Why Vonage Mobile Is Too Little, Too Late

40 Comments

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.

40 Comments

Dan

I enjoyed the article but I think it’s a little biased in terms of the business aspects. The fact is Vonage has been improving its business fundamentals aside from not gaining many subscribers recently (though not losing many during a tough economic period). Ebay dumped Skype because it wasn’t a lucrative business so if you say one is a bad business, and the other is a great VoIP service, that is apples to oranges. If you compare a business to a business, I don’t think one is obviously better than the other. If you think Skype is the better deal for customers, that’s a fair argument. I think both offer interesting services but both are in a pretty tough business environment. Vonage’s business is not as bleak as you paint it though. They appear to be about to be profitable for the first time in their company’s history. They may not be making headlines like when VoIP was brand new, but it takes awhile for a business to become profitable. The fact that their stock was low means investors were panicking as much as anything else. Lots of businesses had to deal with that.

og

Can’t understand all these people complaining about the article. Vonage for Mobile is useless. I have Vonage at home, and have it only because of the international unlimited calls, otherwise I would only use my cell phone. If I have to pay-as-I-go with Vonage mobile, and not use my unlimited plan, it is LAME! 100% lame! I rather use my Google voice number, or any calling card that offers the exact same rate as Vonage (Yes I looked through their rates, 0.04 to Brazil is standard everywhere).

If Vonage would integrate my plan to my mobile, then it would be another story, for sure.

Gerald

I’ve been shopping around for cheap ways to call back home to the U.S. while in Japan, and Vonage Mobile wins hands down–all calls in Wi-Fi mode from abroad to the U.S. (with a U.S.-based Vonage Mobile account) are COMPLETELY FREE. This means as along as I’m at a hotspot I can call the States directly from my iPhone–no call backs, no AT&T roaming charges, not even any Vonage international charges. No mashing up of GV (which I have) and SIP providers (I have Gizmo and sipgate) and third-party apps for the iPhone does that. ‘Nuff said.

kumarr4

Om,

I was expecting a better analyzed article with less overt bias. For what its worth, I call cell phones in India almost every day and the connection is pretty good even in the remotest areas. No matter how much you try to force me to believe Vonage is useless, I am a satisfied customer. I like its unlimited call to India plan. I do not feel a need to switch and I just hope Vonage continues to offer this plan, unless Skype offers a cheaper plan which is as easier to use as Vonage.

Kumar

Alexander Straub

Not sure why you always go on about 450 m subscribers at Skype, they have 9 million making $6 / months ARPU, while Vonage got 2.6 million making them $26 / months arpu. So the whole skype hype is right when it comes to brand around the world. When it comes to tru infrastructure and technology skype is weak, if it comes to customer and ARPU skype is 3x Vonage but the arpu is also 1/5. So not sure, clearly customer acquisition cost on Vonage has been to high. The brand is a US / maybe small UK brand. However new challenger like ((truphone)) are up to speed to innovate. BEst in class infrastructure. Focus on Mobile, clearly they also need to win the customer, however in a world with 2bn mobile connection 2.6m or 9m are a drop in the ocean. The world is your Oyster OM, so you should rethink…
Alexander Straub – Straub Ventures – the brand of friendly capital – http://www.straubventures.com

edongp

Vonage is better than the rest hands down. With Vonage, you don’t even need a smart phone nor a wifi connection. You just install a VoIP switch such as DialMate CM1003 (see http://www.woodtel.com) on the Vonage line and you can immediately extend Vonage World (free calling to 60 countries) to your cell phone. Now that all wireless carriers have either free incoming calls or free calls to favorite numbers, all your cell phone calls (domestic or Vonage World)are unlimited at the wireless carrier’s minimum monthly plan. In addition, one Vonage World Plan can be shared with family, friends, associates, employees, including those people you call in those 60 countries. Who can beat that?

Derek Kerton

How odd that nobody, neither OM in the article or the commenters, noted how Vonage wroks on these cellphones. It is critical to understanding why AT&T/Apple approved this app, and how “VoIP” can work over laggy 3G data networks.

Vonage mobile:

– still uses your cellular phone voice calling plan and minutes to call. NOT VoIP!!

– Your phone calls a phone number which is a Vonage gateway. From there, the call is switched into Vonage’s IP network, and routed internationally. Your cellphone is NOT using VoIP over 3G.

– However, when in Wi-Fi coverage, the Vonage app does do VoIP over the WiFi

– the Vonage app does not over-ride the phone’s built-in services

Thus, the phone does not run afoul of either AT&T nor Apple. It reminds me of iSkoot, which does the same workaround for Skype.

Om Malik

Well today’s announcement makes it easy to use VoIP over 3G.

Secondly, the post is pretty clear in pointing out that the Voice calls are going over the cellular network. Perhaps you need it spelled out :-)

Derek Kerton

Om,

Overall, I like this site and Pro service a lot…and my comment was merely meant to clarify an important point that the article missed. That said, you’re dead wrong when you say,

“Secondly, the post is pretty clear in pointing out that the Voice calls are going over the cellular network.”

I may not be the cleverest guy on the site, but I did go back and re-read, and there is no mention of what you claim, “clear” or otherwise. Your other commenters obviously were mislead to think it was VoIP over cellular data networks. I imagine many other readers, too. Here is the relevant part of what you wrote:

“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. ”

…which suggests VoIP over cellular. That is a misleading bit of information, since it is NOT VoIP over that leg of the network.

Obviously, I don’t “need it spelled out”. I’m the very person who “spelled it out.”

Derek.

Om Malik

Derek

I think we are both splitting hairs. I take your point. I think (which is different than what you read) that it is clear from what I wrote that VOnage used the cellular network. Perhaps you are right maybe I should have spelled it out more clearly.

