Friday, February 17, 2006

ChangeWave's Residential VoIP Research - Part 2

I recently posted some highlights from this study, and promised to return with Part 2. So, here we go...


- Satisfaction with VoIP provider - the million dollar question, esp in light of Vonage's IPO intentions, and all the resultant scrutiny that has focused on their churn stats. The good news is that subscribers are generally pretty happy - 81% are "somewhat" or "very" satisfied. Furthermore, this level has steadily increased since they started tracking this in late 2003.

Vonage will be pleased with this research, as the data shows their satisfaction level is right up there with cablecos - and - this finding has held steady since the mid-year data from June. In other words, there is no visible slippage in satisfaction ratings among Vonage users over the last 6 months.

Packet 8 will also be pleased with the results. They are the only other VoIP pureplay aside from Vonage to generate enough data to be broken out in the stats. Back in June 2005, only 24% of 8x8 users were "very" satisfied. Well, the current data shows a doubling to 48%, which is a pretty healthy improvement. Clearly, 8x8 must be doing something right recently, and they're showing to be a competitive offering, at least in the eyes of their subscribers.

Note - for all of the above highlights, the sample was 467, which I view as being sufficient for the validity of these high level findings.

- How VoIP is used in the home. Another million dollar question. The sample here is a bit smaller - 381 - and was not enough to break out by each provider, which is too bad. However, the overall findings support what I have long suspected - only a minority use VoIP as a primary line replacement service. 34% use it this way, and another 10% say it's their only home phone service. Conversely, 36% rely primarily on POTS, and use VoIP a secondary service, and another 15% rely primarily on cell phones for home phone service.

Granted, what people say and what they do can be very different, but still, most people don't seem ready yet to put their full faith in VoIP, which isn't what the pureplays want to hear.

- What's most important in a VoIP service? I thought you'd never ask. I'm still convinced VoIP is a price game, but surprisingly, call quality was rated tops overall. However, the next 3 most important factors were related to price - "lower price", "flat rate pricing", and "lower int'l calling rates". This still says to me that price rules for VoIP.

The remaining factors rated much lower in priority, and it's real interesting to see how relatively unimportant "value added services" are, and that "videophone" barely registered a blip. Same story for LNP - porting your existing number over to a VoIP service isn't that important - at least compared to price, and call quality.

- Which VoIP service you plan to use. Well, could there a be a more important litmus test question to see who's going to win this race? This question was answered by 397 people who plan to deploy VoIP in the next 12 months. The big winner? Nobody knows! 40% said they don't know. Translation - the field is wide open, folks.

Vonage can take small comfort in being #1 among those who do know - 16%, followed by 13% for the cablecos. So, at least they've got mindshare, and still look to be competitive with cable.

Let's do some quick math. This sub-group represents 19% of the overall sample in this survey. If we project that to the general population, and for simplicity, let's say there are 100 million lines out there in the US. It's actually closer to 90 million, but let's keep it simple. Let's also say that 50% have broadband - not unreasonable, and round 19% up to 20%. This gives us - in ballpark terms - 10 million lines that plan to take VoIP in 2006. Well, if only 16% go with Vonage, that's 1.6 million new customers for them - which would roughly double what they have today.

Keep in mind, we're not factoring in how many of those 40% who don't know will end up with Vonage. That aside, it's not inconceivable for Vonage to double its numbers in 2006. I suspect they will fall short for a variety of reasons, but if they get to 3 million, will that be enough to keep them in the game? And at what cost in terms of marketing spend?

I invite your comments on this hypothetical scenario. Based on all this research from Changewave - for which I'm grateful to have access to - I'd say Vonage will be hard pressed to hit 3 million US subs by end of year. I don't know what their IPO plans are forecasting, but 3 million would put them close to $1 billion in revenues. I'm sure shareholders will be more interested in lower customer acquisition costs than the gross subscriber totals, and I'd say hitting 3 million is only meaningful if they can somehow start creating some economies of scale. Otherwise, if they raise the proposed $250 million, I can't see it carrying them for more than another year.

I didn't intend this posting to be about Vonage, but it's turning out that way, so I'd better stop now. Any takers?

1 comment:

ipcom said...

Posted by: Rob Hyndman

I'll guess that LNP isn't that important yet because line replacement isn't that important yet, and I'll guess that that is the case because users are still in wait and see mode on reliability, particularly for third party providers whose service could find itself on the wrong end of interference from the bandwidth provider.

At least, that's how I feel about my Vonage :)

Oh, and lately, they have been having more problems, in my experience, with call quality. It varies, but on too many occasions lately I've had to put down the Vonage and pick up the Bell to make an important call ... wish it weren't so, but I've been wondering what's going on ...