RealTime IT News

Vonage Hopes For 'Soft' Success

NEW YORK -- The sun finally broke through for Vonage today, and the company can only hope the clouds stay away for a while.

The newly public provider of VoIP services introduced a softphone device that it hopes will answer Skype, Cisco and others trying to hone in on the consumer market it has made the bedrock of its business.

But analysts remain unconvinced that either the timing or the product strategy are right.

V-Phone is a memory stick with a headset adaptor that plugs into a USB port. It stores Vonage account information, thus making the Vonage account portable to any computer, including computers in airports or hotel lobbies.

The device, which has 256MB of memory, can also be used to store data files just like any other Flash memory sticks.

It is also loaded with audio-compression software to improve sound quality; when software is upgraded, the device upgrades itself behind the scenes during use and also has auto-troubleshooting capabilities.

The device itself will be sold for $40, and unlimited calling will cost $35 per month per seat.

According to Jeffrey Citron, CEO of Vonage, the company is going after mobile professional users and the small- to medium-sized business (SMB) market with a more affordable alternative to traditional telephony.

"The smaller businesses can now afford to have a phone line for each employee," he said.

He also said that enterprise employees make approximately a third of their calls outside the office.

"This is a lot less expensive than having to reimburse employees for hotel calls, calls using their cell phones and from their home phones when they're working from home," he told internetnews.com.

Citron also said that with only 5 percent market penetration, VoIP has a lot of market share to gain.

"We're not going to get all of that by any means," he said. "But I'd be happy with a minority piece of that pie."

Analysts remained puzzled by the strategy nonetheless.

Rich Greenfield, managing director of Pali Research, based in New York, is one of them who said traditional phone lines aren't easy to give up.

"I'm having a hard time trying to figure out how many people are going to want to use it."

Joe Laszlo, an analyst with JupiterResearch, also told internetnews.com that he had reservations about the timing of the announcement.

"It's tough to jump into a market when the market is in the middle of a price war, which is what Vonage is doing," he said.

A brief survey of analysts present at the product demo also showed that, anecdotally at least, they were underwhelmed by the quality of the sound. But that may have been more the result of the venue, which had a lot of background noise, than the product itself.

This isn't what the company would have wanted to hear, especially after the last couple of months. Last week Verizon sued Vonage for patent infringement, which follows closely behind class-action suits filed by customers.

The company announced the new product at the top of Rockefeller Center, and an early morning downpour threatened to make the event a dour one.

But by the time Vonage unveiled its new V-Phone, the sun had broken through. Now it can only hope that customers decide to make its sales numbers shine.