By subscriber count, Skype and Vonage are the two largest VoIP providers. If I asked the average American which of the afore mentioned services they have heard of before, I would put my money on Vonage. However, according to Sandvine, Skype dominates the North American VOIP market with 46.2% of minutes and 40% of bandwidth. Waterloo, Ont.-based Sandvine, which tracks 1,100 VOIP service providers, said Skype users also account for 35.8% of individual VOIP callers on North American networks. Skype's internal numbers reports that they have 35 million registered numbers, and claims 150,000 new users’ sign up daily. This is without spending a dollar on promotion or advertising.
The above data is startling for anyone who has been subjected to the onslaught of television, print and digital promotions from Vonage. Analysts suggest Vonage is spending about $10 million/month and adding 15,000 new subscribers/month. However, if you look at recent data provided by TNS Media Intelligence this spend level seems conservative. TNS reported that Vonage spent $21.8 Million in the online channel just in the month of April 05. This positioned them as the second largest online advertiser on the net.
With all this money being dumped into the market, I wonder if:
1.) Vonage is making any tangible headway against Skype?
-and-
2.) Is their gratuitous advertising spend actually producing good business results?
The chart provided below, (generated by BlogPulse) tracks the % of blog posts across the last 6 months which contained the term “Skype”, “Vonage”, and “VoIP”.
Skype and VoIP move together, while the noise level of Vonage remains rather flat (in fact, it dips to one of its lowest points in April: the time they effectively were sponsoring the entire Internet so to speak). To the extent that the buzz in blogs is any indication of a trend (which has yet to be formally proven), Skype is quickly becoming synonymous with Voice over IP-not Vonage.
Furthermore, if we were to calculate Vonage’s Cost Per Acquisition using the $21.8 Million monthly online spend as a benchmark-they are paying and estimated $363 per new customer. Pile on top the cost of television and print media the final customer acquisition cost is around $400. At that CPA level, they would need to ensure they hold on to each of those customers for about 2 1/2 years to ensure they break even.
Genuine said...
I'm genuinejt on Skype :0
2:45 AM
Genuine said...
Okay I'm Jim Turner
2:46 AM
Anonymous said...
I don't have a relationship with this company other than being a customer of them.
StanaPhone is also a good service (it's not great, but okay), that provides a free NYC phone number and free incoming calls.
http://www.stanaphone.com
Highly recommended. Call quality goes down sometimes. Support sucks (everything sent to support BOUNCES). But it's free ;-)
5:09 AM
Anonymous said...
I think the problem is that hardly anybody ever goes seeking voip. Those that don't have it don't know they need it, and any advertisement just makes people go 'huh another dumb telecom company begging for my money by making vague promises'.
Skype, on the other hand, is approached by people who already do a ton of instant messaging with each other online. Its converts are the ICQ and MSN crowd, which means bloggers and mmrpg players too.
1:33 PM
Stiles said...
I waited forever for Vonage to get a number in my Area code (270). I finally got Packet8.net and its great. They have local numbers where I live and the service is great. Plus its only $20 per month. Vonage should spend some of that money on getting new telephone numbers. I'm sure there are plenty of people like me who are waiting. Well.. I'm not waiting anymore. I am very happy with Packet8.
3:16 PM
Rich Ignacio said...
I think one thing that wasn't taken into account into this analysis is that Skype and Vonage have different target audiences. Skype is more for the tech-saavy blogheads type who already use their computers for IM/voice/video communication. Vonage is aiming at the general public that has high-speed internet who are willing to take their normal phones and just plug into another box to save some money.
3:55 PM
Anonymous said...
Your analysis is way off. Subs are at a much higher take rat for Vonage. Therefore making your analysis completly wrong. Try adding about 100K Subs per month. Your spend numbers are off as well for advertising as a total.
Plus Skype is free. That attributes to their large sub base. Compared to Vonage who has a paying sub base.
Just get teh facts right would be a good start. Just my two cents before you count Vonage down and out in the VoIP market.
1:17 PM
Anonymous said...
"Try adding about 100K Subs per month."
4:37 PM
Jeremi Karnell said...
Was not suggesting that Vonage was down and out...was only suggesting that based on AVAILABLE info their advertising approach seemed off.
Thanks for the intel though. Its another data point (true or not). I will factor that into my future client communications regarding this topic.
6:39 PM
Anonymous said...
This analysis is pretty sensationalist but, as others have pointed out, has many inaccuracies.
- Take rate is 15k - 25k /week not month.
