Vonage targets big-business customers

Vonage's new product, the first major announcement since the company's disastrous IPO last month, lets users make phone calls from their PCs or laptops using software that is embedded on a 256MB memory drive that plugs into the USB port of their computer. The product also comes with a stereo earpiece/microphone. Bluetooth functionality will be added to the device in later release, said Jeffrey Citron, chairman and co-founder of the company.

Since its inception, Vonage has targeted the consumer market as a low-cost replacement to traditional phone service Small businesses have also become an important market for Vonage, making up more than 10 percent of its subscribers, according to Citron. The V-Phone builds on this success to address a new market, large and medium-size businesses, he said.

"The V-phone is designed to replace existing phone lines for large and medium businesses," Citron said during an interview at the press event here, where the product was launched. "We've spent a lot of time and money marketing our service to a particular subset of the market, and now we've expanded the capabilities to service a new demographic. Just like any other business, we are always looking for new market segments."

While other companies such as Cisco Systems, Alcatel and Avaya have already been selling Internet Protocol-based phone systems to large companies for several years, Citron believes that Vonage can greatly reduce the cost of operating a phone system from $100 per user per month to $35.

But voice over IP experts argue that large companies spread the cost of their private branch exchange (PBX) switching-system infrastructure over hundreds of thousands of users, greatly reducing the per-user cost of the system. What's more, similar so-called softphone products, which allow workers to take their office phones with them on the road, are already available from large IP PBX makers such as Cisco and Avaya.

While companies do like the convenience of softphones, most don't plan to get rid of their desk phones anytime soon. According to a study by Infonetics Research, 75 percent of companies transitioning to a VoIP phone system said they saw softphones as a complement to their IP office phone.

"Softphones are complementary. They don't replace desk phones," Matthias Machowinski, the directing analyst of enterprise voice and data at Infonetics Research. "There might be some large companies that will use this product, but I think it's much better suited for the small-business market, where the per-user cost of a PBX is really expensive."

The V-Phone will be available on Vonage's Web site beginning Thursday for $40 with an additional charge of $9 to activate each device. And it will be available in more than 11,000 retail locations in September.

In order to use the device, customers will have to sign up for one of Vonage's three voice plans. Residential users can subscribe to the 500-minute plan for $14.99 per month or to an unlimited U.S. calling plan for $24.99 per month. Business customers can subscribe to an unlimited U.S calling plan for $34.99.