Vonage Marketing Doesn’t Scale

Rich Tehrani : Communications and Technology Blog - Tehrani.com
Rich Tehrani
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Vonage Marketing Doesn’t Scale

TheStreet.com basically destroys Vonage in this article. One wonders if all the negative press around the company makes it a good buy. I have had many people in the industry tell me the value of this company’s stock should be zero. But with the absolute best-known brand in VoIP in the world (perhaps after Skype) I have trouble betting against them.

So many people claim that customer acquisition cost is the problem with the Vonage business model.

My argument? Hypothetically speaking -- If TMC spends five million dollars marketing at ITEXPO we may get 10,000 attendees. If we spend 10 million on marketing for that same show we may get 12,000 attendees. In other words that extra marketing money is much less effective.

Marketing effectiveness does not always correlate one to one with spending. Marketing ROI doesn’t always scale well.

In all the analysis I have seen about The high cost of Vonage customer acquisition, I have never seen this logic applied. Vonage may be able to be profitable and grow with a $50 million annual spend. Currently they spend many times more each year. If shareholders press them enough to be profitable they could reduce their marketing spend and the company could indeed do well.

Still, I haven’t seen anyone else discuss this point of view which means either I am totally disconnected with reality or have insights that others haven’t figured out yet. Hopefully it’s the latter.

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