Vonage to curb marketing spending

By Tom Sanders

Apr 16 2007 12:54PM

Dotcom-hype-like marketing program to be axed, says new CEO.

Vonage has ousted its chief executive Mike Snyder citing "disappointing results".

The VoIP provider is caught up in a patent battle with rival phone provider Verizon. The judge presiding over the case last Friday ordered Vonage to stop signing up any new customers until the firm stopped infringing on Verizon's patents. The order was temporarily lifted later the same day.

Vonage co-foudner Jeffrey Citron and the company largest single shareholder has been appointed its new chief executive. Citron was forced to step down last year at the time of Vonage's IPO. A previous settlement with the securities and exchange commission banned him from associating with securities brokers or dealers.

Vonage plans to cut its marketing budget by US$110m a year. It spent US$91m on marketing in the last quarter of 2006 alone.

"The whole entire marketing strategy is going to be under review over the next few days," Citron said on the call.

Gross customer acquisition costs over the same period amounted to US$306 per new subscriber and reached US$275 for the quarter that ended on 31 March.

Analysts have compared the firm's spending pattern to that of dotcom startups during the late nineties, when companies frantically focused on building a customer base without any attention to profitability or sustainable revenue growth.

Citron argued that a less aggressive marketing campaign will help the company reach customers at provide better profit margins. He also pointed out that customer churn has started to level off after showing a rising trend over the past quarters.