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Time to hang up on Vonage?

I am a satisfied Vonage customer. But, in this journalism business, you quickly learn that "all news is local."  Which is a way of reminding reporters, readers want to know "what does this mean to me?" So, I want to know what do VG's problems mean to me.

Eric Savitz reports there are now 15 class-action complaints against the VOIP company, in the wake of its busted IPO.  He also has a fascinating summary of Citibank's new  "hold" recommendation on VG.  The analyst values the Vonage stock at $11 a share. 

Why do we care?  Just a few weeks ago Citibank helped push Vonage shares onto the market at $17.

Savitz says "the (law)suits will have a real cost for Vonage."  Vonage appears to have plenty of cash, for now and class action suits are filed to be settled for cash.  But is this a warning that Vonage customers are in jeopardy?  Is it possible that Vonage's troubles, known and yet to come, will sink the company?  If it went out of business, what would happen to my phone number?

Should I unplug from Vonage now, and head to a competitor?  Your opinion?

Time to hang up on Vonage?

I am a satisfied Vonage customer. But, in this journalism business, you quickly learn that "all news is local."  Which is a way of reminding reporters, readers want to know "what does this mean to me?" So, I want to know what do VG's problems mean to me.

Eric Savitz reports there are now 15 class-action complaints against the VOIP company, in the wake of its busted IPO.  He also has a fascinating summary of Citibank's new  "hold" recommendation on VG.  The analyst values the Vonage stock at $11 a share. 

Why do we care?  Just a few weeks ago Citibank helped push Vonage shares onto the market at $17.

Savitz says "the (law)suits will have a real cost for Vonage."  Vonage appears to have plenty of cash, for now and class action suits are filed to be settled for cash.  But is this a warning that Vonage customers are in jeopardy?  Is it possible that Vonage's troubles, known and yet to come, will sink the company?  If it went out of business, what would happen to my phone number?

Should I unplug from Vonage now, and head to a competitor?  Your opinion?

Vonage founder: next big thing is Net video

Jeff Pulver is moving on after missing the gold ring. 

A company he founded 8 years ago grew into Vonage, after Jeffrey Citron joined as CEO.  It did its IPO last month.  But Pulver had exited the company, selling most of his shares years ago. 

He's on to the next thing which he thinks is Internet video, he told the Wall Street Journal. The 43-year-old one-time software designer is now at work developing an Internet TV show and picking among Net TV companies which are seeking investors.  "The same DNA that disrupted the telecom industry is well on its way to totally revolutionizing the TV, film, and broadcast industries," he told the newspaper.

Pulver was into Voice Over IP long ago.  Then, it was called "Internet Telephony."  His "Voice on the Net" conferences have grown into major events. He stages them in the US internationally.  Boston will be the site of Fall 2006 VON.

Jeff's an intense guy, a self-described visionary, and a blogger.  Whatever happened at the company-which-became-Vonage was, for him, unfortunate.  He's still got time to grab for another brass ring.  Maybe it was Citron's big-money background and connections which made him attractive to the scrappy geek-startup-guy with glasses.  Odds are Pulver won’t be easily impressed again.

Of course, Net TV is also a different challenge.  While the tech to do it is cheap, there are lots of content-rich players in the game.  Knowing how to DO Net video, as Pulver does, is quite a different thing from having content people want to watch.  The tools become commodities. It's programming which differentiates. 

If Pulver wants to grow his trade show, and exhibitors' and attendees registration fee income, that's one thing.  Being a little guy among content giants is quite another.  Read the WSJ story.

Doing the math for Vonage

So, how serious a problem is the busted Vonage IPO?  Is it just an image thing, or is it a financial issue too? 

By my back-of-the-envelope calculating, it could cost the company nearly $83 million if all the company's customer-buyers back out.  Then there could be the lawyers' fees if Vonage tries to force the issue, plus perhaps millions more for PR-triage to save the company's image.

Let's assume the average Vonage customer who signed up to buy at the IPO entered an order for 500 shares.  I use that number because (1) that's the number I was planning to buy, and (2) that's the same size order a friend said he was going to buy - before we both thought better.

Om Mailk said about 10,000 Vonage customers signed up; the Wall Street Journal said 9,500.  At $17 a share, 9,750 people buying 500 shares, that's $82 million of the $531 million offering that could be at risk, about 16%.  That's not chump change.

