Vonage gets $200 million: here's what will happen next

After confirming a $200 million dollar venture capital infusion today, Vonage is saying the money will be used to support the company's growth rather than beef up its value for an Initial Public Offering of stock."Raising money in the private market is a lot more efficient use of management time," Vonage CFO John Rego tells Red Herring.

After confirming a $200 million dollar venture capital infusion today, Vonage is saying the money will be used to support the company's growth rather than beef up its value for an Initial Public Offering of stock.

"Raising money in the private market is a lot more efficient use of management time," Vonage CFO John Rego tells Red Herring. "This is a critical time for the company and we are building an exploding business right now. We need to be focused on that."

The Red Herring article correctly points out that because Vonage does not own its VoIP networks but rents access instead, it can load up on marketing costs. The publication estimates these subscriber acquisition costs at between $150 to $200 a customer.

I see the $200 million as a necessary available resource to fight the marketing wars against a phalanx of bundled VoIP services from incumbent broadband providers on one flank, and cheap softphone services on the other.

I see some obstacles. Not insurmountable, but one that will require competitive deftness on Vonage's part.

As residential VoIP moves beyond early adopters into more mainstream demographics, Vonage will have to compete against brands that because of their familiarity to consumers, will seem like less of a risk. And do not understimate the subscriber-acquisition effectiveness of bundled service-pricing marketing blitzes.

On the enterprise side of VoIP, Vonage will have to continue to compete against branded, boutique solutions, often from systems integrators.

I predict that as both of these competitive mosaics play out, subscriber acquisition cost will become steeper than the $150-$200 I alluded to. A higher number, coupled with price pressures from discounting ILECs and softphones, will stretch out the ROI.

Two hundred million buys you a good bit of ROI time. But at what point might Vonage decide it would rather generate cash reserves from an IPO than via venture funds?

Or sell to $32 billion market cap, Sprint, which I have said before and say again makes the most sense.