Vonage Will Need More $$$
(ntop has packetcable higher QoS, as well as SIP (best service possible) cable telephony solutions ...
October 31, 2004 in VoIP
Andy Abramsom voIP Watch blog:
Vonage Will Need More $$$
andyabramson.blogs.com
Om Malik has a pretty good handle on Vonage as he's talked with Jeff Citron and comes from the investment banking world, so when Om comes to a conclusion, I tend to look at it and then add on.
In my mind Vonage is using the dot.com model of "get big fast." They are doing this through super aggressive marketing, including an upcoming year long campaign in the range of $50-75 million dollars with their two new agencies, and now saying they are going to hire another 600 people to work in supporting roles.
But it's not all flat roads and cotton for Vonage. The landscape is not theirs alone. While other players were out there just behind them--all who laid back on marketing because they didn't have the money--VoicePulse, Broadvoice or lacked the marketing bent, Packet 8, Lingo, etc. or now the consumer savvty and smart and well funded products from AT&T with CallVantage, Covad and just about all the RBOCs, plus the cable companies using either Level3 or Net2Phone are in the game.
Vonage had the lead, and that led to their growth. They marketed while others played the technology building or assembling game. But, that approach won't work any more.
The others are all realizing they need to market and they are. What Vonage lacked was the deal with the big cable company or companies. The reason they couldn't go there was they lack the QoS that would have kept the cable operator's customers happy. Sure they signed some small deals with some smaller MSO's but since Vonage doesn't break out numbers, we don't know how successful those relationships have been.
So, what I'm seeing is that Vonage is really not doing anything different with the money they raised. Marketing and people to support the customer. Until Vonage gets some infrastructure of their own they are really just a customer acquisition company.
Smart companies looking to partner with a VoIP player, or VC's and investors looking to make money on an investment would be wise to look in the direction of the companies who can deliver an end to end solution that doesn't know how to market. That's really the easy part. Getting the QoS right and doing all the things necessary to keep the calls sounding great, well that's the harder part.
**********
Om Malik Broadband blog comments re vonage:
Vonage will need money again!
Vonage's hiring binge got me thinking, and just when I was waiting for my takeout Chinese to be delivered, I did a very rough back of the envelope calculation, and realized that the company is going to need more money, maybe by end of this year. Now in all these calculations, admittedly the numbers are a bit gray, and I am assuming that the price wars in VoIP business will be more civilized than the presidential race. Yeah Right!
At $50K per employee, VONAGE is going to have to shell out nearly $30 million in additional salaries. I am not sure how many people Vonage has right now, but lets assume there are 200 employees now, so that makes it a whopping $40 million in payroll expenses alone. Earlier, Andy had calculated that Vonage was spending around $450 in customer acquisition and other hardware costs. Citron told Investor's Business daily that he would have more than half-a-million customers by end of 2005. That means spending a cool $225 million on them in gear, and acquisition costs. Vonage has raised nearly $207 million in VC funding.
Let us assume, it generates about $25 a month from these customers, or roughly $150 million in annual sales. Total monthly costs etc, for PSTN termination and other carriage charges, as estimated by Andy are around $15 a month. That's about $90 million per annum. And with the payroll being what it is, I am pretty certain that company will have to raise more money. Now tell me what you think of this bit of admittedly fuzzy math!
Vonage Snapshot:
Why it will need more money?
Customers: 500,000
Costs*:
Customer Cost: $225 million
Telecom Cost: $90 million
Payroll: $40 million
Total costs: $355 million
Revenues:
$150 million
- $205 million
Total Venture Capital Money: $207 million
*At end of 2005; [see url for graphic]
gigaom.com |
