Tom Keating’s Vonage “save” story

Tom Keating has an interesting post describing his experience in cancelling his Vonage service.

Tom hammers Vonage a bit for the rep’s persistence in trying to keep him as a customer. In the business, this is called the “save team” and, as Tom notes, they generally operate from a script. It’s of course very common in most service buisnesses (like ISPs). In fact, the Vonage “save” process doesn’t sound as bad as many can be and if they weren’t attempting at least this much effort to retain customers, their own investors and the industry would come down on them hard. So this is one case, where I’ll take Vonage’s side of the story.

The reason is because churn is such a huge factor in the lifetime value of a customer. If their churn numbers slip by even a fraction of a percent, it can have dramatic effect to their bottom-line. I have yet to see anybody publish a net present value estimate with a positive value, and their cash burn rate is astronomical (Capital IQ says Vonage burned through another $84MM in Q2 2006).

Sure, subscriber count is growing. But unprofitable is unprofitable, no matter how many users are signed up.
– Seth Jayson, The Motley Fool

So it’s no wonder that Vonage has a “save” team. If they can’t retain customers (for a very long time), they never get above water, and instead lose money on every one.