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Vonage Put Under The Ikeroscope

I happen to always enjoy reading Ike Elliott's analysis of companies in the VoIP space that are publicly traded. God does his microscopic analysis remind me of what we used to see from James Enck before he ran off from being simply watched by the Japanese for every move he made with the EuroTelcoBlog to greener pastures with a hedge fund where he's been bound and gaged to the outside world.

Well no matter. For James' silence has led to a gap that Ike does his best to fill. His analysis of Vonage is absolutely hilarious, but not because he's wrong, but because he's so right on and it reinforces one of my "I Told You So's" from years past.

Vonage's churn numbers are high, but in best guess form, I don't think include two other types of user churn.

1) Involuntary--that's the user who goes deadbeat, doesn't pay and gets cancelled.

2) The 30 day trial user who cancels.

But go beyond my speculation and note how Ike nails the Vonage team to the wall by saying elaborating on their marketing spend per user and how long it takes to "pay back." Now factor in that I used to say seven years, so Vonage has brought costs down and increased retention a tad. Whoopee....

Here's a tip for the CFO at Vonage. You can't make money if you never break even on a customer. And you can't make money if they don't stick around.

Vonage is suffering from two big problems, high cost of acquisition of customers, and limited user retention. So, how do they solve it? Ah....

1) Improve customer service. Let's face it, as bad as the other guys are, cable MSO's and Telcos are very responsive compared to Vonage. Pull the outsourced team back home. Create a more "customer friendly" approach.

2) Ditch the "if you leave us it will cost you money." Nothing hurts more than when someone liked you service but for whatever reason chose to cancel. Don't charge them for that. Let them leave on a high note and THANK THEM for having been your customer. Oh, and just try to take your number with you. Horror stories about about Local Number Portability going FROM Vonage, unless you're me, who took it away before I cancelled.

3) Improve the experience--Right now Vonage dumps calls over the public Internet. There's not real QoS from the time the call leaves the house until it hits their gateway in, and none when it leaves to go to where the call terminates.

4) Add some features that matter. Look over this list and you'll see not much new, other than four "Alpha" features being deployed. Anonymous number. Jingle, Jangl. No one really wants it. Softphne. Yeah, but it means a second line charge (or did when I was a subscriber). Vonage you can send a fax, but what about receiving? Shhsh...Webley/CommuniKate has had that for 10 years or more.

This list could go on and see, at Vonage, it's all about customer acquisition in their direct marketing model. They do that VERY WELL, but keeping the customer as Ike points out, that's another story. Or maybe, the story the public really needs to know.


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Ike Elliott

Thanks, Andy, for the kind words. I like the new vocabulary, too: Ikeroscope has a nifty ring to it!

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