Update April 6, 2007: Vonage fights for its life as judge rules it can't add new customers because of a patent violation. Stock down 80% since IPO last May... Temporary injunction subsequently granted. Vonage's lawyer says: "It's the difference of cutting off oxygen as opposed to the bullet in the head."
Original Post May 29 2006: Vonage's first two days of trading after the IPO didn't work out so well. This got me thinking, is Vonage a great growth company that is being misunderstood by investors? Is it the next great market disruptor?
Compared to mainstream telephone companies, Vonage looks disruptive in some ways:
- New business model
- New features
- Low priced service loaded with features
- High subscriber growth
But, using a Disruption ScoreCard (more tools for managing disruption from The Disruption Group's site) Vonage looks like it falls short. Why? It isn't really creating a new market. It seems to have a dotcom business model (high growth now, worry about profits later) and it isn't standing on its own in terms of unique attributes.
We may be all wrong, but our Disruption Scorecard tool gave Vonage a C. Maybe we are being too harsh here. Download the file to see our assumptions and to try your own assumptions.
We welcome your comments on the Disruption Scorecard tool and the criteria as well as the grades we assigned to Vonage.
Download Vonage_Disruption_Scorecard_v1.31.xls
** Other Information **
Read the full article 'Vonage Destructive'(pdf) published in the Financial Post May 29, 2006.
Full archive of On Disruption columns published in the Financial Post.
BCE exec Lib Gibson considers Vonage a disruptor. Gibson has a lot of experience on the subject and is profiled as a voice of disruption in Clayton Christensen's Strategy & Innovation newsletter. Her discussion is insightful because it looks at the market perception of "good enough" telecom service, which has moved down from 5-9s reliability.
VoIP expert Rich Tehrani has an interesting take on Vonage... discussing its attractiveness as a takeover target by foreign telco seeking to break into the U.S. market. That would be disruptive.
Broadband expert Om Malik points out, scrubbing the prospectus, that Vonage's estimate of 2% customer churn per month may actually be higher.

Following a law suit from Verizon last year, Vonage was found guilty of infringement with regards to Verizon patents, and is now liable to pay $58 million. The case was about the way in which Vonage connects its VoIP network to the PSTN, and also about its call forwarding and voicemail techniques.
What's worse for Vonage is that Verizon has also requested the jury that Vonage be denied the right to allow its users to connect to the PSTN. If this request is accepted, Vonage users will be able to make calls only to other Vonage users! That would drag Vonage from the best to one of the worst VoIP providers! The verdict will fall on March 23rd. Let's hope something that drastic
Posted by: Anonymous | March 24, 2007 at 02:51 AM
Hi Michael;
You were nice enough to post a comment to one of my Vonage posts about how according to your scorecard, they weren't very disruptive at all.
As you requested, I had a look. Pretty interesting stuff. Takes me back to my MBA days studying strategy where we did a lot of stuff like this... We should meet up some time...
The scorecard is pretty neat, and I agree with your assessment. Check out my post from yesterday about Telio and their IPO. I’ll bet they’d score a lot higher!
http://blogs.pulver.com/jarnold/archives/2006/06/telio_a_better.html
Posted by: Jon Arnold | June 02, 2006 at 08:36 PM