Tuesday, March 13, 2007

Vonage - Giving Voice Away - What Next?

Nice post from new-kid-on-the-block Moshe Maeir about Vonage this morning.

Late yesterday, they issued a press release about their new LD rates. They're scary cheap - like 1 cent/minute to landlines in Israel and Mexico. Pretty hard to believe, especially as Moshe points out (and he should know) that wholesale rates to Israel are 1.1-1.2 cents/minute. On the other hand, he notes that calls to wireless numbers are more expensive, and Vonage would still make healthy margins there. Since Israelis seem to live on their cell phones, maybe there's some logic to this plan.

But maybe not. Hot off the heels of the Verizon litigation, this sure looks like a move of desperation. They recently moved to an annual price plan as well - which is in line with the likes of SunRocket, who have been doing pretty well with that tactic.

Clearly, pricing plans for residential VoIP are a moving target, and nobody is going to make money charging 1 cent/minute. It may be aggressive pricing - even cheaper than Skype - but is it smart pricing? Who are they going after with this? They're not in the LD business, and it's really a loss leader to keep subscribers from going elsewhere. And unlike the wireless world, there are no contracts here, so you really have to work hard to keep your subscribers. Prices can only get cheaper in this market, and with the Verizon tax in the picture now, margins can only get thinner.

This is not a business I'd want to be in.

As per Andy's post yesterday, I'd agree that their time and money is better spent on wireless alternatives, but that window has got to be getting pretty small now, and may even be closed.

Meanwhile, the VON in Vonage - Mr. Pulver - wasn't losing any sleep over this, having a ball at last night's Rock & Roll Hall Induction Ceremonies. Gosh, what a lucky guy - check out his pix to see what the rest of us missed.

Technorati tags: , , ,


ipcom said...

Posted by: Andrew

They still have set up charges and a monthly minimum, lowering prices on small margin calls to practically cost won't affect them much at all, if anything it will add a few new customers paying 20+ dollars a month to which they never had before.

They are still bleeding money like crazy, so any way to get more monthly customers cheaply has to make sense to Vonage.

ipcom said...

Posted by: Markus Goebel

Cheap or free calls are still the killer app of VoIP. The German company Voipstunt has an even more competitive pricing: 30 important countries for free for about 3 dollars a month. As a users I love it. The VoIP blogs are often too company centered. Read my comment here:


ipcom said...

Posted by: Jon Arnold

Hi Markus - thanks for your comment, and I actually remembered your comment on Luca's post. I agree with your thinking, but as with Luca - only to a point. Cheap long distance is one thing, and for that, there are tons of great deals and plans out there. That's not the business Vonage is in, though. Landline replacement is a whole other thing, and frankly that's where the money is - IF - and IF - you can layer value-added IP-based apps on top. Voice is the sticky app that gets you in the door - but you need the nextgen apps for the payoff. Am not sure Vonage can deliver this, and if they can't, no doubt, someone else will. Look closer to your own back yard at Telio in Norway. I've written about them before, and I think they're closer to what I'm talking about here. Thanks for following me!

ipcom said...

Posted by: Vic

Wow, what is Vonage doing? It's established itself as one of the leading VoIP companies, but now it looks like a "going out of business sale." I read Moshe's blog and he gives an update on the pricing. Sounds even worse now with the "calling card" scheme. I just hope that they start focusing more on their portable IP phones because I don't think anyone was complaining about their pricing to begin with.


T1 Buyers Guide allows you to compare for free t1 service providers in your area.

ipcom said...

Posted by: Anonymous

Following a law suit from Verizon last year, Vonage was found guilty of infringement with regards to Verizon patents, and is now liable to pay $58 million. The case was about the way in which Vonage connects its VoIP network to the PSTN, and also about its call forwarding and voicemail techniques.
What's worse for Vonage is that Verizon has also requested the jury that Vonage be denied the right to allow its users to connect to the PSTN. If this request is accepted, Vonage users will be able to make calls only to other Vonage users! That would drag Vonage from the best to one of the worst VoIP providers! The verdict will fall on March 23rd. Let's hope something that drastic