In this week's podcast, we look at Nortel's strategic options in the wake of Nokia and Siemens' decision to create a joint venture with their carrier network equipment units. Does this force Nortel to make a major move of its own, or will CEO Mike Zafirovski stick with his restructuring plan and avoid the temptation to complicate matters?
Speaking of complicated, Vonage continues to go from bad news to bad news (class-action lawsuits, patent infringement allegations, stock price threatening to hit rock-bottom). Is there hope on the horizon for Vonage? If the stock keeps on dropping, will it eventually become a tempting takeover target?
Finally, a quick look at Bill Gates' decision to step down as Microsoft's chief software architect. It's a win-win situation: Gates stays involved while Ray Ozzie gets the chance to move Microsoft more aggressively into the Web-based services world.
Jumpin' Off the Vonage Bandwagon
Talk about a story celebrating 20-20 hindsight: Bloomberg has a story looking at Vonage's controversial IPO, its post-IPO troubles (lawsuits, analyst downgrades. tumbling stock price, etc.) and co-founder Jeff Citron's "colourful history". Perhaps the highlight of the story is this quote:
"I don't even know how the company went public,'' said Mark Mowrey, an analyst with Al Frank Asset Management, whose firm's $850 million in funds includes shares of Verizon and AT&T. “With big companies trading at the valuations they're trading at, I don't know how an upstart that's stolen customers from them and has no defensible business model should be valued more highly.''
If every investor was as smart as Mowrey, Vonage might have had a difficult time doing the IPO at $17 a share. But the market works in strange and mysterious ways. For more insight into Vonage's prospects, check out my column this week in the Financial Post.
More Money for Dress-Up Site
A few months ago, I wrote about a post about a European Web site called Stardoll, which lets visitors – mostly young girls and women – virtually dress-up more than 320 dolls, including “celebrities” such as Ashley Simpson, Eminem and Rihanna. The company, which makes money from Google AdSense and a premium non-ad service, had just raised $4-million from Index Ventures (Skype, FON), which struck me as, well, different. Anyway, Om Malik has a post that Sequoia Capital Partner has made an investment. At first blush, you can't help but blurt out “venture capital in an online dress-up site?” but given my daughter's addiction to Barbie.com, it would foolhardy to dismiss Stardoll. If VCs are willing to pump millions of dollars into the company, it must be attracting some serious traffic and click-throughs. The question is how the effectiveness of the AdSense activity if much of Stardoll's users are kids. Then again, young people do have lots of buying influence.
Update: According to Alexa.com, Stardoll ranks 2,050th and it has attracted an average of 10.7 views per user over the past three months.
Tim Berners-Lee Wades Into Neutrality Debate
As the war rages on whether ISPs can slap tollgates on Internet traffic to generate additional revenue, Tim Berners-Lee (the guy who invented the World Wide Web) wades into the debate with a plea for the U.S. Congress to protect Net Neutrality. While it's nice to have Internet pioneers such as Berners-Lee and Vinton Cerf and leading players such as eBay and Google throw their support behind Net Neutrality, this has become a political battle with the well-financed ISPs (BellSouth, AT&T, etc.) and their lobbyists putting the hammer down in Washington. Sure, you can talk about why Net Neutrality is important to innovation and maintaining an open access environment but there's an awful lots of money at stake, which often takes precedence over ideals or ideologies. The economic reality is the carriers are losing lots and lots of high-margin local telephone customers as VoIP becomes more mainstream. As a result, they argue they have to make it up somewhere if they want to remain vibrant and profitable. With an army of lobbyists at their disposal, they've done a great job convincing many politicians about their "plight". While Berners-Lee is well-respected, it's going to be a huge challenge waging war against money-hungry carriers with lots of political clout.
Real Cellphones For Real People
Are cellphones getting too small and too difficult to use? Are the buttons way too small for anyone other than a child to manipulate? Well, help is at hand with a company called GreatCall that promises its phones are far more user-friendly with bigger buttons, easy to read screens, loud and clear sounds and easy to retrieve voice-mail messages. The company was started by Arlene Harris and her husband, Martin Cooper, who is often credited as the cellphone's inventor. Anyone who's tired of teeny-tiny phones with teeny-tiny buttons should check out GreatCall's JitterBug model. I'm not sure which carriers offer the JitterBug but there's definitely a huge market out there among the 50+ set that just wants a cellphone that works without all those unneeded bells and whistles.
Analyst: Not too Late to Hang Up on Vonage
Veritas Research analyst Neeraj Monga has published an extensive and critical report on Vonage after some serious number crunching. Entitled “Not Too Late to Hang Up”, Monga concludes Vonage is a “sell” and its stock is worth less than $5. “Vonage is caught up in the perfect storm,” he said. “Regulatory uncertainty, competitive pressures, lawsuits, unhappy customers and a damaged brand will derail its business plan. Time to hang up.” While the company's supporters point out Vonage could have 4.5-million to 7-million customers by 2009, Monga said growth will come at a cost: $777-million to $1.28-billion of cash burn. If things come in on the high of the range, he thinks Vonage may have to make a debt or equity offering next year.
Vonage is starting fight back after a post-IPO quiet period that lasted until June 19. In a BusinessWeek story, spokeswoman Brooke Schulz said “we're not toast”, and that people who look at the cash burn are ignorning the fact “we have a healthy business here”. That's a certainly optimistic outlook, which it ignores the fact Vonage is bleedling rink ink and it has no plans to become profitable any time soon as it focuses on subscriber growth. It should also be noted Vonage just hired a new senior v.p. of investor relations, Craig Streem, who will a huge job trying to convince the investment community that the company is headed in the right direction. Vonage shares closed yesterday at $8.85, just above the 52-week low of $8.25. Just in case you forgot, the company did its IPO at $17 a share.
