Today Vonage (NYSE:VG, news, filings) announced that Apple has approved its iPhone application. Last week the company's stock surged and I thought it might be due to M&A in the air but it since has become apparent that it was just a critical mass of buzz about getting onto the iPhone. So what does the app do? Vonage isn't saying, but geez how hard can this be?
It will be a VoIP application of course, one which allows Vonage users to use their existing accounts and phone numbers. But, just like Skype it won't work over anything but wifi because of Apple's agreement with AT&T. And also it won't be much use for incoming calls since the app can't remain resident in memory etc. So what we have is an iPhone app that lets people make calls via their Vonage account within wifi hotspots. That will give people better international rates and some additional flexibility. But let's be honest, is it sufficiently convenient to make people say "I'm going to get a Vonage account so I can make cheaper phone calls from hotspots!" or will this just reduce churn a bit? Just how much is this worth to Vonage on either the top or bottom line?
If this app were all it is, I'd have to say 'not much'. But what the market clearly sees is a foot in the door - one that can only lead to more. Just how long can the iPhone and the coming deluge of phones of similar capability hold back the VoIP locomotive? Sooner or later, wireless carriers will have to acknowledge the fact that voice is just data and that the wall they have placed between the two is artificial and cannot hold forever. If Vonage and Skype and Google Voice do the job better, they will eventually find a crack to pour through.
That is where the renewed interest in Vonage has come from - it is the only pure play for investors looking to take advantage of an event that seems inevitable. Of course, Vonage's improving finances are a critical piece of that, giving them some confidence that the company will be around long enough. But I still see Vonage as a takeover candidate, for the same reasons and because deeper pockets may find the crack in the wall sooner rather than later.
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