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VoIP Provider Vonage Planning IPO?
SixDimensionalArray writes "The
rumor mill is exploding with stories that large voice-over-ip (VoIP) provider Vonage is planning an initial public offering to raise nearly $600 million. This information is interesting coming out not long after Google's recent release of Google Talk, which overs instant messaging/VoIP services PC-to-PC as well as a surge in marketing by VoIP providers such as Covad and Skype. Could this be yet another bubble?"
The telecommunications industry is huge, and there is a ton of money to be made. That being said though, it's so easy (comparitively) to get into this business that it would be foolish to invest in a single company. I think it will be just like what happened to AOL. People will go with the cheaper provider eventually, and there is just too many competitors (there will be many).
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Cell phones cost a lot per month if you want to have the option of using them reasonably. You also have to pay for all calls, even an 800 number.
They don't get great reception everywhere, and you can't have multiple handsets with the same number.
I pay $16.94 a month for Vonage, and that is my only phone. I use about 100 minutes paid and 100 minutes free.
VoIP software is a joke. I need a phone that my credit card company, or car repair shop can call, and need to be able to call them for whatever reason.
They can easily convert everyone to unlimited plans and put the domestic LD carriers out of the voice business. There's just so much profit to be milked out of $.25/min in-state calling that it's hard to justify dropping the prices since people are willing to pay it.
Vonage and others will face the same challenge others have seen when fighting the ILECs.
But this isn't a totally new revolution, like being able to literally talk instead of just type, it's actually giving the same service albeit at a cheaper cost and perhaps a higher quality. Chances are the users of VoIP won't even know it's happening; do you realise that most long distance conversations using a normal telephone are actually done using VoIP simply because it's cheaper for the telephone company?
I wouldn't get out the doomsday hats for the telecom companies yet, they'll adapt as always.
When people speculate on whether VOIP will become a bubble in this context, I think it's referring more to the over-valuation of the stock at IPO.
I don't think anyone argues that VOIP technology isn't the future of communications, though, and may be worthy of long-term investment.
There is a large enough market to sustain the growing VOIP market because this is essentially the same market that supports dozens of cell phone and local and long distance companies.
As a small business owner, I can say that Skype and other VOIP services have been a godsend and I welcome Google to the game.
We have employees in China, Australia, England, and the United States, who all talk for free on Skype. In addition, I have 3 SkypeIn phone numbers: One in China, one in England, and one in the United States (Total cost: $15 per line per 3 months). Someone in England can dial a local number to reach us, and it's free for me and free for them. On top of that, they don't even know that I'm not in England. I had to have a 3rd party company forward my Australian phone calls, because SkypeIn doesn't work in Australia yet. At a rate of about $1 per hour (.017 Euros per minute), I can call Chinese, Australian, British, or American Customers.
The signal quality can be a little low. I have one customer who refers to us as the "bad reception guys." Some days are worse than others.
As much as I like Skype, I'm looking forward to jumping on the Google Talk bandwagon because I'm certain they will offer superior service to Skype.
$750 per customer.
That's assuming they develop *no more customers*, which this IPO is most likely predicated on them not doing.
The idea behind an IPO is to fuel explosive growth; an IPO is most definitely *not* a sale of company assets, and current income is only roughly related to how much money you want to raise.
Far more important is business plan; and these IPO rumors are indicative of Vonage planning to build out extensively, or to acquire customers, or both.
$750 a customer? You're thinking wrong.
800,000 customers. Target over 7 years? 9 million customers. 10 fold increase.
Raise 600 million, use that to acquire customers? A $75 per customer acquistion cost is not unreasonable, and 9 million VoIP users is what, ~4% of the telephony market?
You say cell phones are getting cheaper, and there are free VoIP services avaliable, but they just aren't the same, or as convenient. It's pretty easy to sell people on something that requires no configuration and acts exactly like a normal phone company telephone.
And the baby bells are a nice, fat target.
It's not an unreasonable goal, nor an unreasonable amount of money to raise. And given that their average plan goes for $20 a month, a $75 per customer acquisition cost will cover itself in 4 months.
That's *great* business. This, of course, depends on their business plan, on whether or not providers cut them out of the market (though the FCC loves Vonage) and whether or not these 911 lawsuits put them out of business (looks like this threat is passing).
I say this as someone who has switched his home phones and some business phones to vonage, 9 lines in total.
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I have had Vonage for over 1 year now, and I love it. I pay $26 a month for unlimited everything, long distance in the US, voice mail, caller id, everything just like a real land line. I had Verizon telephone, and their monthly bill was $87 for the same exact package. SBC/Ameritec was $72 at my previous house. Vonage VoIP uses your existing phones. I don't want to get up and go to my computer everytime I want to make a Gtalk call. I know it's no cell phone, either, but, your normal house line is not a cell phone, either.
If anyone wants a Vonage invite, which is like 2 months free or something, email me (dmannjr AT gmail D0T com) =)
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