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Summary:

After being announced with the usual positive-thinking press coverage in 2005, Vonage’s plan to sell Voice over IP services to small businesses seems to have been left to die slowly on the vine. Whether it’s a casualty of strategy or lack of infrastructure is unclear, but […]

After being announced with the usual positive-thinking press coverage in 2005, Vonage’s plan to sell Voice over IP services to small businesses seems to have been left to die slowly on the vine.

Whether it’s a casualty of strategy or lack of infrastructure is unclear, but what is apparent is the total absence of any mention of SMB subscriber numbers in the company’s latest fiscal report, for Q4 and year-end 2006.

While Vonage still does offer a Small Business Premium service, it looks like something more for single-person offices or telecommuters rather than a true SMB offering. A Vonage spokesperson said the company does not break out business customer numbers and that the company’s focus is on consumers, clearly a strategic decision. But it’s one you have to wonder about when Vonage’s competitors, especially cable companies and the telcos, seem to be targeting SMB aggressively, rather than retreating from the market.

Jeff Thompson, CEO of startup WiMAX provider Towerstream, said his company can still connect customers with Vonage VoIP, but the once-a-big-deal relationship isn’t much more than an old press release at this point. “They [Vonage] have kind of changed the way they price their business plan,” said Thompson, who said his company will help customers find any VoIP provider they like, including offerings from Speakeasy (whose Seattle wireless infrastructure Towerstream just purchased) or Bandwidth.com.

Since the VoIP market for SMB is still in its infancy due to a number of factors — resistance to change, lots of unproven providers with short track records — Thompson guessed that just because of its brand name and early moves, Vonage might still be the actual numbers leader in VoIP for SMB.

But with players like Digium, Covad, Fonality and all the big telcos and cablecos readying their wares, it likely won’t be long before someone else moves into the lead of what promises to be a high ARPU market. We are just left to wonder why Vonage decided to leave that meal on the table.

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  1. Paul – nice piece. I am actually working on something similar as we speak.

    Anyways, the reason Vonage “dropped-out” of the SMB market has to do with three particular factors:

    1) Timing
    2) Technical Support
    3) Focus

    1)In 2005, when Vonage had a true SMB offering, they were “early” to the party. In 2005, VoIP was still a bit of a mystery to the SMB, especially the ones that Vonage was targeting (25 seats and under). Without a solid reseller channel (integrators, phone VAR’s, etc.)that had a good handle on the technology, it was pretty tough for them to grow.

    2) There is more liability and technical support required for the SMB customer than the residential customer. Mission critical communications requires different types of support personnel. Chances are, being a large residential provider, they were not staffed to handle the type of inquiries and issues that happened.

    3) It is tough to be all things to all people all at once. It is tough to win “two drag races” at the same time. Vonage picked the path of leastr resistance at the time (residential) and drag raced to the lead (however temporary that will be). They could not due both, so they dropped the service that required higher levels of support, accountability, and service in hopes of winning one race.

    Now, more than ever, I think Vonage is in a great position to make a move into the business space. They already have a brand name, distribution channels, and deals with equipment manufacturers. They would need to staff accordingly, and build in-roads into local var’s/integrators, but with their brand name, marketing prowless, and willingness to spend, that wouldn’t be too hard. Question is whether they launch a hosted or SIP trunking type service…

  2. Howard Freidman Monday, February 19, 2007

    I’d agree with everything Garret wrote except the conclusion. At its core, Vonage is an arbitrage play, as was the traditional long distance voice market. They’ve packaged up minutes and marketed aggressively on price. Like LD providers way back when, they don’t have the hell of having to deal with the last mile which allowed explosive growth in a market in which consumers had no choice. Vonage is a superb consumer marketing machine. As Garret points out in 2) above, SMB is a different animal. Extremely different. I don’t think you can emphasize this enough.

    Just about every big telco has had a VoIP offering which has either been abandoned or, like Vonages SMB offering, left to wither. These are firms that have excellent infrastructure and strong operational processes, with no shortage of resources. Yet they’ve struggled in this space, and usually with a larger customer that allows greater resources to be profitably applied to sales, delivery and support. Why? Speaking for a hosted product like ours, I’d say it’s a matter of focus that starts with a product that isn’t just an Enterprise system deployed to fewer seats and extends all the way through to support. Including, of course, sales. It’s not like there are any raging national success stories in the space amongst traditional telcos – or channels. The under 25 seat market has been extraordinarily fragmented for a reason.

    I agree with Paul’s assertion that the market can be a tasty meal. It’s a market Aptela is enjoying excellent success in – we’ve sold VoIP to thousands of SMBs. At least for us, its required laser focus on a product with a delicate combination of functionality and simplicity and a sales model and infrastructure designed to deliver business grade service and support, all while managing costs relentlessly so that we can deliver the value that market demands.

  3. Howard Freidman Monday, February 19, 2007

    Oops. Post above links to Aptela. Here’s my (new) blog.

  4. Howard – Excellent points. How true it is that you first have to have the right product and then the ability to execute a sales and marketing plan surrounding that product.

    I am still confident though, that Vonage, or any other service provider of their size, could at any time get the SMB product right, and be very successful with it.

  5. More than just missing out on the SMB space, Vonage is not offering their customers the services a IP platform can support. Cheap dial tone will not ( did not…) take them far.

  6. Realtime Community | Unified Communications Tuesday, February 20, 2007

    Vonage Still Alive. Are they still floundering…

    Vonage has never struck me as survivable or anything beyond an alternate dialtone channel. I’ve never been a subscriber or a fan. CNet news had this the other day, as Vonage tries to convince themselves and everyone else that they’re doing just fine…

  7. Why Vonage Has Abandoned The SMB… | Smith On VoIP – Garrett Smith’s Insights on VoIP Products and Services Thursday, March 22, 2007

    [...] Kapustka has an excellent post about the missing offerings for the SMB from Vonage. I have been working on a piece about Vonage [...]

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