Compare and contrast the following projects, the moral of the story : When you do have have any real technology barrier to entry (ie theVoIP industry), be very carefull of what and how you build, and build in the small, not in the large...
(1) Innovation in the small
Telio, a bunch of smart ex Erricson guys start a shoestring operation of VoIP in Norway, and become profitable without raising any significant money. They later raise a small local round (less than 5M€) and expand though acquisition to build a pan-Nordic VoIP niche operator.
(2) Innovation in the large
Executives at the slew of small or start-up companies trying to make a go of it in the Internet telephony business — including Vonage and 8x8 in Santa Clara — can't be happy with Kate Griffin. A senior analyst at the Yankee Group, Griffin wrote a withering assessment of the Internet phone market in which she concluded that the start-ups were going to get big-footed by the cable and telephone companies. Griffin said that Vonage, Packet8, Voice Pulse and others will not be able to compete on brand recognition, service quality and customer service once companies such as Cablevision, AT&T, Time Warner aggresively enter the market. In fact, Griffin says that Vonage — the early leader in Internet telephony (known as VoIP) with 200,000 subscribers— has already lost market share to the big guns.
Today Bloomberg reports that Les Echos (registration and knowledge of French required) carries an interview with AOL France's CEO, in which he confirms that the company is to launch a number of internet applications for mobile, including IM, as well as a Voice on the Internet offering, in early 2005. He also claims that the aggressive pricing employed by AOL France is winning back customers (he claims about 100k of the 150k who left in H1 have returned). My feeling is that we should look for similar moves next year from AOL across Europe.
The company is going to need more money, maybe by end of this year. At $50K per employee, VONAGE is going to have to shell out nearly $30 million in additional salaries. I am not sure how many people Vonage has right now, but lets assume there are 200 employees now, so that makes it a whopping $40 million in payroll expenses alone. Earlier, Andy had calculated that Vonage was spending around $450 in customer acquisition and other hardware costs. Citron told Investor's Business daily that he would have more than half-a-million customers by end of 2005. That means spending a cool $225 million on them in gear, and acquisition costs. Vonage has raised nearly $207 million in VC funding. Let us assume, it generates about $25 a month from these customers, or roughly $150 million in annual sales. Total monthly costs etc, for PSTN termination and other carriage charges, as estimated by Andy are around $15 a month. That's about $90 million per annum. And with the payroll being what it is, I am pretty certain that company will have to raise more money.