August 28, 2004

Vonage Funding Reactions Round-Up

Last week's Vonage received $105 million in funding, and elicited a huge reaction from the blogsphere. I have put together a small post on who said what.

• Alistair: had hoped that a comment that the company was cash flow positive before customer acquisition cost might inspire a Sage of Omaha type put down. Here's mine; my car costs nothing to run before petrol (gas), insurance, servicing and depreciation. If your business involves acquiring customers then stripping out the cost is at best duplicitous.
• Fred Wilson: don't like the "get big fast" business plan. It, by definition, assumes if you don't get big fast, you aren't going to get big at all. I've seen this movie end badly many more times than I've seen a happy ending. And I've invested in VOIP as well. It's a price commoditizing business if I've ever seen one. There are very few differentiating factors in VOIP service today. If Vonage isn't working too well, you just swap it out and put in ATT CallVantage.
• University of Maryland, Economics Class: The 1990’s showed that being the first mover in an undifferentiated products market does little for the bottom line. With it’s per customer cost of acquisition, Vontage will do little more than educate the public on VoIP.
• Bill Burnham: However, unlike the online trading space, Vonage faces two factors that online trading firms did not. The first factor is government regulation and the second is competition from access providers. In terms of government regulation, while online brokers were subjected to standard industry regulations, the overall “regulatory risk” they faced was quite manageable. Not so for Vonage and the other VOIP start-ups. Vonage will have to compete with the very companies that it relies on to provide it with access to its customers. A very awkward situation at best and, as many independent DSL providers found out, a very difficult battle to win.
• Paul Kedrosky: onage will almost certainly not matter. Incumbent phone companies are nowhere near as dumb as they are painted by pundits. Said companies already see VoIP for what it is -- a lower-cost backbone -- and they are moving quickly to blunt the attack from firms like Vonage. Sure, it is impressive that Vonage has accumulated a quarter-million customers, but it is only a quarter-million customers.

As for my own opinions, they are pretty much a collection of all those opinions up there. I have been using the @Home analogy for the longest time; wondered aloud about their marketing expenses and customer acqusition costs and clear lack of path to profitability. I still love the flexibility of Vonage as a service, but that's neither here or there. Elsewhere read, Telecom's downward death spiral