Telepocalypse

Vonage Isn't Paying Off

I told you so back in 2003.

Looks like the script is unfolding to plan, give it another 24 months for the economics to start to fall apart. It’ll start with a nice stock pop (because someone underwriter’s bonus depends on it), but I couldn’t think of a worse time to IPO. The cablecos in the US are entering the voice market and are happy to give it away to keep hold of (copyright monopoly protected) media content distribution.

And the “Everything2.0” entrants are lining up on the starting grid with a feature set no faux-telco can ever hope to rival. How can you boast about cheap call waiting when Google will bung you a free gigabyte of mail storage — and tell you when each buddy is online, and connect you for free over the same Net connection you’ve already paid for? I hope the “risks” section of the IPO filing contains something like “Google goes scorched earth, offers free Net-to-PSTN interconnect, captures effective market pricing power within 12 months, market opportunity recedes to zero. Google uses call records to create popular social search apps.” I suspect Google’s infrastructure also by now easily outstrips the entire legacy telcos in sophistication and capability. The other Net giants are also revving up the communications game after a few years lost to Skype.

Looks like I’m still #1 on Google for “Vonage business model”. For a while in the early days I was on the front page for just “Vonage”, so I’m not expecting any Christmas cards from them.

Hmm, looks like “gloating” qualifies for the first of the seven deadly sins, so I’d better shut up for another two years.

UPDATE: One to watch for. When companies say “our churn rate is X”, you need to ask yourself is that voluntary churn (people who quit), involuntary churn (folk who don’t pay their bills and get cut off), or both? As noted, the Vonage figures exclude those who return the product in the first 30 days. Also watch out for the “non-activations”, which are a useful pile of folk who buy the hardware and are too afraid to turn it on. (Hope you’re reading this Dad — the cell phone’s probably fully matured and ripe for using now.) They can be included or excluded to massage the figures a bit. And the cost per gross add is easy to fiddle, because you can so easily move costs between the generic marketing bucket and the customer-specific acquisition cost. Even revenue per user can be messed with, because if people won’t pay their bills there can be a big gap between billed and collected revenue. So basically don’t believe any headline numbers until you read the small print.