Vonage - Today's Funding Raises the Stakes

I don't usually get news this fresh, but Vonage has just raised another $200 million, which sends a clear signal they are in the deep end of the VoIP pool now.

One has to wonder where this all leads to, but it's pretty clear that an IPO is not in the cards for Vonage any time soon. This funding will go a long way to keeping them in the game as the stakes are getting much higher now. With this kind of money, they can keep spending to acquire subscribers, but it's hard to see how their cost per subscriber will ever get low enough to make them profitable.

That said, they really need to go for broke, or go home. In the US, they have emerged as the undisputed leader in terms of subscribers among the pure plays. CallVantage barely cracked 50,000, and Lingo isn't much further ahead of that. And among the virtual operators like 8x8, Voicelgo, Voicepulse, etc., I doubt the sum total of all their subs would be much more than a few months of growth for Vonage.

At this stage of the game, I'd say Vonage is the great white hope among VoIP pure plays, but they'll be hard pressed to maintain the 50% market share they have achieved until now. Realistically, the US consumer VoIP market is about Vonage and the telco and cableco majors. AOL has a large enough subscriber base to be a force, but I think it's late in the game for them, and they're really into VoIP to retain their existing - albeit diminishing - customer base, rather than ramp up with new customers.

Aside from this news, Vonage also had good news this week in terms of Verizon and getting access to their networks for 911. In light of their recent 911 problems, this is a good sign for all the pure plays, but esp for Vonage now that they have a new war chest to play with.

At minimum, today's news buys Vonage time - at least 6 months, I'd say, to stake out their space in VoIP amidst the inevitable onslaught of bundle-mania that will hit the market from the MSOs and RBOCs. This funding certainly pre-empts them being taken out of the market any time soon, so now it's all about keeping up with Tier 1s, and finding a way to battle the bundle.

I like their move with UT Starcomm, and I'd say, the sooner the better to make it interesting for the competition. Another thought - use some of that money to acquire really good apps developers who can create exciting offerings that take advantage of VoIP and mobility.