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Can Anybody Tell Me Why Vonage Isn't Toast?

Posted by: Rob Hof on May 16, 2006

My colleague Olga Kharif raises questions about whether Skype’s new plan for free calling to U.S. landlines means growth in the States isn’t up to snuff. Well, maybe, but I have a feeling there’s more at work here. (And for the analysts in the story who can’t figure out eBay’s strategy for Skype, check out coverage of eBay’s analyst day, when the company provided some pretty tantalizing if still speculative possibilities.)

Andy Kessler suggests it’s a timely shot at Vonage and its IPO. Sounds about right to me. Skype still isn’t a snap to use for the average person, even with the new phones coming out that let you use a regular-looking phone to make both Skype and landline calls. Even so, I tried one out over the weekend, and when I called my dad—a former GTE (now Verizon) exec who knows a little about voice quality—asked me where I was calling from. I expected to hear that the sound wasn’t very good, but no—he said it was the best sound quality he had gotten on a call from me in weeks—better than landline!

Meanwhile, out of the blue last week, I also got a box in the mail with a Vonage CD in it. Shades of AOL’s glory days. That can’t be cheap, and smacks of a little desperation. Even if I made $25 worth of long-distance calls per month, which is rare, I just can’t see why I would pay $25 for it when I can call for free. Anyone?

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Reader Comments

Venky Ganesan

May 17, 2006 09:36 AM

Have you tried Jajah ( They offer a service which is very simple to use with no downloads, no software and no headset. You just type in your number and the number you want to call and voila you are connected. Vonage is toast in more ways than one


May 17, 2006 11:41 AM

Skype does NOT pass the grandma grandma will NEVER talk over skype......but, she can pick up the phone and dial ""ONE"' and the Area Code and the Number talking over a VOIP VONAGE phone!
Skype is the great GEEK tool, Vonage is my grandma's phone.........ask WHO carries both SKYPE and VONAGE Traffic??????? Answer Level3

Mike Morin

May 17, 2006 12:03 PM

I think your view on Vonage is a little skewed. It is not just a long distance service, it is also local, just like Ma’ Bell, only a lot cheaper. I went from paying $43+ a month with Verizon LOCAL ONLY service, to $26 and change, with taxes, and I can call anywhere in the US and Canada. Plus you can get virtual numbers, 800 numbers, emails when you have new voicemails, check your voicemail online, and have calls forward to a cell phone when you travel.

The down side is that you need broadband, which where I live runs me about $45 a month, but Comcast, my provider, does not offer phone service in my area. So previously I was paying around $90 a month for Internet and phone, so I save about $20 a month.


May 18, 2006 12:07 PM

skibare is correct. You're not paying $25 for long distance. You're paying $25 for a full service, local and long distance phone provider, with free unlimited LD calling to the US, Puerto Rico, Canada and 7 European countries. And while you do need to pay for broadband service (I pay $42 per month for Comcast) if you would have broadband anyway it's a no-brainer. I would have Comcast even if I had the misfortune of still needing Qwest for my landline, because, despite the misconception of the ill-informed, Comcast is a far superior product to DSL, dollar for dollar, Mb for Mb. Hell, just keeping MSN out of my life is worth it!!

Vonage is definitely the one to beat in the market right now. As long as they can fend off Comcast's and others' attempts to "compete" with them by trumping up this "preferred bandwidth" crap, that routes data from providers who don't want to pay a premium over non-direct hops.

If you're going to write a column about technology you should know a little about the technology you're writing about.

Robert Hof

May 18, 2006 12:38 PM

Roger and skibare:
I'm well aware that Vonage isn't just long-distance, but free long-distance is the key value proposition that Vonage itself puts forward. As you note, you need broadband to use Vonage. I've got DSL and don't want to go through the hassle of dealing with a switch to cable broadband. Neither do millions of people using DSL, nor do a lot of people trust that VOIP will work during a power outage or other emergency.


May 18, 2006 01:54 PM

Free long distance is a nice feature, if you use it. But $24.99 just for local service is well worth it, given the fact that Qwest charged me about $45 a month for my landline, with fewer features, before I even started paying my per-minute LD charges. The free long distance is gravy.

