Vonage Buyout: Not Worth The Money

Now that eBay is buying out Skype for up to $4.1 billion, the rumor mill says that Vonage may be next in line for as much as a $1.5 billion buyout from a potential suitor. But buyer beware: The VoIP bubble will ultimately burst, and neither company is worth the cost. It's true that VoIP will become the standard for voice in the next several years, from consumers to corporations. But that doesn't mean VoIP pioneers are worth anything close to their current theoretical valuations. As the saying goes, pioneers are the ones who end up with arrows in their backs.

All Vonage really has right now to offer to a buyer is its customers --- its technology isn't exactly rocket science. And with one million customers, a $1.5 billion pricetag translates into a company paying $1,500 per Vonage customer. It's simply not worth the cost to a buyer.

Vonage sells itself to customers on its lower cost than traditional telephony. That means its customers are bargain-hunters, who could easily be swayed to moving to another service that offers even lower costs. So its customer base is prone to churn.

Telecom and cable companies would do well to avoid the VoIP hype, and not shell out megabucks for what is, after all, a service based on finding as many cheapskate customers as possible.