The half-empty argument is pretty straightforward and buried at the end of the company’s rah-rah “We’re in the black” verbiage. Vonage lost a net 89,000 subscribers [...]]]>

I’ve been spending the last day staring at the ocean and pondering what the latest financials for Vonage really mean.  Is the glass half empty or half full?

The half-empty argument is pretty straightforward and buried at the end of the company’s rah-rah “We’re in the black” verbiage. Vonage lost a net 89,000 subscribers last quarter, which is chump change with around 2.5 million subscribers on the books, but the company’s run rate in adding subs has slowed for a while, then went red last quarter with a  net loss of 6,000 subs.

For a while, Vonage was parroting the “When the economy is bad, we’ll gain because we’re a cheaper alternative to domestic phone service” babble, but the trend line for new subs is downward trending. Time to face facts: The very cheap are going to MagicJack and the thrifty-minded are taking advantage of triple-play bundling by telcos and cable companies.

Add onto this problem #2: Vonage’s monthly churn rate has risen from 3.1 percent per month to 3.2 percent.  No matter how you slice it, Vonage has been around the 3 percent range for churn, so this is an ongoing problem that they haven’t managed to manage yet.

Finally, we come to chronic problem #2: cost of customer acquisition.  This quarter, Vonage spent a whopping $363 per signed customer, a number that has gone UP  both from the last quarter and on a year-to-year basis. This time last year, Vonage spent $283 per customer, while last quarter the company “only” spent $290.

Double-wammie here is that market expense was down $14 million from the first quarter as Vonage “eliminated redundant spending, offset costs for prior period promotions and transitioned to a new marketing campaign.”  Sooo, they cut their marketing expenditures and raked in fewer customers per dollar spent — it ain’t pretty.

For the price of of what Vonage spent to acquire new customers, ooma would have given each customer new phone hardware, five years of phone service — and still have around $113 or so left over at list price (plus $20 more for the sale this week as ooma unloads generation 1 hardware).

Balance that against the half-full argument – record earnings of $31 million, making the seventh consecutive quarter of positive and increasing adjusted EBITDA.  There’s a bunch of new (for Vonage) products in the pipeline to leverage its existing customer bases, with plays in the mobile and international markets. Vonage also believes that its new marketing campaign will drive more customers…. we’ll see. It also has lowered its total cost in delivering phone service, but the costs per line are up about 9 cents. (Multiply by 2.5 million to figure out the real money).

Vonage has a long way to go before it breaks out the champagne.

Leading the round was Worldwide Technology Partners. and the deal reportedly wipes out (probably dilutes out) the other investors. TCrunch says that ooma was “really on the roaps and [...]]]>

TechCrunch says ooma has raised another $14 million, for a total of $56 million in VC money raised over the course of the company’s history.

Leading the round was Worldwide Technology Partners. and the deal reportedly wipes out (probably dilutes out) the other investors. TCrunch says that ooma was “really on the roaps and down to its last few dollars,” but sales at Best Buy are rockin’ and the company should reach profitablity with the newest round of financing.

No doubt ooma was really screwed up at first launch. The gear was too expensive ($399), the consumer message was confusing, and there was way too much Ashton Kutcher in the picture.

New management was brought on about a year ago and earlier this year CMO Rich Buchanan told me the company can’t ship product fast enough.  Buchanan is a big thinker and ultimately envisions selling millions of the units per year through outlets like RadioShack.  It’s a different mindset from the business VoIP community, for sure.

At first glance, I thought the ooma concept was a bit nuts, but when you walk through the business model — pay for the gear up front, around 5 years of phone service are baked into the price, make money off the value-added services and hardware upgrades — it starts to make a whole lot of sense.  There is a lot of processing firepower built into the ooma device (Linux-based OS with Asterisk on top) and the second generation Telo will support HD through G.722.

Consumer retail is the first distribution path for ooma, but there are some interesting plays to be made with white label (cable companies offering HD voice, anyone?) and the always-looming SMB market.

