Why Vonage spending more on marketing won’t work

May 18, 2008
By

Ike Elliot suggests that Vonage can’t afford to ramp (down) marking spending. He says:

Vonage’s 2-year public company history suggests that the more they spend on marketing, the greater number of subscribers they add, and the greater number of net new subscribers they add, and the lower their net cost of adding each new subscriber.

Here’s what’s wrong with that logic. Over the course of Vonage’s history cited above, the world and landscape outside Vonage continued too. In other words, the environment in which Vonage operates has changed over that same time.

While others were saying that Vonage’s customer acquisition costs and operating metrics would improve, I was saying they’d continue to get worse. Vonage had enough trouble reaching the early adopters. As they try to move past that segment, into the mainstream, their marketing costs only go up. Further, as all this is happening, with nearly zero barriers to entry, tons of competitors come along, making customer acquisition costs soar even more. This intense competition has even a bigger impact when it tears into your only selling proposition “cheaper phone service”

In summary,

  1. Limited market size – Vonage’s niche of people willing to act for cheaper phone service is small
  2. Reaching beyond that niche will require Vonage to spend more per subscriber
  3. Intense competition and low barriers to entry adds more to customer acquisition costs
  4. Market dynamics reduce the value of the “cheaper phone service” message, further increasing customer acquisition costs

So I suggest that Vonage spending more today on marketing won’t produce the same result that it did in 2005 or 2006. If Vonage spends more on marketing trying to push the same old tired story, they will just burn more money quicker. They need to to something radically different, not just increase their marketing spend singing the same old song.

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