According to ClickZ, Vonage spent $21.8 million in April on advertising. As Om Malik succinctly puts it: now you can see why they needed to raise $200-million in private equity recently. Clearly, Vonage believes it's in an "Amazing Race" to establish itself as one of the VOIP service providers in North America before the cablecos and carriers take over the market. Vonage CEO Jeffrey Citron knows the art of making the deal (see previous entrepreneurial success stories: Datak and Isand ECN), and Vonage is just following the formula of creating a large business and then selling out at the right price. If spending $21.8 million a month on advertising is how the game needs to be played, Vonage will follow the rules. The big question is when someone will step up to the plate and spend the $1-billion to $2-billion to take out Vonage? Frankly, I do not believe this company will ever do an IPO unless it's backed into a financial corner. Unless Vonage's balance sheet (i.e bottom line) suddenly becomes a lot healthier, it will try to avoid the scrutinization of the investment community. For the time being, you have to wonder how long Vonage will/can keep up the advertising spend. I'm thinking it will be for as long as it takes to lure of suitor and/or several hundred more thousand subscribers.
By the way, if you're at all curious about the top online advertising spender in April, it was a Tickle by Emode, which is an IQ test, that spent $23.7-million. The company Tickle is called Progressive Boink, which emerged from the ashes of Whatever-Dude.com.
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Mark Evansthe blog - examines the world of telecom and technology from a distinctly Canadian perspective.the person - lives in Toronto, CA with his wife and three children, and works as director of community with PlanetEye Inc. 
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Vonage: Raise a Lot, Spend a Lot
by
Mark Evans
on Sun 29 May 2005 09:26 AM EDT | Permanent Link
Comments
Re: Vonage: Raise a Lot, Spend a Lot
by
Anonymous
on Thu 02 Jun 2005 10:32 AM EDT | Permanent Link
Mark,
You hit the nail on the head. They are simply in a market share game to build a subscriber base to critical mass and then sell to highest bidder which I guess they figure will be one of the incumbent telcos who are getting into the voip market late. I heard Vonage's customer acquisition costs are something like $1000 a head. At $30 bucks a month that's almost 3 years before you move into the black. So the $200M should get them another 200K subscribers. I guess the question becomes what is critical mass in terms of a subscriber base? What is also intriguing about this is if you look at a multiple of 3-5X revenue, the numbers are not that bad. For example, if Vonage spends $200M to acquire 200K at $30/mo. that equates to $72M a year in revenue. At 5X revenue, those customers alone would be worth $360M or an 80% return on the $200M. It would be interesting to know what % of the co. the PE investors got for $200M. Don Rodriguez don | at | cdpllc | dot | biz Re: Re: Vonage: Raise a Lot, Spend a Lot
by
François
on Thu 02 Jun 2005 01:45 PM EDT | Profile | Permanent Link
In reply to Mr. Rodrifguez, I would add that in doing so, they are agreeing to a bunch of unsustainable regulatory compromises like the cost structure of their interconnection with the 9-1-1 system and the non-reliance on unbundled network elements which guarantee QoS.
The rest of the industry which hopes to stay in there for the long term need access to the 9-1-1 system at low cost and also need access to unbundled network elements with guaranteed QoS. There are very few investors that are willing to make such a high-risk pre-bubble investment and I cannot say much more about the rationality of those other investors who will underwrite the investment of the ILEC that will buy them out. Do angel investors still exist for people that want to make an honest buck in telecom or were all of those burned so much in the past that none remain? I guess the real question is whether the regulators will make it so that there is an honest buck to be made in Telecom... I think so for Canada, but definitely not in the USA until I see how the Supreme Court Brand-X ruling turns out... francois at menards dot ca 819 692 1383 Re: Re: Vonage: Raise a Lot, Spend a Lot
by
François
on Thu 02 Jun 2005 01:46 PM EDT | Profile | Permanent Link
In reply to Mr. Rodriguez, I would add that in doing so, they are agreeing to a bunch of unsustainable regulatory compromises like the cost structure of their interconnection with the 9-1-1 system and the non-reliance on unbundled network elements which guarantee QoS.
The rest of the industry which hopes to stay in there for the long term need access to the 9-1-1 system at low cost and also need access to unbundled network elements with guaranteed QoS. There are very few investors that are willing to make such a high-risk pre-bubble investment and I cannot say much more about the rationality of those other investors who will underwrite the investment of the ILEC that will buy them out. Do angel investors still exist for people that want to make an honest buck in telecom or were all of those burned so much in the past that none remain? I guess the real question is whether the regulators will make it so that there is an honest buck to be made in Telecom... I think so for Canada, but definitely not in the USA until I see how the Supreme Court Brand-X ruling turns out... francois at menards dot ca 819 692 1383 |
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