Video | Business Headlines | Internet | Science | Scientific Ethics | Technology | Search


Vonage - An Anachronism or an Antecedent?

Vonage - An Anachronism or an Antecedent?
Stephen M. Dye, Consulting Analyst
Download this TDG Opinion as a PDF

April 12, 2007

Hats off to Vonage. It didn't just jump on the VoIP bandwagon; it created it, and for that the company deserves a bit of respect. With over two million active subscribers attracted to its aggressive pricing and unique services, Vonage generated enough buzz to make "Vonage" and "VoIP" household names. But after a failed IPO and a damning patent lawsuit, even its funny commercials and catchy slogans won't be enough to save the company.

Vonage is Dead. Long Live the VON Age

In creating the VON (Voice over Net) age, the Vonage has also creating the very noose being used to slowly strangle the company itself. Vonage, like ClearWire, are what I call "Island Services." ClearWire exists on a Wireless ISP island, while Vonage lives on a VOIP telephony Island. To consumers, both companies are offering us just what we need: access to the Internet in areas where broadband either does not exist, or does so at a higher price.

The problem though, is despite getting what we need, we want more. We want at least three services from a single provider, and at significant discounts on one monthly bill. Yes, we want TV, Internet and voice, all for less. As well, we might also want mobile phone service (creating a quadruple service) and at an even larger discount.
The Market is Always Right, Kind Of

The U.S. marketplace is cruel, reluctant to show mercy and always right in what it says and does. A big company brand such as Ford or Chevrolet doesn't count for much these days, as the will of the majority (of buyers) continues to favor less expensive goods and services from innovative competitors. Whether its automobiles, holiday decorations, or the LCD monitor you are reading this article on, the voice of the American consumer rings loud and clear - we want more for less, and we're always right (even when we're wrong).

So, with the advent of broadband and soft switches, it seems only right that the market should yield an entrepreneur who puts it all together to create a virtual phone network that captures the hearts and purse strings of the savvy consumer and, at the same time, raises the ire of incumbents.

It appeared that the U.S. market determined that though Vonage was a bit of novelty when compared to traditional phone services (both in terms of its technology, its business model, and its pricing models). It leveraged your existing broadband connection to make phone calls without dealing with your local phone company. But the incumbents didn't stand still and looked to deploy VoIP on a much broader scale than Vonage ever could. It seems the old dinosaurs have awoken, roaming the earth for sustenance, and guess who's coming for dinner?

The VON Age: An All-IP World

All telecom providers are moving towards an IP-based subsystem. Cable providers, ISPs, fixed and mobile voice carriers - they are all dressing up in IP. AT&T, Verizon, Time Warner, Comcast, and other incumbents are being re-born and clad in some dashing new clothes. Once they recognized their empires were being threatened, they banded together and started singing from the same choir sheet (a chorus which included truly converged networks running on an IP-based subsystem which would enable them to interoperate and offer a variety of new services over a single network).

In merging their networks, the new telecom emperors could bundle voice, Internet, video, and mobile all under a single umbrella. The new subscribers they'd gain promise to generate much more revenue and at a higher margin. In this scenario, the growth prospects of Vonage and Clearwire become severely stunted. With competition from profitable, multi service-offering juggernauts, coupled with the recent lawsuit victory by Verizon, Vonage starts to bleed profusely.

It is interesting to note that Vonage and Clearwire remind us of those bubble companies which lived at the end of the last millennium, when it was en vogue to go public with no profit. All you needed was a catchy name, a website, and a snake oil salesman. This time around, only a few fell for that and, quite frankly, I am surprised at whom I see as some of the investors.

Vonage's Last Hope - Survival by Being Eaten

Given its current condition (ICU), the best thing that can happen for Vonage shareholders is for the company to be snapped up now by an incumbent. Vonage's value can't be derived directly from the subscriber base of 2.2 million, but will be based on the market value as reflected in the stock market. (Again, a brutal but unavoidable part of being a public company). Vonage seems to be a bargain, at least at today's stock price.

A second possibility is a merger between Vonage, possibly Clearwire, an ISP, and a cable company or satellite TV provider, or some combination thereof. This could create a second- or third-tier MSO capable of filling in the gaps left by the incumbents, giving New Co. the opportunity to take them on in all markets.

There's much truth in the 'differentiate or die' maxim and both Vonage and Clearwire's management must realize that being a single-service provider is not the form of difference for which you want to be known.

Enter IMS

The IP Multimedia subsystem (IMS) mentioned above is the subject of both a free whitepaper and a report available through The Diffusion Group. The report explores the IMS market, how it works, what drives it and how it will deliver the revenue through converged service providers. We will all live in an IP-based multimedia world soon where all our services can be delivered from a single provider with exciting new applications allowing us to enjoy all services on our TVs, PCs and mobile handsets, new video sharing, location based and streaming audio applications for our mobiles and more.

IMS is not without its challenges and the report also examiners the steps and precautions both vendors and service providers will have to take in order to not only succeed with their transition to IMS, but also how to survive in the IMS world.

About The Diffusion Group (TDG):

TDG provides research and advisory solutions for companies serving the connected home and new media markets. Using a unique think-tank approach that blends executive-level consultants and in-depth market research, TDG generates reasoned and pragmatic insights that help clients make more intelligent market decisions. TDG produces more than just research - we create Intelligence in Action®.

About the Author:

Stephen M. Dye has spent the past 24 years dedicated to the wireless industry. He is the author of five books on GPS, Wireless IM and M2M.

Stephen has served as an executive at IntelliNet, Esemde, and Syniverse Technologies. He was involved in technology trials for Motorola iDen and managed the design of a Nextel iDen network. He also served as CEO for a MVNO startup.

Download the Market dBrief™
The Uncertainties & Challenges of Deploying IMS

Preview the full report
Traversing the IMS Terrain - Red Flags & Green Lights


© Scoop Media

Business Headlines | Sci-Tech Headlines


TradeMe: Supply Sees Biggest Jump On Record While Prices Continue To Slump

The number of properties for sale across the country saw the biggest year-on-year jump ever in July, while prices continued to drop according to the latest Trade Me Property Price Index... More>>

Reserve Bank: Ongoing Monetary Tightening
The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 3 percent from 2.5 percent. The Committee agreed it remains appropriate to continue to tighten monetary conditions... More>>

Statistics: Weekly Earnings Rise As More In Full-time Employment

Median weekly earnings from wages and salaries rose by 8.8 percent to $1,189 in the year to the June 2022 quarter, Stats NZ said today... More>>

Electricity Authority: Imposes Interim Restrictions On Very Large Electricity Contracts

Consumers of electricity will be protected from potentially paying more than they should due to the impact of very large electricity contracts on wholesale prices, under urgent changes announced today by the Electricity Authority... More>>

Westpac: Economic Overview, August 2022 – Pushing Through

The New Zealand economy faces some lean growth in the year ahead as households’ budgets are squeezed, according to Westpac’s latest Economic Overview... More>>

Kiwi Group Holdings: Fisher Funds Acquires Kiwi Wealth Business

Kiwi Group Holdings Limited (KGHL) today announced the sale of Kiwi Wealth to Fisher Funds for NZ$310 million... More>>