Vonage has always had a great pitch. With an affordable phone adapter connected to your broadband connection, subscribers pay just $24.99 a month for unlimited telephone service throughout the United States and Canada. A cheaper $14.99 plan caps your monthly usage to a reasonable 500 minutes.
Given what a lot of us are paying our local and long distance carriers, Vonage provides a feature-rich service at a bargain price. Users seem to agree. The company has signed up more than a million active accounts. During any given week, more than 30 million calls are placed by Vonage subscribers.
However, just because you have a better mousetrap doesn't mean that it's the best.
Skype? This is your cue.
Or should that be queue? Skype has been mostly a European phenomenon, lining up loyalists with more than 213 million downloads of its free online communications software. With a growing list of installations, finding someone to talk to is a breeze. If not, the SkypeOut service is there to provide hookups to any landline or wireless phone for as little as two cents a minute.
If Vonage and Skype were to star in a buddy flick, it could be CheapandCheaper. However, neither one has been seen as much of a threat to the other. That's going to change -- and quickly.
When eBay
Skype is viral. The more it spreads, the more powerful it becomes. If you don't think eBay knows this, get real. It successfully used that kind of growth with its online auctions first and PayPal second. Skype will load the bases.
Here's another reason for Vonage to worry: At this very moment, somebody's walking into a RadioShack
Need a third reason for Vonage to fret? The beta version of Skype's new version 2 software just debuted, and it's packed with the kind of goodies that commercial voice over Internet protocol (VoIP) providers would be drooling over.
Video chat? Check. Better-quality audio? Check. Contact list grouping? Oh, check. Skype 2 even comes with another viral Scooby snack: It allows you to set up Skype buttons on your blog or websites that activate when you're online, making it easier for folks to reach you.
Vonage has been a noble VoIP pioneer. It's got a great product. However, eBay's new baby is carrying the bigger rattle. In the bigger scheme of things, Vonage may have simply cleared the way for Skype's entry to the domestic market.
Earlier this year, I wrote about Vonage in a special report for Motley Fool Rule Breakers subscribers describing three companies that we wish would go public. The company certainly seems to be gearing up for an eventual IPO. It should still be a big winner in the near term, but potential shareholders now have every reason to wonder whether the company has a policy to counteract Skype.
Battling the Baby Bells is a breeze. Save for the recent 911 hiccup, where some VoIP users have been unable to reach a live 911 operator when they needed it the most, it should be a cakewalk for Vonage to duel with the established telcos. Many of them have fought back with knockoff services -- but you know how that goes.
The real threat to Vonage is Skype, and all the VoIP operations following it. Yahoo!
You had Ma Bell. You had the Baby Bells. Meet the grandchildren. This is the future of communication. If you don't think so, try to call me in a decade or two, when area codes and phone numbers take a backseat to screen names and email addresses.
Vonage isn't going to disappear in that kind of world; it's too nimble. However, as communication gets cheaper and different revenue models emerge, it's going to be a real challenge for the company to remain relevant and profitable. These silver-spoon Grandbaby Bells' big fat war chests won't make it any easier. Cheap, efficient, and worldwide is the way of the future. Consumers will love it. Crafty providers will love it. Will Vonage love it? Sleep on it and mull it over.
Pleasant dreams, Vonage. Don't let the Grandbaby Bells bite.
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Longtime Fool contributor Rick Munarriz is not a Vonage user, though he's been impressed with the company and its two top executives. He does not own shares in any of the companies mentioned in this article. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
