VoIP companies enjoyed two  surges in the public markets. The first was in the Fall of 1997 when companies like Inter-Tel and Franklin Telecom were VoIP darlings. Inter-Tel who at the time had a service provider offering was one of the few public ways to play what at the time we called IP telephony or Internet telephony.

We then saw public interest leave the VoIP space for a while and then it came back with a vengeance in 1998-2000. The public markets haven’t had too many tech darlings since the ensuing bubble burst though. Google and eBay come to mind but since Google there haven’t been too many household name tech blockbusters your grandmother asked you about investing in.

That could potentially change as a rumored Vonage IPO would be a huge deal in the VoIP market. It is huge because Vonage will be a barometer for the entire VoIP industry and more importantly its success or failure will be amplified a thousands times due to its influence on the companies in this space and the capital markets reaction (or over-reaction) to whatever develops.

Many investors have told me they have been so burned by telecom they will never invest in the space again. Many of these same people were also burned by Internet stocks and chose not to invest in Google. This was obviously not the correct move as Google is trading at around three times its IPO price. So it is possible a successful IPO of the leading US VoIP provider will bring investors storming back into VoIP.

But Vonage is not without competitors and the biggest competitive threat to Vonage was supposed to be AT&T. Instead of becoming an obstacle, the once feared phone company is slowly being absorbed by SBC and in the process has all but stopped marketing its CallVantage service. The regional cable companies and phone companies are also a threat but their geographical limitations pretty much ensure they are lions in their home range only. At least for now.

So this leaves Vonage as the leading paid VoIP service and amazingly the next pure VoIP competitor in the US is Packet8 who has a fraction of the customers Vonage does. This means the NJ based Vonage certainly has a leading position in the market and they are far ahead of their competitors in mindshare and market share. It is worth pointing out that Packet8 is part of 8x8 which is a public company but with 8x8’s stock price languishing if not spiraling downward, it is not considered by many to be an industry bellwether.

The question is whether Vonage will make money selling VoIP service. At some point Vonage is going to have to prove they can be profitable while becoming a major telecom carrier. They need to pull off this feat while facing competition from Yahoo!, AOL, Microsoft, Google and industry leader Skype who are all battling for dominance in VoIP.

In my opinion, in order for Vonage to get to the next level they are going to have to continue their international push and at some point soon they have to focus on selling incremental services like conferencing to generate higher ARPU or average revenue per user. I imagine in the not to distant future we will call on Vonage (certainly no pun intended here but make sure it is an Internet telephony call if you please) to supply TV for us so they are likely exploring ways to provide IPTV. Wireless is another area they will have to thrive in so expect Vonage to become an MVNO or mobile virtual network operator meaning they will resell service from a company such as Sprint PCS. Vonage is already starting WiMAX trials which shows they are painfully aware of the disadvantage they have by not controlling the last mile to their customers.

As a pure-play public VoIP service company, Vonage is in a position to set the stage for many other companies in the VoIP space to also go public. Investors are eyeing Vonage more and more closely and if we expect the excitement and purchasing in the VoIP space to continue at its current pace we have to as an industry hope Vonage can continue its whirlwind pace of customer acquisition while at the same time delivering profits to keep Wall Street happy.