Vonage has taken a lot of hits lately in the ‘sphere, especially recently with its seemingly badly fumbled IPO. But many of the shots seem to me to be off the mark. It’s obvious that the business model is highly vulnerable now – there are many competitors, and Vonage is getting squeezed both from the bottom – from the Skypes of the world – and from the top – with the VoIP offerings of the broadband providers. But it was also obvious that prying middle America away from the telco’s was going to be an enormously expensive proposition. The technology is still not plug-and-play for Mom and Pop America, and the telephone is about as generic and mission-critical a utility as one could imagine (yes, celphones are changing that, but for the great mass of the market the landline phone is Apple Pie).
Which means hideously expensive customer acquisition costs, and a very tough job retaining those customers once they’ve been acquired. Without an acquiror on the horizon, the IPO seemed to me to be the only option left for Vonage to fund those costs. The criticism of Vonage for waiting as long as it did to IPO might be appropriate, but the residential VoIP market is only now developing meaningful traction, and it seems to me that waiting for it to mature enough to make the offering viable was a reasonable call in the circumstances.
All of that said, I haven’t been happy with the quality of my Vonage service lately, and I’m thinking seriously about switching providers. I can’t help wondering whether growth and the financing are distracting Vonage from its mission of delivering a reliable service.