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Summary:

Vonage today announced a line of apps for the iPhone, iPod touch and BlackBerry. Once a pioneer of VoIP, the company has fallen out of favor over the past few years and the release of its apps, collectively dubbed Vonage Mobile, is being viewed as a chance for Vonage to regain its luster. Unfortunately, it’s too little, too late.

vonageiphoneVonage, a Holmdel, N.J.-based VoIP services provider, today unveiled a line of apps for the iPhone, iPod touch and BlackBerry. Once a pioneer of VoIP, the company has fallen out of favor over the past few years in the face of competition from cable companies and their voice offerings. The release of its apps, collectively dubbed Vonage Mobile, is being viewed as a chance for Vonage to regain its luster. Unfortunately, it’s too little, too late.

A lot of the focus this morning has been on Vonage Mobile’s ability to use AT&T’s cellular network to make phone calls when out of range of Wi-Fi. The New York Times and the Associated Press have pointed out that Apple approved Vonage while it has put the Google Voice app on the back burner.

That’s likely because the Vonage line of apps doesn’t take over the iPhone user experience by trying to replace the voice mail functionality the way Google Voice does. (I haven’t seen the Google Voice for iPhone app, but on Android it completely takes over the calling experience, as I pointed out in my post, Meet Google, Your Phone Company.) Regardless, this focus on Google Voice is short-sighted. The bigger issue is that Vonage face a steep uphill climb in the mobile world. For rather than adjusting its business to include the mobile market at the same time as the rest of the world, it just sat there, married to its old, fixed-broadband calling model. Meanwhile, upstarts such as Truphone and Nimbuzz were founded for the express purpose of tapping into such an opportunity.

“Our new mobile app is an important step in establishing Vonage as a software technology company that enables high-quality voice and messaging across any device in any location, providing great value over any broadband network,” said Marc Lefar, CEO of Vonage, in a press release. Despite Lefar’s brave words, however, Vonage is far from being a software technology company.

Rather it’s nothing more than a seller of cheap minutes, no different than a supplier of calling cards to the local bodega. It received a delisting notice in October 2008 after its shares fell to under a $1 each (they’ve since climbed back above that threshold). In its latest fiscal period, it reported $334 million in assets and $442 million in liabilities and net income of $1 million. It’s losing subscribers by the month — 89,000 lines in the most recent quarter.

When I see Vonage, I see the telecom equivalent of a talented minor league baseball prospect with a drinking problem. Or a quarterback with a bum knee, trying to see if he can win that one last game. Unfortunately, that stuff happens only in the movies, and as we all know, life isn’t a movie.

And while Vonage claims its service saves customers more than 50 percent on calls to some dozen countries vs. rates charged by phone carriers, Skype and others offer better deals. Vonage will have a hard time getting any traction, especially against the Skype juggernaut. Even on the BlackBerry platform, it will face a significant challenge from Google Voice, which I still think is the best non-carrier calling option.

Last month, when I was talking to Josh Silverman, CEO of Skype, he told me that more than 4 million copies of Skype had been downloaded on the iPhone and iPod touch devices, making Skype one of the most popular apps in the iPhone store. And like me, many of those 4 million people have already established a billing relationship with Skype by buying cheap minutes to make phone calls overseas. It’s too much work for me to switch to Vonage at this point.

I was burned by the bad quality on Vonage about two years ago and haven’t bothered with the service since. I’ve heard of many others that have had a similar experience. In comparison, Skype is a better-known brand. With 480 million subscribers, Skype has a much bigger pond in which to fish for mobile customers. Unless Skype’s co-founders kill their own creation, Vonage is climbing a glass wall to nowhere.

  1. Interesting article, but I am perplexed why Om considers Google Voice “the best non carrier calling option”.

    GV is not VoIP – you still need a real phone (landline, VoIP, cellular) to make use of the service.

    I’ve been a Vonage subscriber for 5 years and it still is more cost effective than TWC or Comcast offerings, especially for International calling (which is what I need) – even moreso now with the unlimited international calling plan for the same $24.95.

    I am disappointed the iPhone app doesn’t let me make local/long distance calls and does not yet leverage my existing plan for unlimited international calling tho I hear that will come by the end of the year.

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    1. Just to be clear, I didn’t say Google Voice was VoIP, I just think it is the best long distance calling option and you can get nice rates for overseas calls.

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      1. Oh Om,

        Why don’t you go to:

        http://www.vonagemobile.com/

        and compare the Vonage mobile rate with Google Voice international rate

        http://www.google.com/support/voice/bin/answer.py?hl=en&answer=141925 .

        While you are at it, can you verify Skype rate as well which you have to call clumsily from a PC.

