Aswath Weblog

Wither Vonage?

Leading up to Vonage’s IPO and since, enough naysayers have catalogued the missteps taken by Vonage. To counter that people like Daniel Berninger have suggested that it will recover well from this temporary setback, by invoking the entrepreneurial spirit of its Chairman Citron. But there has not been much discussion on the specific strategy Vonage should follow to turn things around.

Currently Vonage is focused on phone line replacement business. It has been widely reported that their customer acquisition cost is high; we are told that they lose customers at a high rate; but it looks like their operating margin is healthy. This suggests that they need to find ways to enroll customers inexpensively and once enrolled, the subscribers should find it difficult to walk away. Of course reducing the monthly charge is not preferable for two reasons: well funded competitors can play the same game and last longer and after a point, the reduction is not that dramatic for it to be an incentive. This suggests that Vonage has to introduce new features and services that do not incur much capital expense and at the same time takes the company away from a simple telco replacement play. The following are some of my thoughts.

1. As part of the registration procedure, Vonage maintains an identity mechanism. Users can use it to authenticate themselves in the web. Of course Martin Geddes has made this suggestion many times. Even though there may not be much revenue potential (there are other schemes like OpenID); but it can have the same effect like email: it can reduce churn because users may hesitate to lose the identity.
2. Of course Vonage’s main service is directory service (ok, SIP folks call it rendezvous service). It can easily extend the data structure to accommodate additional end-points like Slingbox and not just real-time communication clients.
3. They also provide NAT/FW traversal capability. Users can use this capability for other applications as well. In some cases, the data needs to travel through Vonage’s infrastructure. In those cases, Vonage has the opportunity to add an additional fee as well. Of course if you believe in QoS as a revenue generating service, they can do that as well.
4. Even if they restrict themselves to telephony, they have to recognize that they are deploying a Class 5 switch (Carl Ford informs me that Jeff Pulver calls it “Class 6” switch) and load it with all kinds of telephony features. They can even try to maintain the telco model of charging foe those features in the guise of software license.

They can do so many things. I hope the “genius” in Citron and the smart people he has surrounded himself roll out new features and services, put some excitement back into VoIP and silence some their critics.