Friday, March 23, 2007

on Vonage...something I posted on EE

Couple of things to consider in the ruling
0. Lawsuits
NY Times:
if the injunction against them gets the nod, Vonage is screwed. either they retool some of their fundamental systems and high cost or they close shop. This is in part a bad application of IP law and it's in part a bad due dilligence by Vonage. Poor research has been a problem with them from the begining. They've had E911 and other lawsuit issues before this. As for the injunction, if you want to take a bet that they won't close shop, nows a good time to buy stock. The shares are dropping faster than Paris Hilton's remaining brain cells. At the moment though, shares have stopped trading, so yes, they're "dead but don't know it yet" for a public company. One final thing to mention here, Virginia is a common docket for IP law cases in part because of the tendencies of that circuit to decide in favor of protection. Is that gaming the system? Sure, to some degree it is, but there's no way around it and both sides have ways to game the system in their favor.
1. finances.
The acutal penalty against them in this lawsuit probably won't kill the operation of Vonage. That said, they have also had lawsuits and issues with E911 that does cost them quite a bit more E911 compliance is probably on par with, if not greater than the cost to the patent infringment.
2. business model
the Vonage buisness model, is one where they cannot control the full network connection to the customer. In fact this is what they bank on. This means they cannot control voice quality and as kode99 points out, this will hurt them. It already has. Since the adoption of TDM telephony took nearly a century there was a longer period of time to socialize expectations of getting dial tone. With a regular phone I don't have to troubleshoot all these extra things. I check the phone (did it break? did my kid spill soda on it?) and i check the phone cord (did i unplug it, did the girlfriend accidentally plug it into the toaster instead of the answering machine?) and as long as those two things are okay, I should get dial tone and my calls should be clear. With VoIP you need to reset those expectations. Among more technicaly inclined users, this is probably okay, but for a mass market audience, this doesn't bode well. So yes, the retired parents in Boca can probably pick it up and get it to work, but what happens when I go off hook and suddenly there's no dial tone? or when all my calls sound like a cell phone underwater? A month of consistent bad service can be enough to discourage adoption of the technology and this kills the business. So unless they can figure a way to make Vonage service as reliable as the POTS tone you get from Ma Bell or one of her babies, you're likely to see less business.