INNOBLOG

So, Vonage has raised a hefty chunk of change from venture capital investors. That must be good news, right? Perhaps. But think about why Vonage needed that money. It raised about $100 million last year, but it continues to be expensive for it to attract subscribers. It has to keep its price at rock-bottom levels because cable companies and phone companies are introducing their own competitive services. As weve written before, the best growth strategies take advantage of asymmetries of motivation, where one company does what its rivals is motivated not to do. The VoIP strategy Vonage is following goes straight after markets that matter dearly to large, powerful companies. So it just has to spend aggressively to continue to maintain traction. Of course, perhaps Vonage can still raise enough in an IPO to justify the hopes of its investors. But the very fact that it needs so much money just to stay the course should be a warning size for its ultimate viability, unless its long-term dream is to sell out to a large telco or cable company to be its white label VoIP provider.