The Vonage meltdown

Even though I was an early user, I always had serious doubts about the Vonage business model. In fact, I expressed my doubts about paid VOIP telephony as early as 2004. While there is nothing wrong with VOIP – in fact, the technology has enormous potential – but long distance calling for consumers is a price-sensitive market and a lot of traditional phone companies learned that the hard way.

So who should have avoided the Vonage fiasco?

First, Vonage Holdings Corp. (VG), of course. Second, the banks and attorneys that helped them go public. The letters that I received from them clearly showed that these folks did not do their homework and were hyping a stock that any smart investor knew was doomed. No wonder then that it was the worst-performing US IPO in 2006. The stock has continued to steadily decline since then.

Why you should pick your IPO managers carefully?

Because they may not give you the best advice since it may discourage you from going public. And to add to the irony, both Bear Stearns Cos. and Citigroup Inc. are now advising their clients to sell their investment in Vonage because they expect the company to go bankrupt after it lost its patent dispute with Verizon Communications, Inc.

What a shame! Maybe they have no idea what due diligence is!!

Boston Scientific’s business of deception

Photo of a heart stent.
Along with its ill-advised decision to acquire Guidant and all the distraction it has to face due to the pacemaker recall litigation, comes the news that the company also hyped its stents.

Companies that supposedly exist to improve the health of human beings are actually trying to push drugs and devices that do not have any benefits. Merck sold Vioxx, a painkiller that not only did not justify its higher price, but was actually more dangerous than other inexpensive painkillers. Pfizer did the same with Celebrex and Bextra. Eli Lilly has done something similar with Prozac and Zyprexa.

According to latest research, stents from Johnson & Johnson and Boston Scientific gave no lasting benefit to heart patients – not only did they have to undergo extremely risky surgical procedures, they may also be susceptible to deadly clots. They will need to take anti-clotting medication for the rest of their lives.

So what makes greedy pharmaceutical companies like Boston Scientific ignore patient safety? The stent market is estimated to be about three billion dollars.

In all my work as a management consultant, I have learned that deception and greed are not very good foundations of a business model.