Part 2 of my post started yesterday. I figured you don't like to read long articles so I broke it up :-P
Now, you might be saying, oh come on you are being too tough on them. It is a growing market, right? Yes it is. According to the FCC, there were 24.7 million cable lines at the end of 2005 which was a 3.4 million increase over 2004. With Vonage's customer base at 2,057,844 that is a less than 9% penetration. (I didn't count DSL because you have to keep a line to maintain DSL to have Vonage go over it; pretty much wiping out your savings.) I know rough math and I mixed annual numbers around, but give me a sec to prove this out. According to Comcast, they added 483,000 voice customers during 3rd quarter 2006 and since they are one of many cable companies with this service, you'd have to assume that going forward, Vonage will not be able to keep pace and will fall behind. And, that doesn't even factor in Skype. Besides Vonage's lousy marketing, they have probably hit their peak market penetration and the cable companies will continue to out market share them going forward.
Next, when I was surfing the internet I got hit with this horrible pop-up ad. I guess the geniuses that brought you an increase in CPA with a budget cut figured that they would borrow a page from the X-10 Camera playbook and start running pop-ups. The problem is that a) people hate pop-ups b) they most likely get hit with a filter c) people really hate them. Back in the day, the X-10 online marketing manager was a real genius because they sold tons of these on the internet and for the most part pop-ups work for ROI focused companies that can make these leave behinds fun when they embed their marketing within a game. Or in X-10's case, sex. The problem with the Vonage ads is that they are both boring and annoying. And, to top it off, pretty much every line has some sort of caveat on it. My favorite part of this horrible ad is the line that says "Save up to 50% or more". Please, how does someone save "up to" and "or more" at the same time? It is this kind of language that helps fuel churn and that's in addition to the cash offer borrowed from an old MCI winback strategy of - when all else fails, use cash.
Finally, the folks over at Motley Fool named Vonage The Worst Stock to Own in 2007. 'Nuff said on that subject.
What the Vonage is going on here? Clearly they can't sell this service without spending a ton of money to pay people to take it. They have share pressure from all over including Skype and may have enrolled as many tech junkies as they possibly can. Their strategy and marketing plan looks to me like someone used a ruler to extrapolate their early numbers and said - "look at all the money we can make", forget about competition and customer service. I'd say in 2 years or in the next economic slowdown, Vonage will be gone leaving behind their rich founders and poorer investors.