My Thoughts on The Vonage IPO

Many will look at the first day performance of the VONAGE public offering as an indictment for VoIP overall. That's not fair, nor is it accurate. What has happened in my view is that the Emperor's new clothes scenario has run its coure, but now everyone can see.

The public offering was largely a means for many of the early round investors to cash out and gain some sense of liquidity. It also provides Vonage with about the only route to go for more hard cash to grow and expand. Some may say that they did a lousy job of telling their story, but maybe there was nothing really to tell. At the end of the day Vonage is a marketing and customer acquisition machine that sells VoIP services. Their costs to acquire customers are just about highest in the business and with the cable MSO's able to market for almost free it's clear that Vonage's "spend to acquire" strategy is nothing but a sewer drain for the investor's dollars.

In Vonage's early days they started to work with some independent cable operators, but never really scored the big ring. Instead companies which provide the plumbing, the hardware and technology to offer VoIP won that business from the MSO's who used a combination of buy and build to grow their business base. Already the top three or four MSO's in the USA dwarf Vonage in number of customer's using VoIP. The telcos will roll out VoIP just like the did with DSL and at the end of the day the largest suppliers of VoIP will be the same companies that supply broadband, with the more nimble, smarter and different companies coming into play who see how to offer services the established MSO's and incumbents don't. Over time those that tended to be the early pioneers like Vonage will have withered on the vine or died not because they didn't go out to win business, but because at the end of the day they offered nothing different.

Back in the day when Jeff Pulver was involved with Vonage, before his role was so diminished that he was nothing more than a shareholder, Vonage had someone who saw what was about to occur and was in a position to help. Jeff, who started on Wall Street, could have helped them steer the right course of being different, especially over the past three years, but instead Vonage's management went their own ways and basically have not changed one thing in the service offering of any note since their launch. Telephone service that comes over broadband.

So really, this reaction to the stock price is not a reflection of how VoIP will do, for VoIP, especially with new and different services coming on line every day that can only be delivered by IP will do very well in the hands of companies with real leadership and vision, not just a sales model that costs more to acquire the customer than will ever pay back.

No, this reaction is a show of no-confidence by Wall Street in the company, their leadership and their approach to business. Nothing more. Nothing less.

Oh, none of what I'm saying hasn't been said before. It's just that those who need to know chose to see the Emperor's New Clothes, not how naked he really was.