- Vonage to Skpe is apples to oranges. Vonage to AT&T callvantage or Vonage to BroadVoice or Vonage to any PacketCable offering is a better comparison.
- Vonage's CEO, Jeff Citron, has invested 90 million of his personal money!! So it's not just a case of VC suckers pouring money into the company.
10:27 AM
Anonymous said...
Vonage is adding 15K a week, and it should have just over a million subscribers by year end 2005. Time Warner Cable is adding subs at a comparable rate.
I telecommute and use Vonage for my business line. From my experience, QOS seems to fall somewhere between 90 and 95%.
The weakness in QOS could (and should) improve, but for now, the web-based feature set / customization--call forwarding, simulaneous ring, etc.--is the balancing strength, in my view.
10:44 AM
Anonymous said...
Their subscriber add rate was 15k/week when they were spending $10mil a month online. They are now at almost $22 mil a month online plus TV and such. My guess is that they are at least double 15k now to about 30-40k new subscribers per week or 120-160k/month.
10:51 AM
Jeremi Karnell said...
LOL
I am assuming that since you folks are posting anonymous, someone is violating a NDA agreement with Vonage. Again, thanks for the data. I will redo some of my math and see how it turns out. Keep the data points coming.
Jeremi
10:54 AM
Hubert said...
Analysis/Rationale is rather flawed. Here's why:
1. Vonage may be spending A LOT on online and TV advertising. And frankly, that's low compared to how much they have to spend on customer care - because eventually, 60+% of their acquisitions end up happenning via their website.
2. That said, they are doing about 75-100K acquisitions per month. that is actually rather healthy. You cannot compare this to Skype because not only are most of Skye's acquisitions free customers or just software downloads, but Skype also has high customer drop off, and/or high churn - because they are a 'softphone' - which has low revenue potential and low customer retention.
3. Vonage's churn is something like 1.6-1.9% - which means that their average customer stays with them longer than the 2 1/2 years you indicated. So, when you factor in the long term, they have a positive NPV on each customer acquisition.
4. HOWEVER, all that said, you're missing the biggest reasons they're spending like there's no tomorrow. The first is that in this nascent stage of VoIP, the residential market is in 'land grab' mode - i.e., whoever gets the customer first, will have the lowest cost of acquisition. Second, vonage is not looking to create a long-term viable business (if so, they'd be nuts). The market currently values each acquired customer at $300-400. SO, if Vonage is adding 100K customers/month, they are creating $30-40 million of market value every month - which will help them soon do an IPO. So, even if they end up spending $200 million this year, they will end up having created $360-480 million in market value. Not a bad deal in my books!!!
2:27 PM
Anonymous said...
Do you all remember a company called Amazon.com? I still remember when they came on the scene as a category killer and the press and pundants where all agast at how much they were spending in Marketing (remember those commercials?) and how much red ink they were bleeding for years on end. Now they are a what $7 Billion segment leader? The Base feeds new sales, word of mouth, and referral programs etc. Once they are up to a few million in paying subs it will still grow organically and they will throttle back marketing $$$, clean up the balance sheet and then IPO.
2:31 PM
vegasvoipman said...
Most people probably don't know about Champion Communications, which is network marketing VoIP and developing products that are rather state of the art. They are way ahead of all other carriers as they deveoloped VoIP for handling the overload of international calls for all the major carriers through Ionosphere.net.
They recently released their "Flash Phone" which can be either a stand alone or an add-on product. This puts VoIp into a USB memory stick or "Flash Disc" and allows for calls anywhere in the lower 48 and Canada from anywhere in the world.
I have been with them for a over a year and have had seriously good luck with them in quality and customer service, both of which are excellent.
9:02 PM
VoIP Research said...
I have been researching the best residential VoIP providers and have determined that Lightyear's xStream VoIP service and Sun Rocket's VoIP is a better value. Their price is lower and the call quality is Bell like.
Vonage's per customer acquisition cost of $400.00 and their decision to use retailers as their primary sales channel is their achillies heal. The Retail sales reps I have spoken to don't understand VoIP and are not trained to answer customers questions.
For information on Lightyear's xStream VoIP service go to www.telecom.lightyearalliance.com
For information on Sun Rocket's VoIP service go to
www.sunrocket.com and enter Promo Code: SAANy7q to get a free Uniden cordless phone if you order their VoIP service. They have an annual price of $199. including all taxes & fees.
I have tested both services and both are higer quality and less expensive than Vonage.
6:01 PM
Posted by: Jeremi Karnell | September 11, 2005 at 02:58 PM