As far as switching, if you want to use an inferior product (DSL) just tell your telco you want naked DSL. Oh, they won't sell it to you? Maybe that's because they know they'll have trouble continuing to sell their lousy telco service if they don't bundle it with DSL.

And you're right, VoIP might not work with a power outage, unless you have a very nice UPS system in place that powers your broadband connection as well as your VoIP converter. But guess what. The millions of people who have only cordless phones in their homes now will have the same problem with telco lines. Ever hear of a cell phone? Of course you have. That's what I would use if I had a power outage. BTW: I've had one in the two years that I have had Vonage. And Vonage offers an automatic forwarding service that will re-route your calls to another number (such as your cell) in the event of a power outage.

Look, I'm a tech geek, but I only buy technology that is going to improve my quality of life. Vonage has done that. I pay less, and my phone service (so far) is every bit as seamless and reliable as it ever was with Qwest. I know that Vonage has some issues and obstacles to overcome, and they may ultimately be the Univac of the VoIP age, but comparing them to Skype is not fair at this stage.


May 18, 2006 03:43 PM

Being relatively new to Skype this is how I see it: Vonage replaces your phone. Skype doesn't. You need your PC or laptop to use Skype, you need a handset to use Vonage.

Plus -- very importantly -- Vonage offers 911 service, Skype doesn't.

I'm with Roger on this. Vonage has some fantastic features (which I'm sure SunRocket, Lingo, and other competitors offer) like call forwarding in the event of an outage. And the price is unbeatable given the features -- my husband's a former AT&T staffer, and our Vonage bill is, on average, $50 less per month than it was, even with his employee discount.

Eventually, I see Skype becoming the replacement phone. It's just not there yet. (And I can't imagine it will still be free when it is!)


May 18, 2006 05:04 PM

BTW: I'm not participating in the Vonage IPO. While I believe in their product (for now) I see too many instances like this one, where the supposedly "informed" media doesn't know all of the facts. If you guys can't get it right, how can the public, who relies largely on what they read in print, be expected to know enough about the products to make intelligent choices.

"Grandma" isn't buying Vonage because she's being told they'll be out of business tomorrow, they're too hard to use, etc., none of which is true. This, of course, will keep Vonage from reaching full potential, and will keep its stock price down.


May 18, 2006 07:53 PM

Skype passed my grandma test. She is 84, speaks Zero english and uses our laptop to call on skype and to chat using skype to Europe. She can barely type a few letters at a time but with enough time to teach her to use Skype for calls...she used it daily!


May 18, 2006 08:27 PM

Robert Hof, I had DSL with Vonage in the last place I lived. Maybe you also need to get your facts about technology straight.

Rob Hof

May 18, 2006 08:32 PM

Tyler, what wrong facts would those be? I didn't say you can't have Vonage with DSL. I just don't see an overriding reason for most people to spend $25 a month on Vonage when you can use Skype (and for the rest of the year, for free on outgoing calls in the U.S.). Clearly, Vonage is great for some folks, but you have to wonder why, if it's so great, it's still losing so much money.


May 18, 2006 08:42 PM

Well you were dogging Vonage saying you needed broadband and that you and others wouldn't want to switch to broadband from DSL. Your statement:
> As you note, you need broadband to use Vonage.
> I've got DSL and don't want to go through the
> hassle of dealing with a switch to cable
> broadband. Neither do millions of people using
> DSL ....
is wrong.


May 23, 2006 03:15 PM

...I'm gonna side with Aimee on this one. You still need a pc/laptop to use skype. Also, skype is only free till "the end of the year." What then? I guess we'll have to wait and see how competitive they're gonna be... vonage's network availability # fwds all calls to a different phone # in case the vonage box is unreachable (i.e. power/internet outages). (of course, there are a LOT more ways you can program this and similar features). I am personally saving about $50/month in just phone service since switching to vonage. With Verizon's unlimited local/LD package of $55/month+tax, my bill was out into the $70s-range/monthly! Vonage = $27.42/month (approx)(plus more features like voicemail).........

