On Top In A New Market, Vonage Weighs Its Options

NEW YORK Still in its infancy, voice-over-Internet protocol (VoIP) telephone service has the potential to replace or at least rival traditional land-line service. And since it can be delivered via broadband and cable, the number of consumer options is growing. Staying ahead in a rapidly growing market will be a major mission for the winner or winners of category leader Vonage’s $50-75 million marketing-services review, launched last week [Adweek Online, Aug. 5].

Vonage, a privately held company based in Edison, N.J., is on top in the segment with an estimated 220,000 customers, followed by Cablevision’s Optimum Voice, which has more than 100,000 customers. Vonage’s consumer base has nearly tripled since the end of 2003, when it had 83,000 users, according to the company.

Vonage’s challenge is to maintain that lead as the market expands beyond early adopters to the roughly 27 million homes that have broadband connections, said Daryl Schoolar, a senior telecommunications analyst at In-Star MDR in Scottsdale, Ariz.

The client has contacted about 20 ad agencies, interactive shops and media buying services about its business, which is currently split among New York independent Korey Kay & Partners (traditional creative duties), Aegis Group’s Freestyle Interactive in Boston (online creative and media duties) and Inter/Media Advertising in Encino, Calif. (offline media buying duties). The incumbents plan to defend.

Vonage will not necessarily consolidate the business, which encompasses all marketing efforts, including sponsorships and events, though it is clearly an option, since major networks are among those contacted. “We’re open-minded,” said vp of corporate communications Brooke Schulz, noting that Vonage has used smaller shops in the past. “We want the people who are going to best service our account, period.”

Both in its RFP and its spending patterns, Vonage exhibits a preference for online advertising. In the first five months of 2004, Vonage spent a whopping $25 million on online ads, according TNS Media Intelligence/CMR.

“Since Vonage requires a broadband-enabled consumer, we have found that online advertising has proven to be the most efficient advertising media, although we have employed direct response television, radio, telemarketing, direct mail and a small component in print,” the RFP states.

Spending on TV, radio and print has been modest: less than $5 million last year and less than $2 million in first-half 2004, per Nielsen Monitor-Plus. A spring TV and radio campaign from Korey Kay positioned Vonage as “your telephone company’s worst nightmare.”

The RFP, which is due back the end of August, says the winning agency or agencies must demonstrate expertise in online and offline marketing, from creative development to media planning and buying. In addition to top-line capabilities and case histories, the RFP requests credentials on staffers who would work on the business and compensation information. It also asks shops to indicate which part or parts of the business they are pursuing.

Based on the responses and visits to a more select group of agencies, Vonage will pick three finalists to pitch. It has slated creative presentations for mid- to late September, with a decision due shortly thereafter.

The number of broadband Internet protocol telephony lines in the U.S. is expected to skyrocket from a projected 607,000 lines at the end of this year to some 7.4 million in 2008, according to In-Stat/MDR.