Vonage IPO

So Vonage, the leading hardware-based consumer VOIP company, is going public. Not a surprise whatsoever — it was just a question of when Vonage would file.

It will be very interesting to see how the IPO does. Vonage has been raising and spending money like a drunken sailor, hell-bent on growing its customer base. It’s a classic Web 1.0 land-grab play. There is no doubt that Vonage has a real business; the question is whether it’s a really big business. Especially in a world with Skype’s tens of millions of software-based VOIP users on one side, and facilities-based cable and telco VOIP offerings on the other.

I’m skeptical that Vonage can sustain the kind of valuation its investors must be contemplating. At some point, you have to stop spending money in order to make money. The appeal of Skype, for example, is that its cost structure is radically low, which gives it a great deal of flexibility that Vonage doesn’t have.

So, the Vonage IPO will be a test of the market’s appetite for speculative tech plays. By the standards of 1999, it should be a home run. By the standards of 2003, it should never have gone public. This will be a good test of which period 2006 is closer to.