Vonage to IPOers: Pay up

Vonage Holdings says it may hold customers who promised to buy shares of its IPO last week to their pledges, according to CNN and others.

What a disaster this thing has turned into.  Shares came out at $17 ... they've cratered to $12. 

CNBC ran a statement from the VOIP-meisters on Tuesday, interpreted to mean they'd let IPO buyers off the hook.  The Times reported the story. "While all avenues are available to us we cannot imagine alienating our customers in that way," Vonage said to CNBC.

But now, the a company spokeswoman is quoted saying, "If they don't pay, we reserve our right to pursue payment."

Om Malik says the company is acting so badly it could be a shoo-in for a direct nomination for Business 2.0’s Dumbest 101 Things list.  He says about 10,000 Vonage customers did sign up to buy shares at last Wednesday's offering.

Richard Greenfield, an analyst at Pali Research, suggests to SiliconValley.com Vonage's already sky-high marketing costs (estimated by Malik at about $400/per new customer) may have to go higher to make up for this customer relations disaster.

Vonage customers vent on forum

The VOIP company everyone's suddenly come to love to hate is not running away from the backlash over its broken IPO.  Vonage A former Vonage customer has opened a forum for all to read.  Complaints and catcalls are allowed.

A disclaimer on the site makes it clear: "This Site is exclusively owned & operated by 4Sight Media LLC & is no way endorsed, sponsored, provided, owned or otherwise controlled by Vonage."

 

The company Web unauthorized site also has a kind of a daily "insider memo." It was cute yesterday when the writer trumpeted how Vonage shares had risen 2 cents on Friday.  It's the Forum Digest.

There are reports the company won't force customers to pay for IPO shares if they don't want them now.

It must hurt like hell for Vonage execs.  They are citing SEC regulations for the corporate silence about the stories, rumors and criticism that began pelting the company.

Vonage IPO - piling on

NY Post: Vonage IPO a Bomb, Underwriters Burned
Business Week: Vonage's Lackluster IPO
Andy Kessler: Vonage Sucker Punch
Henry Blodget: A New Way To Piss Off Your Customers

Vonage IPO ... wrong number

Vonage ... worst IPO open of '06 - Full story.

I could be wrong about Vonage

Guy wrote a sarcastic comment about my decision to bail on participating in the Vonage IPO.  He says "Vonage has a product that can be set up by a blind man - and they market like they own Madison Avenue. So again Thanks for being a gullible guy."

You're welcome. If the company's offering comes this week, by Friday we'll know if my intended $7,200 investment would have paid off.  I'm still betting it wouldn't, even though I think Vonage has a great product.

I recommend it to everyone.  I love the e-mailing of voice messages, and the call forwarding has worked like a charm for me this week while I'm traveling out of Washington.  The $24.95 a month for local and unlimited US long distance is a huge bargain, compared to the $35, alone, I was paying Verizon for local service, and an other $40 a month for not much long distance calling, really.

So, in the Peter Lynch school of investing, I should be a  buyer of Vonage.  I use the company's products, I love the product.  Here's why I'm on the sidelines.

Vonage got hit by a storm of crap beginning with EBay's decision to make its competing Skype service free to US users.  Then the reporters picked up that angle and began writing, even as Vonage's execs were doing their road show to sell the offering AND unable to respond because of SEC rules on  keeping their mouths shut during this pre-offering period.  Then, a few days later, the Wall Street Journal ran a story on the 18th about Vonage having complaints from users about poor service.  Again, Vonage could not respond. 

It's all about timing.  And as a guy who wanted some IPO shares (because I could get them) and hoped to make quick dollars, the timing didn't seem good, all of a sudden.

If I were in to conspiracies, I'd say somebody's out to get Vonage.  All the bad publicity LOOKED coordinated by a force greater than DaVinci.  But, since I was unwittingly part of it, I know that wasn't the case.  I do know an awful lot of nasty stuff happened during a critical time for Vonage. 

Remember, there was a lot of speculation that Vonage would not do an IPO, in fact, but rather would be bought out.  The common wisdom is there was no deal because Vonage's finances just weren't good.  So, the company took the IPO route. 

I wish Vonage best of luck.  I love the service.  I have two accounts and just added a toll free number for bloggers to comment (Call me at 1-(877)-224-8009.  Tell me what you think of the Vonage deal.)  I hope they succeed.  It's just that I'm not all that confident that this IPO will have much ring to it.

Disclaimer:  At the time of this posting, I owned shares of EBay.