Death of Vonage?

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Tom Keating
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Death of Vonage?

According to this news release Yankee Group Expects Alternative VoIP Providers To Lose 47% Market Share to MSOs and IXCs/ILECs by the End of 2005.

According to the report, in the coming year, local VoIP providers will be facing the communications market leaders: AT&T, Verizon, Comcast and Time Warner. Delivering primary-line voice service is a very resource-intensive effort. According to the Yankee Group report, Fighting Goliath: Can Alternative VoIP Providers Survive?, the MSOs are bringing VoIP to the mass market as a primary-line replacement. Incumbent local providers look to VoIP as a long-term network development strategy; regardless of interim activity, VoIP is part of their future.

"While alternative VoIP providers such as Vonage and many of the Vonage-like providers have a first-to-market advantage, their lead will be short-lived," says Kate Griffin, Consumer Technologies & Services senior analyst. "In 2003, a number of these companies, dominated by Vonage, introduced VoIP phone service to consumers. At the end of 2003, these small startups comprised nearly 66% of the local residential VoIP market. Vonage dominated the market with more than 90% of all the subscribers in the alternative VoIP provider segment, or 61% of the local residential VoIP market."

Wow, predicting the end of Vonage? Yankee Group, you're a little late to the party. I made that prediction back in August in my Death Knell for Vonage Net2Phone Packet8 Broadvoice Lingo blog entry and followed up with my Charter goes for the Telecom Triple Play blog entry where I re-affirmed my suspicions that Vonage and other standalone broadband VoIP players could be in trouble. Further, I wrote about this strong possibility in AT&T makes deal with the devil (cable companies)

"However, alternative VoIP providers lose market share every day to the major players. MSOs, IXCs and ILECs are joining the VoIP game, and their available resources dwarf even the largest of the alternative VoIP providers. The local VoIP market is already crowded with more than a dozen players vying for local consumers," says Griffin.

Greg Galitzine provided some analysis on this news you may want to check out here

Although I do predict Vonage and similar players will lose market-share I don't agree with their numbers though - that they will lose 47% market share by the end of 2005. I predict it will be more like 20% or less. I could be wrong though. We shall see. I guess it's all in how they work the numbers as well. After all there are lies, damn lies and statistics.

Let me give a couple examples.
Vonage - 1 customer
Everyone Else - 0 customers
Vonage marketing share: 100%

Vonage - 3 customers
Everyone Else - 1 customer
Vonage marketing share: 75% (even though Vonage has 2 more customers than in #1 than their competitors, their marketshare actually DROPPED from 100% to 75%)

Assume Vonage and their competitors each add 1 customer per day. Starting with Vonage having 10 customers (being 1st to market) and everyone else starting at 0, here's what you have:

Vonage marketshare listed in ( )
10/0 (100%) 11/1 (92%) 12/2 (86%) 13/3 (81%) 14/4 (78%) 15/5 (75%) 16/6 (73%)

Notice how Vonage's marketshare numbers go down even though they are adding the same number of customers (1 per day) as all of their competitors. It's just the way math works. It's a lot easier to own a dominant percentage with small numbers than it is once you increase those numbers. So don't be deceived if Vonage's marketshare numbers indeed go down - that's not an indicator of their strength or their demise.

I'm sure a lot more people will jump on board the VoIP bandwagon in 2005 which will no doubt dilute Vonage's overall marketshare --- however, I do not see a mass defection from Vonage and similar players to cable companies/MSOs, IXCs, and ILECs - rather cable companies/phone companies will attain new VoIP customers.

So Vonage's overall customer base number will still dwarf the other players - probably the top two next broadband VoIP players combined. So while I have already predicted Vonage is headed for trouble, I think Yankee Group is sounding the death knell bell for Vonage (and similar players) way too soon.

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