Vonage's High-Spending, Low-Return Ways Make It Ideal For The MVNO Market

from the misguided-strategy dept

Things have been a little bit quiet on the Vonage front since the company's shambolic IPO last year, but it's been more of the same: slowing growth and poor financial performance. Apparently, though, the company has a new plan -- BusinessWeek swears that Vonage is going to become an MVNO and start selling wireless service. The article says that with such a move, "Vonage might have a better shot at profitability." But that's really not clear at all, since the virtual operator market has been one largely characterized by heavy losses and high customer-acquisition costs, with very few hits to balance all the misses. The article further surmises that Vonage needs to get into selling multi-service bundles to survive and succeed, but this, too, doesn't make a lot of sense. It's rather unlikely that Vonage will be able to undercut the cable operators that are beating it at VoIP by reselling their broadband and TV services under its own brand. It already offers one commodity product, VoIP, where it really only competes on price, so trying to bundle together a few others and take on some formidable rivals (like cable and telephone operators), again, competing just on price, doesn't seem like the wisest idea. The company says it will introduce new products like dual-mode cellular-WiFi handsets, but again, all these really aim to do is offer cheap calls -- and that's a strategy that isn't currently working for Vonage, and one that isn't sustainable once its rivals also drop their rates and remove any differentiation.
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  1. icon
    Derek Kerton (profile), 21 Feb 2007 @ 10:48am

    Business Lines

    Vonage should be going after the Small and Medium business market for growth. With IP PBX systems every cheapening, and free open-source PBX software like Asterisk that can run on any old box, a lot of small firms are interested in taking control of their telephony, and building an in-house solution. But the hardest part is the off-premise part: getting phone #s allocated, getting IXC service, getting dialtone. So if Vonage just started selling a business plan with a phone #, dialtone, and features, at $15/line -- but no CPE, no ATA, Bring Your Own...then the small businesses would use it as the leading, well-known provider of basic VoIP lines of service.

    PS, I agree with Dean above that the FMC play is interesting, even if only because it is disruptive. With T-Mo as our only USA FMC player, we won't see much desire to shake up the mobile telecom industry. Vonage might push harder.

    Also, most of the failed MVNOs were high-cost, data-service-heavy plays. They wanted to sell $500 cell phones and $100/mo service plans. Surprise! That didn't work. Vonage would not invest in such an expensive platform. Also, marketing and acquisition costs have been the bane of MVNOs, but Vonage can target it's existing 2M subscribers to start out. That's a big head-start.

    Vonage, for all its troubles, does have a huge lead in the customer acquisition department. At some point, they will have to leverage this. An FMC MVNO gives them the opportunity.

    Now it all depends on how good a wholesale deal they can get from Sprint (or whoever).

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