Independent VoIP provider Vonage released its Q4 06 earnings results today and although the financial results looked OK, the subscriber data portend a bad end for Vonage.
Vonage’s earnings call was such an uncomfortable thing to hear. While the assembled executives talked about kiosks in malls and repositioning the product for the mass market and Vonage’s recent deal to bundle EarthLink’s broadband service in a package, I couldn’t stop staring at what looks like a terminal sentence for the VoIP company.
Every single subscriber metric held bad news for Vonage. It’s like watching, if not a plane whose jet engines had just stalled, then a train careering downhill fast.
For example, although Vonage’s total subscriber line count keeps growing, it does so at increasingly decreased rates. Looking at the chart below, you can see that Vonage’s total subscriber base grew by a sequential 8% in Q4 06 (from 2.057 million at the end of Q3 06 to 2.22 million at the end of Q4 06). But, that’s a huge drop from the sequential growth rate during the year-ago quarter. From Q3 05 to Q405, Vonage’s total subscriber lines grew by 20%, from 1.06 million to 1.27 million.
Measured another way, Vonage’s net subscriber line additions keep dropping, and they keep dropping at an accelerating rate. Look at the table below. In Q4 06, Vonage added 166,267 net subscriber lines, a run-rate down 20% from the 207,252 net subscriber lines added in Q4 05. Compare this to the quarter-over-quarter net subscriber line adds for Q3 06 — Vonage added 204,591 net subscriber lines, down only 4% from the 213,957 net adds in Q3 05.
Or, even more damning, Vonage has reached the point where it’s only retaining about half the new subscribers it gains. Look at yet another table (I told you I was transfixed by the subscriber data), below. Back in the first quarter of 2005, Vonage’s net subscriber line additions were equal to about 89% of the gross subscriber line additions. But, during Q4 05, net subscriber line additions were equal to only 53% of the gross additions.
One way to think about this: for every 100 new subscribers who sign who for Vonage in any given quarter, about 47 existing or new customers cancel the service. Making this situation far worse is that Vonage is forced to spend more and more money for each new sign-up — during Q4 06, Vonage spent $306.26 in marketing costs for each gross subscriber line addition; that’s up 25% over the $244 marketing cost per gross subscriber line addition for Q4 05.
Vonage is banking on its new long-term contract and EarthLink programs to boost growth ahead (the company predicts it will add 675,889 to 875,889 net new customers during 2007). But, the fact remains that cable companies, with their attractive triple-play bundles, and telcos, with their attractive mobile-landline voice bundles, are far too potent for Vonage to fight.
The sudden slow-down in Vonage’s growth rate over the past two quarters is evidence that cable operators and incumbent telcos are already hastening the ultimate trainwreck that lies ahead for Vonage.
Posted by Cynthia Brumfield at 11:11 PM | Print | Comments (0)Richard Hoffman at Information Week has this very good article about U.S. broadband deployment and subscribership, and whether the country lags behind the rest of the world. Richard has unpublished data for December 2006 from the Pew Internet & American Life project that pegs residential broadband penetration in the U.S. at 45%.
That means less than half of U.S. homes have a broadband connection to the Internet. Policymakers continually debate whether the U.S. is in a good or bad position in terms of broadband deployment compared to other nations, and the answer depends on how you analyze the data. No matter how you cut it, however, the U.S. doesn’t rank anywhere near the top 10 globally on any broadband access measure.
The picture would be even worse if speed of service were taken into account, but nobody, particularly the FCC (which defines broadband speed as low as 200 kbps), has data on the speeds of broadband service in the U.S.
Japan’s fastest-growing broadband service offers speeds in excess of 100 Mbps, and Korea offers 100 Mbps uploads and downloads. Most current U.S. customers are lucky to get one-tenth or even one one-hundredth of that speed, particularly for uploads — and they pay more for the lower speed.
By OECD estimates, the U.S. price-per-megabit of connection speed is more than 10 times as high in the U.S. as in Japan. And for sheer speed, overseas offerings blow the U.S. away. While major U.S. carriers, such as Verizon, report initiatives to bring high-speed fiber to the home, and a Verizon spokesperson reported current plans to reach 3 million homes per year with high-speed fiber, that’s roughly 1% of the U.S. population, even if that target is met. Only 1% to 2% of U.S. broadband users in Pew’s latest study report having fiber or T1-speed access, while some other nations are more aggressively pursuing deployment of fiber to the home and other forms of very high-speed connectivity.
