about them getting into pureplay VoIP offerings. Wouldn’t this be like CallVantage, VoiceWing, or even Lingo? I just don’t see where the ROI would be for them, esp if they go beyond their natural footprint. Regardless, I can’t see it - VoIP will never be a money maker, the acquisition costs are too high, and they can make a lot more money with wireless and/or video. For them, I think VoIP is mainly defensive strategy - it’s more about protecting their base than it is divide and conquer. At least for now! That said, there’s more motivation for MSOs to offer unbundled VoIP since they’re not cannibalizing any POTS. But that flavor of VoIP seems to be a secondary priority compared to things like VOD.

GB - thanks - we’re on the same page there. It’s fairly similar here in Canada. Our 2 largest MSOs - Rogers and Shaw are doing it the same way, but it’s not really being sold that aggressively. And none of them call it VoIP - Vonage seems to be the only one sticking with that language.

Mark - sure, that’s a big question - who did buy this? Gotta be real optimists and people who think this is their best shot at getting in on the VoIP gold rush - which looks more like a bum’s rush right now. For various reasons, I think a lot of us are scratching our heads over this one.

By: mark evans

mark evans — Fri, 26 May 2006 21:20:10 +0000

vonage dropped sharply on its second days of trading before staging a mini-rebound (two cents) today so it’s not like there was any enthusiastic bargain-hunting. to be honest, i think the combination of fierce competition, volatile pricing environment and vonage’s need to keep the marketing engine full steam ahead to attract customers and attack churn (>2%) does not give the company good prospects. what i want to really know is who bought into the IPO and why? some of them must be feeling pretty burnt unless they’re in it for the long-term.

mark

By: JB

JB — Fri, 26 May 2006 17:54:34 +0000

GB, I know Comcast has quickly rolled out their VOIP “Comcast Digital Voice” available to their broadband subscribers. However, they appear to be shying away from the term “VOIP”, instead pushing it as a simple alternative to typical phone service.

By: Gerald Buckley

Gerald Buckley — Fri, 26 May 2006 17:25:01 +0000

Jon -

Welcome to GigaOm. Is there any talk about the MSO or RBOC players getting into offense mode and doing VoIP plays of their own? Even if it's through wholly owned subs (or spinoffs or loosely affiliated JV's).

Would seem to me they'd want to hedge their positions with some significant plays in the space and I just don't know enough to know if they're already doing this… If so, they're not marketing very well.

Look forward to your take…