Vonage hangs up on its CEO; now lemon-led (and $euss)

Hello? It's Friday's IT Blogwatch: in which Vonage fires its CEO ... no, wait, he resigned -- yeah, that's it. Not to mention Green Eggs And Spam...

Todd R. Weiss reports:

With much of Vonage Holdings Corp.'s future already clouded by a losing fight in a recent patent infringement case that threatens its business, Michael F. Snyder, CEO of the broadband telephone service provider, resigned, effective yesterday. In an announcement this morning, the company said that Snyder "stepped down" and was replaced by Vonage Chairman Jeffrey A. Citron, who will act as interim CEO.

The move came as part of a broad restructuring also announced by the company as it tries to stem its operating losses. The company had a net loss of $286 million in 2006, compared with a net loss of $261 million in 2005. Revenue for 2006 was $607 million, compared with 2005 revenue of $269 million. In addition to battling for customers, the company has been mired in a court fight with telecommunications giant Verizon Communications Inc. over the technologies Vonage uses to provide its voice-over-IP phone services ... Vonage share prices plunged by more than 24% [in March].

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As part of today's announcement, the company said it will cut expenses to continue its operations as it battles for its survival.

Om Malik chants:

Michael Synder, chief executive officer of Vonage, came, saw and scurried away ... in what seems to be an un-ending string of bad news for the Holmdel, NJ-based VOIP service provider ... Vonage has been in crisis mode since it lost its patent case to Verizon, and a US Court asked them to stop marketing their service to new customers. They stay open for business after getting a temporary stay.

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No worries people – you will still see those annoying ads, for the company expects to have a marketing budget of $310 million ... Vonage expects revenues of $195 million in the first quarter 2007, with net subscriber additions of 166,000 (21% year-over-year decline) and marketing cost per gross subscriber addition of $275. The company had 332,000 gross subscriber additions. That’s just WEAK!

Joseph Weisenthal adds:

Regardless of how Vonage's legal problems play out, it's pretty obvious that the company's short time as a publicly traded entity has been a total disaster. Even before the whole patent infringement mess, the company was hemorrhaging cash. So it's no surprise then that the company has announced the departure of its CEO ... that almost certainly means he was fired, given how abrupt the move was.

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Citron ... [is] promising investors and customers that the company is pursuing a technological workaround so as to avoid infringing on Verizon's patents.

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The other interesting angle to this executive switch has to do with Citron's earlier settlement with the SEC relating to his former company, Datek. The widely believed, though unconfirmed, rumor is that Citron is enjoined from running a public company, which is why he had to give up the CEO job before Vonage became public. The fact that he has been named CEO, but only on an interim basis while the company searches for someone new, doesn't really do much to clarify this question.

John Murrell puts it more succinctly:

Meanwhile, there’s an opening for a CEO who enjoys a real challenge.

But Craig Walker pauses to offer his devotions:

Thank You Vonage ... That’s right. Thank you Vonage. Although they seem to be on the ropes these days, everybody in the Voice 2.0, VoIP, emerging communications, etc. space, owes a debt of gratitude to Vonage. Vonage, through sheer might and will, made emerging communications companies relevant again. When the bubble burst in 2001 nobody was interested in emerging communications companies or services.

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And then Vonage came on the scene. They fought against the telcos with an offer that had great quality, great pricing and great features. First the telcos ignored them completely. Then they grudgingly started considering them as competition, but only in an offhanded manner. But now that Vonage has grown to over 2 milliion users and have great penetration around the country and happy, loyal users (myself included)…how do they react? They sue them of course. Claiming they are losing millions of dollars due to Vonage.

Reminds me of the Ghandi quote (”First they ignore you, then they laugh at you, then they fight you, then you win”) although in this case I’m not too sure that Vonage is going to ultimately win.

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Not that this should be a surprise given all that has gone on wrong at Vonage during his tenure, but one has to wonder if Michael was thrown under the bus to “show investors” that Vonage was serious about cutting costs and making themselves into a viable, long term, profitable business. Seems that Michael is the “fall guy” here, especially since Vonage included a snippet in the press release about their plans to focus on reducing the company’s operational costs, and slashing marketing expense….signs of an investor driven move.

Jon Arnold listened to the investor concall:

Sharon [O'Leary] provided a high level summary of the litigation issues and their take on things. At face value, she explained how they feel Verizon's allegations are too broad and not directly related to the technologies Vonage is using. She noted how Verizon's blanket allegations were pushed through and accepted wholesale by the judge in far less time - an hour - than the norm, and the technology was not reviewed or explained in enough detail to make a fair assessment. Well, if she's right, and if after a more balanced consideration is given to the case, and the jury sees it this way, then there's hope for Vonage. That would sure change things, at least for Vonage.

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They explained that Sprint's [patent claims] were more specific to Vonage's technology, whereas [Verizon's] was a blanket claim and very general. Sharon also commented that the motivations behind each claim were different, but didn't elaborate other than saying with Sprint, a business arrangement is a more likely outcome than a legal settlement. Hmmm. Could that be a clue about Vonage's future???

Didn't like the "lemon" gag? OK, try this one: your humble blogwatcher wonders if Snyder was slapped by Buddha's Hand. Geddit? [You're fired -Ed.]

Buffer overflow:

Around the Net Around Computerworld Previously in IT Blogwatch

And finally... I do not like your Nigerian scams. I do not like them, Sam I am.

Richi Jennings is an independent technology and marketing consultant, specializing in email, blogging, Linux, and computer security. A 20 year, cross-functional IT veteran, he is also an analyst at Ferris Research. Contact Richi at blogwatch@richi.co.uk.

Copyright © 2007 IDG Communications, Inc.

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