The road ahead for Vonage
Broadband services technology and marketing commentator Om Malik points us to a ClickZ report which notes that in April, Vonage spent $21.829 million in online advertising.
Om figures that given Vonage's 15,000 a week customer pickup pace, that $21.829 million equates to about $363 spent per new subscriber. If Vonage's television, print and outdoor advertising are added to that total, then he says that number is $400.
Om sees some troubling signs for Vonage in those numbers. I do as well:
*Because the early adopter market has been "tapped," Vonage will have to pedal harder to gain new subs. That means more ubiquitous advertising. When you hammer the market like this, you run the risk of marketing overkill. The task for Vonage will be how to keep on marketing online without resorting to desperate, disruptive tactics such as adware-directed placements and pop-ups.
*Cable providers are proving stronger competitors than anticipated for VoIP service. This will increase spending even more.
*Price competition at the lower end will have an impact, keep pressure on Vonage to keep monthly subscriber bills down. We're seeing this from the softphone services, as well as a group of competitors who undercut Vonage's popular $24.99 a plan by going as low as $14.99 or $19.99.
Om adds that technology investments in E911 compliance will "seriously add up," putting pressure on the timetable for Vonage's marketing ROI to kick in. At the same time, Om replies to a reader post by noting concern over churn -the phenomenon of new subscribers trying out the service for a few months, and then getting out. "Vonage never talks about that," Om says, :and from anecdotal evidence I know that it is pretty high."
How will Vonage cope? Not by raising prices, given the competition for harder-won customers. In the short term, by venture capital infusions such as the $200 million they announced earlier this month, and by continuing to outsource customer support to India.
Eventually, though, I still think they are going to be acquired. In an earlier post, I named seven reasons why Sprint would make the best suitor. I still think so.
You?