Vonage

Service overview

Since first launching VoIP service in the United States in 2001, Vonage (www.vonage.com) has racked up more than one million subscribers and has completed over 1.6 billion VoIP calls as of January 2006. The company offers SIP-based VoIP service to both business and residential customers throughout the United States, Canada, the United Kingdom, and Mexico. Vonage provides what’s called “stand-alone” VoIP service, meaning customers must already have broadband access from another provider.

Service packages

Vonage’s biggest claim to fame is cheap phone service. They offer both residential and small business packages. The residential unlimited plan includes:

• Unlimited calling anywhere in the U.S. and Canada
• Voicemail (that includes both e-mail alerts and online message retrieval)
• Caller ID
• Three-way calling
• Call forwarding
• Call waiting

Residential customers can pay extra for an additional fax line or 800-number;

Vonage's small business unlimited plan offers the same basic feature set as the residential plan, but also includes a dedicated fax line. Vonage offers a lower-cost tier of plans for both residential and business customers based on limited monthly usage.

Target markets

Vonage targets the residential/SOHO (small office/home office) market. For the most part, customers are not especially tech-savvy and are attracted by the promise of low-cost phone service. After signing up for service, customers are shipped a small VoIP gateway (or ATA) within a few days. Installation is simplified as much as possible, and is essentially plug and play (provided you don’t have too complicated a setup). With the gateway, you can connect your regular telephone to the Internet.

Industry profile

Vonage has pumped large amounts of money into marketing and advertising campaigns. In 2005, they spent 220 million on Internet banner ads alone (that’s 71% more than last year’s top advertiser, according to Nielson/NetRatings). The company spends about $200 for every new subscriber. Company CEO Jeffrey Citron has a bold vision, isn’t afraid of risks, and can raise money. In May 2005, Vonage received $200 million in venture funding — representing the largest single funding in telecommunications since 2000.

Vonage's aggressive ad buys have paid off thus far. Vonage boasts the highest market share for North American residential/SOHO VoIP subscribers. According to a Infonetics report, Vonage leads the way with 39%; Time Warner holds 25% and Cablevision has 19%.

However, many industry analysts are skeptical about how much longer Vonage will continue to enjoy the lead-dog position. Their market share dropped from 36% in Q1 2005 to 32% in Q2 2005. And their Q2 share (36%) was actually their lowest share in nine months. Vonage was early to market, but now must compete with larger cable and phone companies like AT&T, Verizon, and Time Warner. Another major factor is that Vonage is a “single play” provider; they offer only VoIP service, whereas cable companies can offer bundled packages including data, voice, and video services.

But the organization isn’t relying on marketing dollars alone to retain its position. Vonage tries to stay ahead through innovative services and applications. They just launched a new portable WiFi handset directed at the consumer market. They also released a Western European virtual phone number service that allows subscribers to sign up for an inexpensive secondary number, and select from a range of European numbers. Friends, relatives, and colleagues can now call them in the United States for the charge of a local call.

See also:

• Skype
• Google Talk