Why Vonage's main threat is not from cable VoIP rivals

Easy to take those newest Infonetics numbers at face value. That's what so much of the mainstream media and, I must say, technology pundits are doing.

First, a factoid from Infonetics Research's just-issued querterly VoIP ServicesReport. The latest numbers report that:

The top 3 North American residential/SOHO VoIP subscriber market share leaders in 2Q05 were Vonage (32%, down from 36% in 1Q05), Time Warner Cable (25%, up from 21%), and Cablevision (19%, down from 21%); no other service provider has subscriber share greater than 3%.

A raw read of those numbers might indicate that Vonage, which got a head start in consumer VoIP is now barely fending off ferocious competition from the broadband cable providers. Easy to jump to gloom and doom scenarios, that forecast Vonage will soon lose its lead to those broadband cable Internet access providers who are able to package VoIP plans with Internet access and cable tv channels.

But I have another take. I think what we are seeing here is that because of Vonage's head start, they managed to pick up the technologicaly curious "low hanging fruit" of the potential VoIP subscriber base. And now that the cable companies are on board, the reason for their spike is that they've locked up their early adopters, too.

I do believe that this is a transitory phase, one that will become even more pronounced as Comcast, and telcos such as Verizon gear up their marketing of VoIP within a multi-service offering.

Yes, Vonage will continue to lose market share, but not because they are doing anything wrong. With more service providers, there will be more pieces of the pie.

The real issue for Vonage will not be whether they can compete against the waves of early adopters coming at them from the broadband cable and telco sectors.  Once the low hanging fruit is completely picked, companies such as Vonage will face competition not from their peers, but by low-priced or even free PC to PSTN offerings.

Because those brands- Yahoo! Messenger, a PSTN-enabled version of Google Talk, and others- started out in the user-friendly IM world, they will be able to migrate and upgrade their users. Users, you know, who are not necessarily technologically sophisticated or even conscious of VoIP, but will make the leap because a legacy IM brand they've used for years tells them how easy they will make it to do so. And when we see more alliances for VoIP handsets tailored to work or even co-branded with legacy IM utilities beefed up for the big bad PSTN world, now that's what Vonage needs to worry about.