As for the DSL & Cable issue ...
Vonage will work with both. The only advantage of Cable over DSL (in reference to Vonage) is the way vonage will be setup. if you have no power going into the phone lines throughout your home - then you can plug your vonage box into the wall and convert all the other phone jacks to run with vonage! this can't be done if you have DSL because they send power thru your phone lines. in this case, you'll have to get those cordless phones with multiple handsets (or rewire ur home).


May 23, 2006 11:47 PM

I've been using Vonage for over 1.5 years now and unless something bad happens you're not going to see me go back to a landline. 25 dollars for unlimited calls and while I wouldn't use that much minutes with a landline/regular telco .. none of the telcos can beat that pricing with the features that Vonage offers for free. Great ... I need highspeed, but I had that already and would need that anyways for my work even with using a regular phoneline. Kudos to Vonage for shaking up the Telco world ... but I guess there are some people left to realize this.

It was interesting to see the scare tactics the telcos used .. the 911 functionality, poweroutages etc.etc. I've got 2 cellphones in my family in house, so if the power goes out I'll use those.


May 25, 2006 04:01 AM

I can understand the Vonage love fest here but... I gotta agree with Rob, I don't see any reason for this company to survive.

VOIP in general? A fine idea. Vonage? Destined to be a "me too" VOIP company whose main differentiator is that they spend a lot more on advertising, thereby losing money a lot faster. Didn't we learn circa 1999 that that model doesn't work?

Face it, the IPO was a way to cash out before the house crashes. You win, Vonage: Your insiders got their big payoff before the company hit the scrap heap.


June 10, 2006 09:33 PM

Skype with free calls to landlines sounds like the way it was with Net2Phone before they started charging.

I agree why isn't Vonage toast yet? Not because of Skype but because of their awful service myself and many others have gotten.

Seeing hte prices fall on their stock is almost like sweet revenge.

By the way what is on the CD from Vonage? I never heard of anyone getting a CD before


June 11, 2006 04:35 PM

Quote from Robert:
"I've got DSL and don't want to go through the hassle of dealing with a switch to cable broadband. Neither do millions of people using DSL, nor do a lot of people trust that VOIP will work during a power outage or other emergency."

Well, Robert, I guess you're right...because we all know that your PC and your router will have power when power outages occur. When that happens, you can use skype...let me know how well skype works without power...just post a blog about it on your computer (your power defying computer).

-Cost as opposed to landlines
-911 service
-Loads of features
-Ease of use
-Ease of setup
-Great referral program
-You don't have to be at a computer. I don't know about you, but most people don't have a wireless headset for their computer...which brings them back to the 90's..talking on a phone that requires them to stay seated at a desk. You also have to turn your computer on, open skype, and control it with the mouse and keyboard. I don't know if your mind is capable of multi-tasking, Robert, but I sure do a lot of it. For instance, I am checking my voicemail right now while I am typing this comment, which I could NOT do on skype.

You have failed to see that Vonage is a great product for some people, but not for all. It's a mix between Skype and a landline, cost-wise.

Please try to write news a little less skewed. You're underestimating your readers.


June 12, 2006 12:26 AM

I am not impressed with Vonage, simply the hassle of replacing the equipment and that I have to be with cable and just swithed regret but now I am in a contract and DSL is deffinately not the way to go not reliable at all. Vonage has this feature take Vonage with you when you travel but I think it is a little shaky they do not explain exactly how that would work you need your lap top or PC with you. I travel a lot and sometime my roaming goes out of whack, I cannot afford to use my cell phone as much even with National plan, so I wanted to use this Voip, I found this one company called Viper Networks and they seem to have the right solution, their travel phone (looks like a cell phone) automaticaly connects to the WiFi (you do not need a lap top) just as your lap top does and you just start making calls, however you do pay 2.9 cents per min anywhere in US, better then paying 45 to 75 cents when you go over your plan minutes, only thing you have to caution is that toll free calls are not toll free so you have to be carefull. Anyone have any experience with Viper please post you comments. Vonage will come out of this tough battle but there will always be more to fight off (specially this Viper could strike at all with deadly fangs). Watchout VOIP Providers...........

