Wednesday, May 31, 2006

Vonage - The Saga Continues

I mentioned it would be a light blogging week, and I just wanted to share a couple of Vonage posts that continue show how hard a road they have to make a go of things.

First, Andy Abramson - and others - have picked up on today's New York Times article about how things seem to be going from bad to worse. Unless you're a NYT subscriber, this link won't get you to the article, but the story has been widely covered in the blogs.

The basic idea is that Vonage is getting into hot water with its share purchase program for existing subscribers. With the stock down some 25% from issue date, Vonage is offering to make up the difference to brokers whose clients balk at paying $17 when it's trading way lower and no end in sight. It's a really messy situation on many levels, and the bottom line is that it's not good business to think of customers as shareholders. If/when things go bad, this is a disastrous recipe for giving customers a really good reason to leave. In essence, this puts Vonage on the ropes, and if the competition wants to do the rope-a-dope, they'll keep slugging away with price cuts, making it an even easier choice for borderline subscribers to leave. I really want to see Vonage succeed, but this share purchase program seems to be backfiring, and adding fuel to the fire. And we're not even talking about the potential legal and SEC implications. There are so many ways this can go wrong, and it's starting to look like these problems will keep compounding. Not good.

The fun part of the NYT article is the end - which is what Andy's post fixes on - that Vonage is looking more and more like an acquisition target. It's a provocative comment, but certainly not out of line based on how things are unfolding. I said something to similar effect on my guest post that ran on Om Malik's blog last week.

The second item come from a post Mark Evans ran last week. He did some nice digging through Vonage's S1 filing, and concludes that Vonage Canada has only about 52,000 subscribers. It's always been a closely guarded number, and if correct, confirms what most people suspect - for all their marketing efforts, Vonage Canada hasn't grabbed much market share. Andy wisely picked up on this post a few days back, and I'm glad he's helping get the word out. Thanks for paying attention to Canada, eh!

So, this isn't newsworthy, but I wanted to bring into the mix here as another example of the challenges Vonage faces in building a sustainable business.

And now for the teaser... I have another motive here. Tomorrow I'll be posting about another Vonage-like operator who's just going IPO. It's a great story, esp in the wake of how Vonage's IPO went. There's more than one way to do a VoIP IPO, and this is one that's going to work. Hang in there...

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ipcom said...

Posted by: Jeremy Maddock

Wow, 50,000 subscribers in Canada. That really is low.

As I noted last week, Vonage seems to be God's gift to the internet advertising industry, but they aren't doing themselves much good with this super-aggressive marketing strategy.

ipcom said...

Posted by: Jon Arnold

Thanks Jeremy. It's all relative, right. It's small in absolute terms, for sure. With close to 2 million total subs, and Canada being 10% of the US, you'd think Vonage would have hit 6 figures up here by now. I've commented on this before, but Canada is different and we're a good year behind on the adoption curve. So, it's not really fair to compare their performance in the US to Canada. But clearly, they're not the big time market player here for VoIP like they are in the US - despite all the ads you see on TV.

ipcom said...

Posted by: Moshe Maeir

Vonage is definitely on the road to a buyout. Just look at the numbers - you can currently buy their customer base for approx. $130 a customer - that is cheap!
They have a pretty good gross profit margin once you take away the insane amount they are spending on advertising. If I had the money I would buy them :-)

ipcom said...

Posted by: Mike

Vonage Canada - I am officially hanging up on Vonage Canada. I am not sure why the quality and quantity of dropped calls, dead lines, daily resets but quit frankly, I do not care anymore.

I have Bell Sympatico high speed, wireless connections as well. Added the Vonage phone six maonths ago and its has been so unreliable.

Not sure if it is a Bell conspiracy clogging up the lines? Don't care anymore.

Trying Rogers phone now.

ipcom said...

Posted by: Aaron

I was looking for a cheap phone service when we moved into are new place. I had heard alot about vonage and there VOIP service. So, I called and register. I got some lady that I could barely understand, and I doube she was from anywhere in North America. I set up my account and she said that I should have my router in 2 weeks. The router came in and I opened the box and the phone wasn't even registered for the right town. I live in Edson, Alberta, Canada. The phone was registered for Edfon, Alberta. Now I haven't lived in Alberta for long, but I have never seen a town called Edfon. Also, the number that I requested I wanted to have start with 723, 725, 728, or 712, because these are local extentions. The number stated with 628, which is for Sherwood Park, Ab, which is 2.5 hrs away from here. So when i seen that I called Vonage and the told me that they DO NOT offer service in the Edson region. So, I told the gentlemen on the phone to cancel the service and all he said was to send back the router and the account would be disconnected.

A couple of month had passed and I was looking at my Visa statement because they had just started coming to the new address and I noticed charges from Vonage on there. So, I called and asked them why I was still getting charged for the service and they said because I had not cancelled the account. I told them that I had and I would like to be refunded for the money that they charge my visa. They told me that I could cancel the account but they would charge me an additional $210, plus the money that they had already taken from me. I told them that it wasn't my fault that some one on there end could not enter in the proper information on there end, and that I wasn't going to be charged for it and that I wanted a refund. He said that I would have to talk to a supervisor for it and then I was put back on hold. The supervisor I was waiting 45 min on hold for never showed up and they never called back, even thou they ask for a phone number to call you back on if you happen to get disconnected from you.

I have phone records showing that I called twice on Oct 26, because I got disconnected 1, and the again on Nov. 4 (well with in the 30 day money back guarente) and that I was on the phone with them for 86 min.

I would never ever recommend anyone to get this service just for the simple fact that if you ever have a problem Vonage seems to completely wash there hands of it and try to make it seem like it's your fault.