Talk About Burn Rate

GiagOm Malik drew my attention to this AdWeek story about Vonage and their pursuit of new marketing services agencies.

If I do the math right, given current numbers and if the proposed budget is correct, Vonage is expending $375 per customer in marketing expense before you add in the cost of the ATA and shipping, just to acquire the subscriber. So in round number let’s say they are spending $450 per sub. With average cost per sub pegged at $30.00 before costs, lets say $15 dollars for the PSTN number and termination if the usage is light to moderate it would take 3 years before Vonage has recovered the cost to acquire the customer. Now, factor in heavy users, people who don’t make international calls or companies that dump 800 numbers and set up Vonage numbers all over the USA and their revenue model looks, as Om points out, very much like 1999 dot com bubble era math.

Now, I don’t beleive that Vonage paid that much so far, as most of their advertising to date has been online, and they have been very good about getting targeted delivery, but it would be interesting to know what the conversion rate to becoming a customer has been versus number of impressions.

Me? I became a Vonage customer after reading about it in a blog sometime back. And they didn’t pay for that placement. But Vonage is moving beyond the early adopters like me who seek out what’s new, rather than being sought out…