Ooma announced today that its products/service will be available through 3,000 RadioShack stories nationwide.  The company bundles free lifetime PSTN local and long-distance US. phone service in with its VoIP broadband phone device. IP communications [...]]]>

Edited/Corrected on 6/2 @ 3:05 PM ET – ooma’s new product will support G.722, added comment about new codecs

Ooma announced today that its products/service will be available through 3,000 RadioShack stories nationwide.  The company bundles free lifetime PSTN local and long-distance US. phone service in with its VoIP broadband phone device. IP communications geeks will love it because it has Digium’s Asterisk under the hood and the new Telo product supports the G.722 wideband codec.

Currently, the ooma system is a $250 hardware bundle that includes a Hub connecting to a broadbna device and an existing phone plus a Scout device to extend the ooma system to additonal phone jacks in the home.  Basic dial tone and long distance services are included while users can pay for an advanced features bundle starting at around $13 a month or $100 a year.  Ooma has the math worked out such that buying the bundle will cover both the hardware and around five years of local and long distance phone calls for a typical user.

The second generation of ooma, Telo, will be available in the third quarter of this year and include the aforementioned G.722 codec, a faster processor — a dual core ARM from MindSpeed, if memory serves –  plus optional DECT 6.0 wireless handsets.  Software upgrades to Telo may include support for iSAC and Skype’s SILK. Additional hardware refreshes are part and parcel of the company’s roadmap.

Ooma’s “secret sauce” is to push most of the routing intelligence down to the device, leveraging Asterisk to handle where calls are directed (i.e. to the lowest-cost network if it is not making a “free” peer-to-peer call).  The company also touts its better call quality through the use of higher quality codeces for calls between devices.

Ultimately, ooma wants to flood the market with its devices, so adding RadioShack illustrates a steady expansion of its footprint beyond its relationship with Best Buy.  Once the production lines are cranking, I wouldn’t be surprised to see ooma make an appearance at either Target or WalMart.  Ooma CMO Rich Buchanan is an old hand at the consumer electronics game and thinks in terms of millions of units as his benchmark of success from his previous stints at Sling Media and Creative Labs.

Two other cards ooma may play down the road are SMB and white labeling.  The basic ooma hardware/service could be bundled and shaped for a small office SMB-style environment while the use of Digium Asterisk could enable various code-loads tailored to cable operators and vertical markets.

The lowest [...]]]>

One of the missing pieces out of the HD Communications puzzle is standards — yes, plural.  There are plenty of codec standards, mind you, but what defines an HD phone call, really?  The telecommunications industry may have to borrow from a page from the TV world at some point down the road.

The lowest common denominator (LCD) for wideband codecs seems to be the almost archaic G.722 — but longevity and a little tweaking over the past couple of years isn’t a bad thing, mind you.    Manufacturers have embraced and incorporated the codec into their hardware and it has become a part of the DECT CAT-iq cordless home phone effort — and DECT CAT-iq is the HD/cordless standard for the cable industry.

Companies onboard with G.722 in handsets include VTECH, Siemens Gigaset, ooma in the consumer world and Avaya, Cisco, Polycom, and snom in the business arena.

Going into the wireless world, the standard with the most traction is AMR-WB, also known as G.722.2.  Spectral efficiency is the name of the game, so there’s a different manipulation of the media stream to conserve bandwidth and this segways into transcoding.

Can you do better than the two existing LCDs? A number of parties believe they can for various reasons, including bandwidth efficiency, CPU optimization/trade-offs, and the like.  Skype’s SILK codec is probably the best/most publicized effort for Yet-A-Better (YAB) wideband codec for speech applications.

What if you want to go beyond the LCD and get the very best experience, period?  There’s no definition yet for that in the HD phone call world which puts us slipping towards the Digital TV world to borrow some concepts.   Under this to-be-defined-framework (Hello? HD Connect? Hello?), a PSTN call would be “standard definition” and the baseline service when HD wasn’t available.  The next step up would be in the G.722 and AMR-WB frameworks — the equal of the 720p in the wireless and wireline worlds.

Finally, at the top of the heap would be a 1080i/1080p standard, for the very very very best in sound quality.   Is this something akin to CD quality? Or do you go higher and provoke a fight with audiophiles and embrace DVD Audio or something equally challenging?

Be interesting to see what Jeff Pulver thinks about this framework.