Vonage’s resurgence with the return of JC

Vonage has recently undergone a flurry of changes in its marketing and operational strategy, according to the IP telephony company’s returning CEO, Jeffrey Citron (who is also, quite incidentally, the founder of the company). While stepping back into the shoes of the chief executive officer (he had left in February, 2006), Citron has admitted to observing that Vonage had somehow lost its way amid fighting lawsuits and the everlasting ambition to expand its business.
Citron is no stranger to the world of independent ventures. In 1992, he discovered the revolutionary Island ICN system, which allowed shareholders to trade shares by entering buy and sell orders into a single database, which he sold in 2002 for $503 million. Besides that, he founded an online brokerage firm, Datek Online, which was sold for $1.3 Billion, also in 2002. Although he got into an illegal trading dispute with the SEC which was settled after paying a fine of $22.5 million, I’m sure there are a lot of similar, and bigger things, to talk about in the world of entrepreneurship. After investing more than $50 million of his own money into Vonage, and bearing witness to its dwindling stock (below 89 percent from its IPO of $17 when in decided to allow public shareholding in 2006), it is quite obvious that he is concerned for his brainchild.
To begin with, the immediate issue at hand is most definitely Vonage’s failure to handle its customer base. While its subscriber base nearly doubled to 2.2 million in 2006 from 1.3 million in 2005, Vonage did not take any steps to enhance its customer service systems. This ultimately resulted in frustrated clients and cancellations, which were extremely expensive, costing upto $40 to some clients. Next on the list is Vonage’s ad-campaign, which was having both an inflated budget and ineffectiveness. Despite the budget jumping from $56 million in 2004 to $365 million in 2006, the focus was still on expanding its customer base, which again, left little room for upgrades in the interface to make Vonage’s service better. While starting off on the rehabilitation task, Mr. Citron has been actively involved in developing new software to make the customer service more reliable. There is also a better grip on the marketing budget for 2007, estimated to be somewhere close to $284 million. Apart from the lawsuits that were worth $239 million, Vonage is now gearing up for the next step. It’s rolling out new products, including an international long-distance calling plan.
While on one hand big plans are being made, investors are clearly not too keen, probably scared of the fact that now cable providers are also pulling their socks to actively enter the VoIP domain. In Canada and the USA, cable operators have made a significant impact with an array of services which apparently, Vonage can’t match. While the Mr. Citron is quite confident that both cable providers as well as Vonage can survive simultaneously in the market, the stats tell a different story. According to Convergence Consulting, Canada had about 150,000 VoIP residential phone customers till the end of 2007, half of which belonged to Vonage. However, Canadian cable operators clearly outnumbering Vonage with an estimated figure of 2.4 million residential users, with the latter’s figures not even close.
So that’s the whole story in a nutshell. On one side you have an entirely pumped-up CEO who has a couple of big success stories to be the reason for his confidence, and on the other side there is a market that has clearly no faith on the once-popular VoIP service provider. It is often seen that owners are always optimistic about their product, it is always left for time to take its own due course. Hopefully, Vonage would come up to the same level as it was before it started going down in 2006.


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