        Interestingly, Google themselves said that they are a call management company and not a phone company itself. You better check around some more, Om.

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  2. @ OM,

    I’ve always considered Skype to be the only VoIP client that was truly usable, but as a tech aficionado I’ve been using skype forever. Most of us thought Vonage was dead during the patent dispute debacle, but they’ve proven that their installed user base is not going away. In my experience Vonage users tend to be families who are either not using a computer for VoIP or are embedded the way you and I are with Skype. It’s not too little too late for their installed user base as there will be some utility to this mobile application, but I don’t see this new offering as generating new revenue streams.

    -Josh

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    1. Josh

      using your logic, if there are households which are less likely to own a computer, then using that logic it is quite possible that they are not owners of iPhones and Blackberry’s either.

      I find it hard to believe that there are folks who have broadband who don’t have a PC. Why else would they have internet access.

      Skype is way way more pervasive than people really think.

      Let’s see how it all shakes out.

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      1. Om,

        It is not a matter of owning a computer or not owning a computer. I can count about 8 computers in my household including desktop, laptops and several netbooks. But I will use a cell phone to make phone calls any day because I can call while in the backyard, basement, on the couch watching TV, while I am driving, etc. And I will buy a smarphone for $150 if I have to do so to use Vonage mobile. And we are talking about millions of people like me.

        And if there are still a few thousand of people like you who still insist to make phone call from a PC then Vonage did offer a PC call option called V-Talk and later on Vonage Pro Companion.

        Please Om, do more homework tomorrow by visiting the Vonage and Vonagemobile web site. I don’t see a single positive statement from your article. Obviously you are writing based on your biased opinion rather than based on checking out the facts.

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  3. @OM,

    Skype has always been my preferred VoIP client, but there’s no denying that Vonage has quite the installed user base. I think that most of us thought Vonage was a goner when the Patent dispute went down, but they’ve shown a lot of resilience.

    In my experience, Vonage customers tend to be users who like the feel of a real phone (see comment above) but want the pricing structure of VoIP.

    I doubt AT&T will allow calls to be made over their network unless Vonage is subsidizing the cost (a position they’re unlikely to take).

    Vonage needs to have a mobile application to establish a presence, but it’s a long ways from where it needs to be. Whether that’s a software or a network limitation remains to be established.

    -Josh

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  4. I’ve been a Vonage customer for 6 years. The voice quality has continued to improve year after year. I also am a Skype customer for several years. Comparing these companies to be similar is really only 50% accurate.

    In the 6 years I’ve had Vonage I’ve probably used the phone 50 to 75 total times. The only reason I kept the line is for 911. Having two young children there is no alternative.
    I use Skype every day for business and find it ok to good….

    Bottom line is Vonage dropped the ball big time not going after small businesses. As a matter of fact I approached Vonage over three years ago to offer a hosted call center offering that would drive them millions of additional minutes per day since this is what they craved (minute traffic) and of course I got nowhere with them…

    I personally don’t think its to late, but, the only future Vonage has is to acquire some value added telephony applications and sell back into their customer base with a focus on the business user. For example, create a virtual pbx, support fax, conference calling, embed softphone into salesforce, zoho…..

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  5. Van Broeckhoven Barry Monday, October 5, 2009

    I can only say one thing about this article ‘ Ignorance at his best ‘

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    1. I can say one thing about this comment: not clear what the commenter is actually trying to say!

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      1. It is quite clear what the commenter is saying…that you did a very biased analysis of Vonage’s competitive position. You certainly haven’t done enough research and your article could have been written without even Vonage’s new product releases today. Not a single point you mention has any credible analysis. Do yourself and others a favor by reviewing and rewriting after thorough market research.

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  6. I have used both Skype and Vonage, Om, I wish you had tried both Vonage and Skype before writing this. These days Vonage quality is far better than Skype. Vonage gives you features like “transcribed voicemails as SMS / email”, unlimited international calling, call forwarding etc. Skype is no where close to Vonage. You should have compared Vonage with Comcast / Timewarner’s phone service. Skype is good for kids doing video chat. As an serious land line substitute, Vonage is the service you should be using.

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  7. Skype is just hype and is about to be shut down for good.
    Visit http://www.skypeishype.com and learn the truth

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  8. Certainly Vonage has a big job on it’s hands, but in fairness the service is pretty good.

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  9. Vonage’s problem is that it tried to be a traditional phone company rather than a VoIP company. Now it has stopped. Here’s the explanation:
    http://bit.ly/4ulds8

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  10. so, i liked your total bashjob on Vonage.

    but, how can you be fair when you personally claim that you left vonage due to ‘bad quality’ two years ago–if you can’t be bothered to checkout the improvements in sound quality and service quality–why bother to kick vonage in the knees?

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