VoIP pioneer Vonage is battling massive competition and steep (although narrowing) losses at the same time that subscriber growth is starting to slow. One strategy Vonage will pursue this year to maintain customer gains is to offer free professional installation in exchange for two-year contracts.
Speaking at Citigroup’s Entertainment, Media and Telecommunications conference in Las Vegas yesterday (webcast here), Vonage Chairman and Co-Founder Jeff Citron said that “one of our options [to lower acquisition costs] is to use contracts in exchange for professional installation.”
Customers aren’t likely to be turned off by the requirement given that cell phone companie have already established this sales proposition in the marketplace by subsidizing the cost of the handsets through long-term revenue guarantees. “It seems there won’t be much of a barrier from getting a commitment from a customer,” Citron said.
The long-term contract option could be particularly attractive given that new Vonage customers are no longer early-adopter technophiles but mass market consumers.
It “turns out the mass market materialized a lot faster than we thought,” Citron said, noting that the demographics of new customers changed materially in Q3 06, shifting away from young male early adopters to include women and suburban families. Citron cited this shift as the cause for Vonage’s growth slow-down — the company’s marketing efforts were geared toward young males and were missing the best prospects.
In terms of cable competition, the biggest threat to Vonage’s growth, Citron stuck to his position that a rising tide lifts all boats — i.e. cable’s efforts to sell VoIP are actually drawing attention to Vonage. “I think actually in some ways it’s helping us. As cable starts to market and advertise their product about cable voice throughout their footprints, we are seeing the mass market come around a lot earlier.”
Another interesting tack that Vonage might follow to spur growth: educate customers on their abilities to buy DSL service without also buying phone service from the incumbent telco, the so-called naked DSL option. Naked DSL is now available throughout the U.S. on the heels of AT&T’s agreement to make sure that this stand-alone option is offered in BellSouth’s territory.
Vonage may go farther than simply education customers. It may also set setting up a process that helps customers jettison their local phone service while keeping their DSL service. “To the extent that we could hold their hands in that process…that’s something we’re looking at,” he said.
Another growth strategy for Vonage is to partner with other service providers to offer bundled service. The company has already taken the first step by signing a three-year pact with Earthlink to purchase the ISP’s wholesale municipal Wi-Fi service and then resell it, along with voice service, under the Vonage name.
“We like bundling and we think we’re going to do bundling to enhance the relationship” with the customer, Citron said.
Cynthia Brumfield at 12:44 PM|Comments(0)
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