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VoIP – Make nothing from nothing. 02.06.2006 In the US this week all the news has been about the dismal performance of the Vonage share price since it’s IPO at €17.00. Having fallen by over 40% the market has finally spotted that a pure play Voice over IP will find it very difficult to make profits (see businessWeek - Vonage to Customers - Pay up). What Vonage has done well is selling a low cost phone services, focused on family and friends keeping in touch across the US and more recently the UK. While this ‘mom and dad’ approach to telephone services proved successful in finding subscribers, not concerned in quality of service or 911 issues, free calls made a lot of sense -but not cents. More traditional fixed voice calls continue to fall globally due to competition from fixed line providers as well as the Voice over broadband offerings such as Vonage. If calls are almost free, than where is the value add……a day arrives when analysts no longer see value in increased subscribers, especially if each new subscriber is loosing the company money…..for Vonage this day has arrived. Once your company IPO’s, the stock market owns you in every way, no longer do future promises of success support the share price. Low cost voice calls is good for the consumer, but it is very difficult to see how a free phone service (or almost free) can provide the platform for revenue earnings. A time arrives very soon for consumers, where the subscription costs do not support the value of the free calls, or competition from a mixed voice (fixed voice and broadband) can provide a better mix of low cost (and low quality calls) plus slightly higher fixed voices (and high quality calls) within a subscription model. As the old adage suggests, ‘you cannot make a silk purse out of a pigs ear……’ not suggesting VoIP is a pigs ear, but a business model based on something that costs nothing, creating sustainable revenues and profits is in the ‘water into wine’ world of miracles. While the VC’s helped Vonage get to IPO stage, they have made good profits on the IPO, but once again it’s ‘joe public’ nursing the looses on the IPO, especially the ‘mom and pops’ that Vonage target as key customers………..whom were offered shares in the IPO directly. |