Henry Williams

July 19, 2006 02:37 PM

Vonage is a slam dunk for me.

I'd been using Skype for around a year, with incoming lines in the US and the UK. I often Skype'd this out to my cell in whichever country was in. The combination often delivered poor voice quality.

Vonage is something different though. The quality is infinitely better, and the ability to sit talking on the phone rather than having to be near a computer is great. Also, the virtual numbers in the UK are great.

Added to that, free calls to the UK, call hunting, and I'm very very happy (as is my girlfriend). I just give out the one number to everyone and they can get me wherever I happen to be.

John M.

August 7, 2006 05:48 PM

Viper is the ticket!!! We recently hooked up and the transititon was seamless. After giving Viper our information, we received the hardware (adapter), plugged it into the router, plugged it into the wall, and plugged our own traditional phone into it. The phone just worked! This service is Fit, Form, and Functionally compatible with the traditional service we were paying many times more for. We signed up for the 600 minute package at $15.99 / month. On the Viper website you can access your account, forward calls to another phone or e-mail, etc... This service is working out great if you are looking to save on phone service I would not hesitate to hook up to Viper.


January 17, 2007 04:55 PM

Rob Hof is what we call in spanish a pendejo (go ahead, look it up), I plan on switching to cable internet, dropping Ma Bell phone/adsl, and using Vonage, with all the same phones thruoghout my house, and save a load of money. Try doing that with Skype and the specialized equipment, can you say mucho dinero?

-Nunya (as in nunya biznez)

c wagner

February 21, 2007 11:58 AM

I agree with the commenters that voip works best when it doesn't require the PC to be on. You'd think Skype would have an adapter available to make it comparable to vonage. What I really like about voip is having 'virtual numbers', but Vonage doesn't do the country (russia) i needed. I signed up with a small company called telphinusa out of Boston to get a 'local' russian number for $20/mo in addition to my $14.99 vonage number and so far it's been an excellent combination. Someone made a comment that you can't hook voip up to your whole house phones. I think you can - just have the dsl line run to your voip adapter and have the rest of the house phones isolated from the telco but plugged into the adapter. Now I just need to switch out of cable to DSL to do this and cut my costs a bit further!


March 12, 2007 11:05 PM

Having been burned by working for and investing in enough tech start ups, I'm somewhat mesmerized by the fact that Vonage is still around. Apparently, there are enough masochists around to keep the company afloat.

If someone can define the perfect target user for this service, their motivation and resulting, realistic revenue stream forecasts, I will print my response out and eat it. No kidding!

Customers with enough cash to afford broadband have high end cell phone plans and don't give a doo doo about free long distance. Long distance has been a commodity item for a long time. Local service is almost passe. Perhaps I'm way off base here?


May 9, 2007 08:31 PM

The only thing I want to know is will my telco sell me DSL service without me using their local phone service?
I saw a few years back where the FCC ruled that they didn't have to.
If I need local service to have DSL, then why do I need Vonage when I already have local service?
It seems like a service for those with cable modems.. and I personally don't see the savings paying for cable internet and vonage over local phone and DSL service.
I understand the Vonage saves on long distance, but I have a cell phone with free long distance already. How much can I talk on the phone long distance to begin with?

I'm with Mike.

Al Engel

August 16, 2007 06:09 PM

I went back to the phone company I started with in
Madison, SD. Named Prairie Wave, I have Fax, phone,High speed internet and TV all on one bill.
Qwest offered phone, internet service, but the only TV they offered was DirecTV, which requres the installation of an outside dish and additional
fees. I live in an apartment building with 7 other
apartments-8 total; so service would have to be
offered to all of them-something the landlord
didn't want to do. No, I don't have a cell phone
either-got ripped off by Verizon. So I use Trac
Phone and pay for minutes? Anybody got a better
idea on both services?


November 23, 2008 05:32 PM

Al Engel i think you need to try vonage out,you might be like it.We only pay $30 per month on unlimitted local and long distance.if you travel alot you can take it anywhere with call anywhere in us,canada and poto rico..think about it, ithink this is the best phone service we got now

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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