Vonage: Skype Doesn't Scare Us

When Vonage looks at the competition, Skype isn't even on its radar, but Verizon, Sprint, and AT&T are directly in its cross-hairs. Vonage has targeted online buys directed at the phone companies, but not at Skype. That's according to an analysis Russell Shaw did, based on research done by Internet marketing research firm Nielsen/NetRatings.

I won't go into all the gory details of the analysis, but the upshot is this: The three search terms most like to generate a sponsored link for Vonage are "Verizon+DSL," "AT&T," and "Sprint."

That's no great shock, of course, but Vonage may be missing the boat here. Sure, it has to try and grab market share from existing phone companies, but it also ignores Skype at its own peril.

Vonage has one pitch to consumers, and one pitch alone: It's cheaper than your existing phone service.

The problem with that as a business plan is that someone can always offer cheaper service. And that's where Vonage needs to worry about Skype. Skype offers unlimited, free phone calls to landlines in the U.S. and Canada, and you can't get any cheaper than free.Vonage may counter that Skype is a PC-only based service, but that's really only a minor point. There are plenty of devices and phones that connect to a PC so that you can use Skype just like a regular phone. And more are on the way.

The upshot: Vonage may be able to grab some market share from the telcos, but ultimately it'll be undercut by Skype. So it better come up with another business plan...and fast.