PS: I had no intention to dis-you. Farthest from it. Again, if you feel slighted, I apologize.

Mikee

Vonage currently uses AT&T cellular network to route the call to its network which then will convert to VOIP and everything will run the same as if you call from a Vonage land line or through the Vonage WiFi app. This is done to not upset AT&T.

But today news said that AT&T is OK with people using its data network now for VOIP calls and it will be just a matter for Vonage to make the changes to its app S/W to route the calls which are now in VOIP format to start with through AT&T data network to Vonage network.

Arguing how the calls get to Vonage network is like splitting hairs.

KT

For what it’s worth I am a satisfied Vonage customer and while sEveral of my friends have it too I have not met a single unsatisfied customer. Comparing with skype is probably an apples-oranges comparison. I am going to be saving a bunch on International calling to India, which no other phone company currently offers. Overall a little disappointed by this post – maybe Om, you are pulling a fast one on us!

gbp

Om,
hmm you missed the point.
there are about 10 million indian,chinese and mexican origin
folks here in the states. It s boon to them after spending a
fortune on calling cards and other cheap plans.
I am not sure if you checked vonage client on mobile prior to writing this article, I bet it
will be etter than Skype. I have an active paid skype account for more than a year.
The call quality on skype is a Joke.
Please check the Vonage client before you form an opinion.
BTW the stock has gone up four times for Vonage.
I will say Vonage’s best days are ahead.

Om Malik

GBP

Are you trying to say that all those 10 million people have an iPhone or a Blackberry? also, the call quality on Skype is perfectly fine and I have been using it for past few months. It is rock solid. And yes, I did download the Vonage for iPhone and used it and as you said, it is a nice calling card replacement. But that’s about all. With SKype, I have the Skype-to-Skype network advantage, which is essentially free calling to others with Skype (via iPhone) or computer-based calling.

Mikee

Om,

So you would rather use a clunky PC to make phone call than spending $175 to buy an iPod Touch to make call via WiFi, or sign up for 2 years with a mobile carrier for 2 years to get a smartphone for less than $100-150. I know that there are a lot of people who will buy a smartphone or an iPod once it is known that Vonage will save them hundred of dollar per month.

And beside, the only reason why Vonage requires a smartphone because behind that Vonage app is a SIP phone so that they can offer some more advanced features in the near future. But there is nothing that stops Vonage from making it work on a non smart phone by requiring the user to dial a toll free number before dialing the international number. Basically with a ‘dumb’ phone, Vonage can work like a calling card but much cheaper.

gbp

Om,
I am not saying all of the 10 millions have iPhones or BBs.
Pick a numbers say half million of those 10 million have Iphone or BB.
These half million folks can call their friends and family in China, India and Mexico on their land lines or mobile lines ( not skype lines)

Besides Skype doesn’t have Brazil,India on their international plan. Russia and Mexico have limited options on Skype.

Also Skype requires WiFi access where Vonage can use both Wifi and cellular data connection.

I am a paid Skype customer , and I upgrade their mobile client diligently for my phone. While they improved leaps and bounds over the year or so, the call quality is no where near Vonage.

Just to give you an example , I use Vonage to call folks roaming in remote Indian middle of nowhere place on their cell phones (NOT A SKYPE to SKYPE call not a computer call) and the call goes thru.

With skype hmm , I have to adjust the ECHO first on my mobile phone then venture in to a mini project of getting connected first , forget about the conversation.

Seriously , watch out for Vonage’s next earnings call , you will know why.

Priya

This is totally biased article. I didnt expect such kind of article from Om Malik..Vonage is doing much better than what he wrote about it. Most of the article is written with negative tone. Om, Please wake up and read about Skype and Vonage before you compare. Dont compare apples to oranges.

Mikee

Om,

You are completely wrong on several accounts with regard to Vonage mobile application in itself and in comparison to Google Voice. First of all, Vonage recently offered a very attractive international calling plan – $25 ($20 if prepaid) per month for unlimited calling to 73 countries. Now Vonage is extending that international calling plan to the cell phone. Not only Vonage current international calling rate is lower than Skype – and it will be much lower in a couple of weeks when Vonage will allow people with the $24.99 land line phone plan to make unlimited international calls on their cell phone, it is much convenient to use without having to resort to a PC and the call quality is equivalent to a land line. Have you used Skype at all? Can you talk on Skype more than 1/2 hour without getting disconnected and you have to call back again? And Skype call quality left a lot to be desired because it is based on P2P tech and you cannot warranty its quality of service. On the other hand, Vonage has invested a lot of money on its network infrastructure and its call quality can be compared to the quality of an old analog line.

You are further wrong when you compare Vonage mobile to the features offered by Google Voice. Because there is almost nothing that google voice can offer and Vonage does not have. Currently Vonage Companion who works on a PC has the ability of ringing multiple phones at the same time. Vonage already has an iPhone app a long time ago to dial from a phone list on the PC and your iPhone will dial that number.

http://www.apple.com/downloads/dashboard/email_messaging/vonagedashboarddialer.html

In the near future, there are many more features that will be offered by Vonage Mobile that Google Voice does not have. To know what they are, please check the existing Vonage Companion Pro offering or the Counterpath softphone which is the softphone behing Vonage mobile app.

And if you want to compare pricing, Vonage mobile rate is much lower than Google Voice.

Really, I don’t see any advantages of using Skype or Google Voice.

Sage

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?

mckd87

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.

Van Broeckhoven Barry

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

JZ

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.

Alex

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…..

Josh

@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

Josh

@ 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

Om Malik

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.

Mikee

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.

SD

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.

Om Malik

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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