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!!