Thursday, May. 14, 2009


Vonage (VG) was the grandfather of voice-over-IP (VoIP). It is now hardly a footnote in the growth of the industry which is currently dominated by products from cable companies and free services, primarily from Skype, which had 405 million registered users at the end of 2008 and produced $551 million in revenue. eBay (EBAY), Skype's parent, plans to take the VoIP company public next year. In the first quarter of this year, Vonage did little better than breakeven on revenue of $224 million, which was flat compared with the same period a year earlier. The predecessor company to Vonage began operating in 2000. The company faced early legal challenges, but cleared a hurdle when a federal judge ruled that it could not be regulated as a traditional telecom company. Using venture capital, Vonage aggressively marketed its services as an inexpensive alternative to standard dial up phones. The firm was successful enough that it raised $531 million through an IPO in May 2006. The offering price was $17. By December, it was trading at $1 a share due to pressure from cable competitors and poor earnings. Vonage also faced lawsuits over some of its intellectual property. Settlements cost the company tens of millions of dollars. Vonage is no longer growing. In contrast, cable giant Comcast (CMCSA) now has 6.8 million VoIP customers and added almost 300,000 in the last quarter.

Douglas A. McIntyre

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