Experts who defend the country’s relatively poor showing do so using several arguments, all of which Hoffman knocks down. First, they say, the U.S. has a low-level of population density compared to, say, Korea, and it’s difficult to build infrastructure in rural areas. But, even less densely populated countries still beat the U.S. at the broadband game, Hoffman counters.
That argument falters, however, when one considers that five of the 11 nations that lead the U.S. in per capita broadband penetration, including Iceland, Finland, Norway, Sweden, and Canada, have significantly lower population densities than the U.S.
Another argument: some of these other countries are more affluent when measured by per capita income. Um, no, says Hoffman:
Despite its comparatively high poverty rate, the United States is ranked second overall for gross domestic product among OECD nations, ahead of every nation except Luxembourg, and the World Ban”s latest numbers for 2005 estimate the U.S. is seventh in worldwide gross national income per capita, and third in per-capita purchasing power. As a rule, prosperity clearly correlates with broadband access, but the United States is comparatively more affluent than most of the nations it trails in the broadband arena.
Yet another argument: other countries have younger populations than the U.S. Think again, says Hoffman. The U.S. has a statistically younger population than virtually every other developed nation; only Korea and Iceland beat the U.S. on this measure.
The U.S. has no government policy that favors more and faster broadband connections, unlike most other countries (particularly Korea) that top the U.S. In fact, the free market approach so characteristic of this country is the cause of the country’s broadband failures.
Yet the intensely “hands-off” market-driven system in recent years seems to have resulted in a chaotic and inefficient marketplace, and one that doesn’t represent the true state of the United States as a technology leader. Laissez-faire isn’t a viable stance if the goal is to compete most effectively against other industrialized nations.
On January 31st, I listened to a panel of experts debate this very issue at the Congressional Internet Caucus’ State of the Net Conference. Mark Lloyd of the Center for American Progress spurred laughter when he pointed out that the U.S. isn’t even keeping pace with Canada in terms of broadband connections.
We are fundamentally behind Canada in terms of both speed and price. Forget some isolated island somewhere.
That comparison said it all to the group of policy wonks in attendance. It’s one thing for the U.S. to fall behind far-away and demographically different countries, but it’s another thing for the world leader to fall behind Canada.
Posted by Cynthia Brumfield at 9:21 AM | Print | Comments (2)
Scott Kirsner at The New York Times has this piece today about how user-generated videos are starting to pay off — in cash. One fellow profiled, an amateur magician, earned $13,000 so far from 30 short clips he posted to Metacafe.
Metacafe pays creators $100 when a video has been viewed 20,000 times and $5 for each additional $1,000 views. The payoff for Metacafe, and for the pioneer of the practice, Revver, comes when a viewer clicks on an ad at the end of the video. Metacafe’s Arik Czerniak claims that a popular video can get 500,000 views in an afternoon with just a thumbs-up from a pool of “video-addicted” reviewers.
The Diet Coke-Mentos guys earned $35,000 from their oddly viral video, while Kent Nichols, one of the Ask a Ninja guys, claims he earned $20,000 last year on Revver (that was, of course, before Ask a Ninja cut a deal with Federated Media worth $300,000/year.)
Break.com will generate for its creator at least $400 for an accepted video and $2,000 if the video makes the home page. And let’s not forget, although the Times’ piece doesn ‘t mention it, that Chad Hurley sucked the oxygen out of the blogosphere during the Davos summit by merely suggesting that YouTube would start paying creators for their videos.
Is all this payment fomenting a new generation, or a new category, of “entertainment professionals?” People who apply their talents to scooping up the bits and pieces of money doled out for web video (and admittedly some of these payments are big bits) and cobbling them together into full-time jobs? Although we’ve seen a few folks turn this pay-per-view system into a vocation, can it continue?
Posted by Cynthia Brumfield at 7:21 AM | Print | Comments (2)
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