How Vonage is dialing up big money by pivoting to enterprise

Remember Vonage?

It was once the future. Cheap “landline” calls from home, only over the Internet. Don’t laugh. That was less than 10 years ago. Now for the surprise. Vonage is still around and it’s stock this year is way up — all thanks to a savvy pivot away from the consumer market and a timely embrace of the enterprise.

Vonage made an IPO in 2006, a year before the iPhone debuted. It was the beneficiary of wall-to-wall financial media coverage, with most of that coverage certain that this thing called “VoIP” (voice over IP) was going to remake the consumer communications market. The mad rush to IPO led to an inevitable backlash. CNBC’s Jim Cramer branded the new stock a “dog.” The company was sued by Verizon for patent infringement, then sued by investors when the IPO price quickly went south, then investigated by the feds for rumored short-selling misdeeds.

That was the small stuff. The bigger problem for Vonage was that its service, aggressively marketed to consumers, relied on routing calls via the Internet — over pipes the company did not own. This meant the owners of those pipes — Verizon, for example, or Comcast — could offer a similar service with lower costs and on the same bill as the customer’s Internet or cable TV package.

Vonage fought against this in large part through relentless advertising. Marketing could not stop the pace of technology, however. iPhone, Android, the rise of Skype, low-cost global messaging apps, all put relentless pressure on the margins of voice calls, which in turn placed relentless pressure on Vonage, chipping away at its very reason for existence. The many rumors of Vonage shopping for a buyer surprised no one. What is a surprise, however, is that Vonage has successfully embraced the latest communications craze.

It’s called Unified Communications (UC) — or Unified Communications as a Service (UCaaS) — and it’s a growing, multi-billion dollar market. UC includes not only voice service, but messaging, presence, video chat, and web collaboration. It is extremely important to businesses of all sizes.

The goal of unified communications is three-fold:

  1. Reduce total communications costs
  2. Enable robust, seamless communications across desktop phone, smartphone, the PC and the web
  3. Leverage these communication types to improve productivity and collaboration between staff, partners and customers

Oh, and UC must do these almost entirely over the cloud and with the same quality as traditional landlines or PBX, (and without a loss of uptime). Plus, UC should make it way easier for a business customer to change their service, to quickly add a new employee, or to bring a new office or franchise online. This is not a simple undertaking.

Businesses are not going to select their communications service provider based on the claims of a late-night commercial, and certainly won’t entrust such a critical need to a company with no control over its platform.

Not surprising, Vonage has succeeded in its shift to enterprise unified communications primarily through acquisition.

Last November, Vonage spent $114 million, mostly cash, to acquire Telesphere, an early player in unified communications. Telesphere offered business phone service, multi-point videoconferencing, mobile office solutions and, most importantly, its own nationwide cloud platform.

Vonage wasn’t finished. This past April, Vonage acquired Simple Signal, another unified communications provider, for $25 million. Whereas Telesphere focused on medium and large-sized businesses, Simple Signal focused primarily on smaller businesses.

But, wait. This is Vonage. What makes them think they can succeed in the business-focused unified communications space — beyond using their available cash to buy up existing companies? CEO Alan Masarek offered me a ready response via email, which I confess did mitigate some of my original skepticism.

“Our consumer business provides substantial and predictable cash flow.” This allows Vonage, Masarek said, “to reinvest in organic and inorganic growth.” He also stated that the Vonage consumer-side business drives brand awareness even in the business market — something his competitors do not have. Though he did not provide figures, Masarek said that the scale of Vonage’s consumer business, helps drive down operating costs.

For now, these efforts appear to be paying off. Vonage’s Q1 2015 revenues of $220 million were flat, though the business segment was up 49 percent year-over-year, to $42 million. As of the second quarter, business revenues are now more than 25 percent of total revenues. According to a Vonage spokesperson, Vonage’s 118 percent revenue growth leads the industry. Even better for shareholders, Vonage’s stock is up 85 percent since the company shifted to unified communications.

The goal now is to drive organic growth on the business side — not just buy customers. Shortly after the Simple Signal acquisition, Vonage brought in Ted Gilvar to oversee marketing. Gilvar’s mission is to promote the Vonage brand in the B2B space, particularly to small and medium-sized businesses. The company has just launched its “Business of Better” campaign, and is hopeful of a turnaround. At the very least, Vonage has managed to go from laughable to a company worth keeping an eye on.

Microsoft to shut down Messenger on 15 March 2013

The long-awaited announcement with a termination date for Microsoft Messenger has been emailed out to the 100 million users of that service. Microsoft will be shutting down that service on 15 march 2013. Last fall, Skype’s Tony Bates announced  the folding of Messenger into Skype (see Talk to your Messenger Contacts on Skype), and basically, they’ve been waiting to roll out Skype on all the new Windows Phone configurations.
Now Microsoft is only left with two instant messaging/video/voice solutions to juggle, Skype and Lync, their enterprise grade unified communications suite. My hunch is that they will converge these two — in time — under the Skype brand, which is widely known. And which now has an additional 100 million (or more) former Messenger users.

Aol’s Alto shows some UI innovation

Aol’s new cloud-based email service is more than just a pretty face. Developers should evaluate its UI techniques for their own products.

ShoreTel picks up M5 Networks for $146.3M

Sunnyvale-based IP phone service provider ShoreTel purchased M5 networks for $146.3 million. The deal is made up $84 million in cash and 9.5 million shares of ShoreTel stock. M5 will be operated as a ShoreTel business unit and will be led by M5 CEO Dan Hoffman.

Today in Social

So, in addition to formally introducing suggested Lists of friends, Facebook is introducing another one-way feed filtering mechanism: asynchronous subscription a la Twitter. Groups – where everybody knows they’re in the group, and who the other members are – are a Facebook’s communication mechanism aimed at nuanced and more private sharing. This new combination enables users to cut through some of the clutter in their feed, and to follow people that they aren’t friends with. Think of the two as a flexible, but overly complicated way of delivering some Twitter and Google+ features along side of Facebook’s reciprocal friending approach. I’ve written a lot about groups and feeds because they’re so critical to unified communications and web navigation. The key to adoptions is autosuggestion, rather than making mass audiences do a lot of customization – a blend of algorithms and specified preferences.

Assessing Unified Communications for the new way of work

Unified Communications (UC) is an umbrella term that covers the integration of real-time communication services such as instant messaging, presence information, telephony and video conferencing. So how can UC help your business, and what are the features you should look for?

Today in Social

Facebook announced three products at a press conference today: ad hoc group chat, a redesigned chat experience including a buddy list sidebar, and built-in one-to-one video chat from Skype. No money is changing hands between Facebook and Skype, but neither ruled out future distribution of Skype paid products. Video chat is free and nicely integrated, with a small java applet download, but no doubt the commentariat will say it pales next to Google+ Hangouts. Facebook CEO Mark Zuckerberg and Skype CEO Tony Bates both said 1:1 was the dominant video chatting mode, but Google’s centralized architecture makes it easier to deliver group video chat quality than Skype’s peer-to-peer approach. These new features and enhanced user presence discovery are nice pieces of a unified communications hub, but Facebook isn’t breaking new ground here. In his intro, Zuckerberg said this shows the industry is on the cusp of deploying apps on social infrastructure and Facebook’s focus is on the infrastructure rather than the apps. He said Facebook has 750 million active users, but the new metric will be how much stuff they share. That is increasing exponentially, driven by apps and mobile, and a little by sharing within groups (50% of Facebook users use Groups now).