From North of the Border (in Canada) blogger Mark Evans calls Vonage on the carpet and carves up their value in light of their recent Series D investment round of $105 million.
While everyone is looking at the spend rate of Vonage, Evans does a peer group comparison versus Packet 8’s parent company 8 x 8 Networks. In his account Evans reports that 8×8 only has 17,000 customers compared to Vonage’s 200,000 plus number of numbers deployed and comes up with a market valuation and what each subscriber is worth, $4,352.00 for Vonage.
Now let me do some math. I pay Vonage roughly $25 a month for a line and a softphone. That’s $300 dollars a year. Using basic math (I’m a word guy) that means 14 years of being with Vonage is needed before I pay back what Evans thinks I’m worth if Vonage was acquired.
With cable TV you can use the advertising model of how much each subscriber is worth and then factor in what they pay per month for subscription to determine what each subscriber is worth. With telephony, Vonage provides phone service and today all the features are bundled in, so where’s the up charge potential to generate more greenbacks?
What’s more, early adopters, which is really who is using VoIP today, are carrier hoppers. In 12 years of the Internet I’ve had no less than three hosting companies for web sites, multiple dial up ISP’s and have been with at least five different cell carriers, each time switching, sometimes overlapping, for better and more advanced service offerings. That means, I’ll never reached the book value of being a subscriber.
While Evans post is very accurate, I say take this a step further and really look at the way customers in the Internet era behave. Am I typical. No. But as an early adopter and consumer, my behavior is a glimpse into the future behavior of others.
The bottom line is that VoIP companies today have to figure out their service offering strategy and gear it for customer rentention, not just acquisition. The cable model of being the exclusive franchise holder is only threatened by satellite today, and IP TV via DSL tomorrow. Cellular companies lock customers in with long term contracts, but the growth of Pre Pay Cellular versus Post Pay is carving that market up to, as many younger adults forget about contracts and pay as they go due to lack of credit history.
VoIP really doesn’t have those barriers. The ATA being bundled into a router means the customer is no longer married to one company (once people learn how to unlock from one carrier to another). So the idea of being handcuffed to a carrier for 14 or so years is rather arcane at this point.
Bruce gets the credit for doing the hard work. Thanks for getting me thinking how shallow of a deal Vonage is today for the VC’s….and how great it is for the founders.