Despite all the PR bluster from Vonage in recent weeks, the cracks are beginning to show.
The VOIP pioneer said Thursday its CEO Mike Snyder has left the building, and that it will cut 10 percent of its workforce.
Vonage has been locked in a bitter patent dispute with Verizon Communications, and has already lost round one in a Virginia circuit court. The company has been ordered to pay $58 million to Verizon and may have to post nearly $250 million in bonds to cover further damages sustained in an unsuccessful appeal. Vonage has about $420 million in the bank right now.
Another troubling point in Vonage's statement today is its plan to cut out "unnecessary marketing expenses." That may sound nice, but what does it really mean? I doubt they're talking about martini lunches or spa meetings. More than likely it's just spin on a plan to spend less in signing up new customers.
For Vonage, that's not good. VoIP is not a get-rich-quick business by any means; its success depends on constantly signing up (and keeping) large numbers of new users. Vonage is still a couple years away from having enough customers to make the business work in the long term.
Today's events are significant enough to warrant dragging out some old questions about the shape of VoIP to come:
? Are bring-your-own broadband services like Vonage really a good way to buy VoIP? Isn't it better to buy VoIP service as part of a bundle that includes Internet access, video and wireless service?
The cable and telephone companies think so. They insist people like having all those services on one bill, and that customers like having "one throat to choke" if something goes wrong. They point to research showing that once a person buys such a bundle, they are less likely to switch to another provider.
The research also shows that people buy bundles mainly because they believe they're paying less than if they purchased each service seperately.
? Is VoIP a stand-alone service at all, or is it really a feature embedded in broader applications like social networking or ecommerce?
Companies like Yahoo!, Google and eBay's Skype think so. All have built VoIP into other applications, most often instant messaging (IM). "Click to call" VoIP buttons are also showing up in places like eBay auctions, local search and social networking sites like Google's Orkut. VoIP may soon appear in spreadsheat and word processing apps for collaboration purposes. VoIP is even baked into gaming platforms like Microsoft's Xbox (for trash talking, of course).
If the answer to any of the above questions is "Yes," Vonage may prove to be a one-trick pony that eventually goes away. I hate to say this because I like their commercials (yoo-hoo, yoo-hoo-hoo). And the company certainly has done a lot to bring VoIP to the attention of the mainstream.
But Vonage may be one of those companies that rushed into a new tech area early, and ended up taking some arrows in the back for the benefit of those who would follow.
