Yesterday I offered a couple of reasons why Skype would offer free internet telephony services to any phone number in North America until year-end. Andy Kessler, a pragmatic ex-Wall Streeter offers another, more Machiavellian reason, in a "guest-post" on Om Malik's GigaOm.
His pithy headline summarizes it: "Will SkypeFree KO Vonage IPO?" He elaborates:
"The buzz on the Street is that the Vonage IPO is on the rocks. They HAVE to raise money or they are in a world of hurt. Their investors don’t want to put another penny in and the company seems to still be bleeding cash, $75 million in the first quarter of 2006...
Ebay knows this, why not toy with the mouse before you kill it. What better way to do away with the Vonage IPO and raise their cost of capital then scare investors even more. Every prospective buyer on this deal asking the same questions: what about pricing, why will anyone pay a flat fee per month when skype connects in the US for 2 cents a minute. $25 per month to Vonage is the equivalent of 1250 minutes.
At Skypeout = zero, its infinite minutes. The value of what Vonage provides has just gone from $25 per month to somewhere close to $0, goose egg, nada. Tough to get a return on equity with those kind of numbers."
As an ex-Wall Streeter myself, I've seen this type of move before by incumbents trying to put a world of near-term hurt on emerging competitors trying to navigate a path to the public markets.
Andy's point is well taken...some things don't seem to change on Wall Street.
The whole piece is worth reading. Recommended.
A couple months back I was flown out for an interview with Vonage. Gauging from some of the questions and answers I heard, I really don't think they have a clue about how to revolutionize the phone. I was brought in to interview because I'm involved with the Jabber community, the community for that instant messaging standard.
I was asked how I'd scale a web service and one of the interviewers said that people are comfortable with how phones are, ie: 9 digits, even as he had a Blackberry on his belt. Those two things obviously showed that they lack the knowledge to revolutionize the phone like Skype and most likely Google will. Such a revolution will be centered around your buddy list, not phone numbers, and will involve fully exploiting standards like XMPP.
Also worth noting since you quoted that Vonage is burning money is their advertising. I can't go a day without seeing a Vonage TV commercial or ad banner. I even saw an ad banner for developers yesterday on Slashdot, and not to mention that they're sponsoring a fucking Indy car (I live in Indianapolis btw, the Indy 500 is the upcoming big event).
They really need to start reading the books by Seth Godin. Of all the big Internet companies, there are very few that I can think of that have used an ad campaign such as Vonage's. All of them have been based on some variation of word of mouth and having a product people want to talk about. Sadly, being "the Internet phone company" just isn't one of them.
Posted by: Nolan Eakins | Wednesday, May 17, 2006 at 08:22 PM