Are VoIP Service Providers Making a Comeback?

Jon Arnold, unlike many of us naysayers has become increasingly bullish on competitive voice service providers (CVSPs) such as Vonage and Telio, and predicts sunny skies for them. Since then several others have joined the conversation. Moshe Maeir of Flat Planet Phone Co. wrote to us and pointed to one of his posts, arguing that the numbers make CVSP a great business.

Lifeblog postThat is, if you don’t take into account the marketing costs, which even Arnold acknowledges, remain a problem for Vonage. Take for instance this recent promotion we received from Vonage. They want us to come back to service and they would give us two months for free. Or about a $50 discount, so the annual revenues are already down to about $265 per customer. Or the recent promotion Vonage is running with Circuit City, where they are giving away $200 gift certificate applicable towards a Vonage service.

The slowing subscriber numbers, and increased competition from the bigger, well-funded rivals such as Cable operators and phone companies, is our big concern, but hey that’s just us! We still remain highly skeptical of the current model where the competing on price.

The sharp increase in the numbers of CVSPs hitting the dirt might have something to do with our skepticism. As one of our readers very succinctly wrote, “Just like in the Long Distance industry, the cost of customer acquisition is too high and the retention is not there.”

The post first appeared as part of GigaOM Weekly Newsletter emailed on November 26, 2006.