How Successful Will Vonage be in SMB Space?

Vonage, is looking to make a push into the small and medium sized business market, with its new business service, Vonage Business Plus, currently in beta. They won’t be first, and they won’t be the last. The SMB space is one of the most eagerly contested VoIP market segments, simply because the small and medium sized businesses pay way more for telephone service compared to individuals or large corporations. They cannot negotiate better prices with Bells.

I think cable companies realize this, and perhaps are chasing this market as well. Cox, which introduced a 50 megabits/second business service using Narad Networks’ technology has plans for the SMB market. Covad’s VoIP offering bundled with its T-1/DSL service is another good offering in this market. So that alone poses a big challenge for Vonage to make the transition.

I wonder how Vonage sees the SMB business? Is SOHO being thought of as a “small business?” A little while ago, I was chatting with Chris Lyman of Fonality, and he classified a small business as any operation that has 10-t0-100 employees. For such an operation, Vonage’s all you can eat VoIP package sticking out of a router will not work. Marrying the service to a broadband pipe, and quality of service are critical. (TowerStream alliance should help, and perhaps Vonage has to do more of these?)

Despite all the hoopla around VoIP, when it comes to voice, business people really want quality, quality and quality. One missed call could mean one missed sale, and for SMBs that’s the difference between good and a bad month. Lyman, also pointed out that SMB is all about offering PBX features. And the esoteric 900 feature game of the PBX industry is going to require a serious R&D investment for them to compete in. They don’t need 900, but they need at least 100 features or so. “Their features are mainly consumer focused at this time,” says Lyman. Still, Vonage’s trials might be going well. They have nailed the sales channel and have a pretty good

> The service will be sold and installed through value added resellers (VARs), such as independent broadband operators, telephony systems vendors and systems integrators. It will compete against business packages from Verizon and SBC

Clearly, with all the money they have spent, Vonage has become a consumer brand and that label is going to stick. That to me is one of the challenges the company will face when trying to diversify its customer base. Still, I think it is a laudable move in a new direction, where the ARPU is hopefully going to be higher. Lets keep a close eye on this one.