* Can Vonage sustain its customer-acquisition strategies?
Last week, Vonage reported its 2006 second-quarter results. Vonage is a VoIP service provider, with more than 1.8 million subscriber lines as of June 30, 2006. Vonage offers the company’s voice services over other carriers’ broadband facilities, using a model we refer to as “bring your own broadband” or BYOB.
The company’s announcement was a good news-bad news report. The good news is that Vonage has increased its subscriber base by more than 1 million customers in the last year, and its quarterly revenue jumped from $59.4 million to $143 million year-over-year. Its average revenue per user (ARPU) rose from $26.63 to $27.70 monthly.
The bad news is that Vonage is still losing money; at this time last year, it lost $63.6 million vs. losing $74.1 million in the second quarter of this year. While its losses per customer have declined year-over-year, one of the company’s biggest problems is the cost to acquire customers. Vonage spent $239 on average to acquire each customer.
While we make no claim to be financial analysts and we don’t offer any financial advice, it seems to us that Vonage may have a questionable business model that could jeopardize its long-term success. When considering that Vonage typically offers its first month of services for free, its recovery period to recoup its acquisition costs is about a year – assuming it has no additional “per customer” costs during that year.
In most cases, the Vonage unlimited domestic calling plan is at or near the low-end of competitive prices and these lowest-end monthly prices seem to have stabilized in the $25 range. But we have also noticed that the war between cable companies and telephone companies for voice services is heating up and this VoIP price stability may be subject to change at any time. We’ve even had conversations with service providers that may offer an extended promotional price of “free VoIP” provided customers buy the service provider’s triple play bundle that includes voice, video and data. So although we’d like to see Vonage succeed as a “BYOB” service provider, we’re not sure its business model can be sustained over the long term.
What do you think? Can “BYOB” applications service providers compete with service providers that own the local loop or the radio spectrum for access? Please write us with your opinions and we’ll publish your comments.
