Daily Archives: September 5, 2006

Vonage: A Short-Lived Victory of Sizzle Over Steak

The New York Times provides a feature article on Vonage today. The article places a strong emphasis on the point of view of Jeffrey Citron, Vonage’s founder and chairman.

Among the revelations contained in the article is that Citron claims to have been surprised that Vonage’s shares faltered so badly on the day of the company’s IPO.  In my view, that’s like a baseball fan in Kansas City saying he was surprised the Royals did so poorly this season.

Everybody in the industry knew Vonage’s IPO was destined to fizzle. How was Citron, of all people, caught so unaware? He must have known exactly how the shares would be received, and it’s disingenuous of him to argue otherwise.

I don’t think Citron and Vonage’s financial backers ever thought the company would get to the IPO stage. I think they were hoping the company, which doesn’t own any of the networks through which its IP telephony calls are routed, would be bought before it reached its fateful IPO date.

Well, it didn’t.

Nobody wanted to pay the exorbitant price Vonage sought to extract from an acquirer. Now the company, the ultimate apotheosis of marketing sizzle over intellectual-property steak, is adrift, looking to cash out on a waning brand and a succession of lightweight marketing gimmicks, such as the V-Phone.

VoIP is great for consumers. It’s brought real price competition to the staid world of telecommunications.

However, from a business-model standpoint, Vonage never had a sustainable pitch. It was hatched to be flipped, driven into the public consciousness by classic bubble-era marketing, with which Citron, former founder of Datek Online, an online stock-trading firm that he left suddenly under cloudy circumstances — is all too familiar. 

Obviously, Citron forgot what happened to the bubble.

When you look at what Vonage really offers, it’s thin gruel. It has a VoIP service that’s offered over other  companies’ networks. It’s only a VoIP service, just plain telephony running over IP. Yes, Citron is talking about advanced IP-derived features now, but they haven’t implemented yet and Vonage will be far behind market leaders — not just the cable MSOs, but the RBOCs, the online unified communications vendors (Yahoo, Microsoft, Google, eBay/Skype) — by the time it gets around to deploying them.

How can Vonage succeed? I don’t think it ever had a plan for long-term success. Citron thought this gig would be over by now.


Viewers Shun Lengthy Online Video

A research survey commissioned by AOL and the Associated Press has found that more than half of Internet users have watched or downloaded video.

Most of the favored fare have been relatively short video clips, including news clips (which have been seen by 72 percent of online video viewers), movie and television clips, music videos, sports highlights, and user-generated amateur videos. It sounds a lot like the portfolio of fare offered by YouTube, doesn’t it?

What’s more, only 20 percent of the online video crowd has watched or downloaded a full-length movie or television show. In all likelihood, that number won’t spike upward dramatically in the foreseeable future.

The research study provides a few reasons why feature-length television and movie videos haven’t taken off. Among the reasons: poor video quality, constrained bandwidth,  and entrenched viewing habits (people still go to their television sets when they want to settle in for an evening of extended entertainment consumption).

YouTube has the right approach to online video, at least for the time being.

Others are quickly encroaching on YouTube’s territory with similar services, but at what point does the YouTube brand become solidly entrenched? Have we reached that point?