Feeds

Analysts trash rumoured Vonage IPO

Universal damnation

Beginner's guide to SSL certificates

We’re not quite sure which publication to attribute the leak/rumor to, but news organizations are awash with the idea that Vonage is about to apply for an IPO, hoping to raise $600m. Perhaps the Wall Street Journal, which is cited by many sources, was the origin of the story.

Already, before the company has gone public with the IPO terms, and before it has filed an S3 securities prospectus, analysts are universally damning the idea. Some are saying that by floating the rumor deliberately, this is an attempt at an exit of any kind and that the company hopes to be acquired.

Vonage is the single biggest company that specializes in VoIP and its worth was never in doubt until all the major portals, Google, AOL, Yahoo and MSN began considering VoIP services. But Faultline thinks that this pessimism is fairly misplaced and that if Vonage does opt for some kind of IPO, there will be immense demand for it.

VoIP services such as that launched this week by Google are all underpinned by other services. This is because they know that to invest in any amount of technology to ensure that even part of a voice message’s journey through the internet, in order to make it more likely to arrive intact and in high quality, is probably too much to ask. So they have opted for free services, but with no Quality of Service, as opposed to cheap, but more reliable.

In effect these are different things, and a different class of person will use them. Google Talk may well attract the early adopters that are also attracted to Skype, whereas the Vonage brand has the pedigree to attract home phone users that just want cheaper residential telephony. It is these customers that are likely to be first in line to buy the shares, grateful to the company that has freed them from the high prices and callous attitude that sometimes goes with being an RBOC voice customer. Vonage has raised more than $400m in venture capital and it has more than 800,000 customers paying $25 a month for “all you can eat” telephony. Its customer base is growing at a faster rate now than when it started out. That’s what brand can do for you.

Analyst worry that Vonage faces increasing competition from richer rivals, including AT&T (when did it last win a fight) and cable operators (which have never made big inroads to phone service except for Cablevision).

It also faces competition from a growing number of internet portals as we have said, which are adding voice components to instant messaging and gaming.

Bain Capital, which led a recent $200m investment round into Vonage, must have been pretty clear in its due diligence that the customer demand was there and that break even is not a million miles away, and we would fully expect it to get an IPO away, if not spectacularly oversubscribed, then at least safely, if it goes for one at all. With some analysts saying that the residential VoIP market will grow in the US from 1.1 million in 2004 to 24.3 million in 2008, Vonage needs a pretty low market share to make substantial margins.

Copyright © 2005, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

Beginner's guide to SSL certificates

More from The Register

next story
MI6 oversight report on Lee Rigby murder: US web giants offer 'safe haven for TERRORISM'
PM urged to 'prioritise issue' after Facebook hindsight find
Assange™ slumps back on Ecuador's sofa after detention appeal binned
Swedish court rules there's 'great risk' WikiLeaker will dodge prosecution
NSA mass spying reform KILLED by US Senators
Democrats needed just TWO more votes to keep alive bill reining in some surveillance
'Internet Freedom Panel' to keep web overlord ICANN out of Russian hands – new proposal
Come back with our internet! cries Republican drawing up bill
prev story

Whitepapers

10 ways wire data helps conquer IT complexity
IT teams can automatically detect problems across the IT environment, spot data theft, select unique pieces of transaction payloads to send to a data source, and more.
Why CIOs should rethink endpoint data protection in the age of mobility
Assessing trends in data protection, specifically with respect to mobile devices, BYOD, and remote employees.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Business security measures using SSL
Examines the major types of threats to information security that businesses face today and the techniques for mitigating those threats.