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Service Innovation Hits and Misses 13 December 04 Vonage and Upromise were the two service innovations I highlighted for 2004. Both performed better than the product innovations I discussed last week. Vonage, one of the pioneers in voice over internet phone service (VOIP), is leading the creation of a significant new segment in telecommunications. Upromise is a trickier proposition. The service continues to grow, but it did not have the kind of major impact that Vonage did in 2004.
Vonage – An “explosive year” for VOIP
Making telephone calls over the internet has been possible for more than a decade. But most of the services required technical knowledge and some setup – it was almost like you had to call first using POTS (plain old telephone service) to arrange for your internet call.
Vonage was the first company to make internet calls transparent to users. A Vonage subscriber doesn’t have to do anything differently from a POTS line.
Vonage was also the first company to advertise heavily, bringing this new communications technology to the consumer marketplace. In a recent eWeek column, Ellen Muraskin noted:
“Remember 2004 as the year that VOIP finally penetrated mass consumer consciousness … Give the lion's share of credit to Vonage.”
At the beginning of 2004, Vonage’s CEO, Jeff Citron, predicted that they would have 250,000 subscribers by the end of the year, up from 100,000 at the end of 2003. By early November, the company had beat Citron’s predictions, with 280,000 subscribers.
US regulatory agencies are also helping Vonage. In early November, the Federal Communications Commission exempted Vonage and other internet calling services from most state taxes and regulation.
This new wave of telecommunication is just getting started. The potential market for VOIP is large – service is better and costs are lower than POTS. The large, entrenched competitors in this market will have difficulty adapting to this new innovation. As a result, over the next several years, we may all be switching to Vonage!
Upromise – too soon to tell
Upromise is a microinvesting service that automatically collects a small percent of every dollar you spend at participating merchants. It puts this money into a college fund for children – either your own or others that you specify.
The service currently has over 5 million members and 300 merchants. The company says it has been growing at annual rates of over 50% over the last three years, and it has generated several competitors, Babymint and Sage Tuition Rewards.
While Vonage appears to be accelerating, the same can’t be said for Upromise. The company doesn’t disclose revenue figures, but it doesn’t appear to have made a great deal of progress over the last year.
Like older kinds of loyalty programs (think S&H Green Stamps, for example) the service requires some significant effort to set up and monitor. There are a few dedicated customers who successfully jump through a variety of different hoops and thus save $500 a year via Upromise. As one epinions reviewer noted:
If I never get another cent I will already be ahead because I now have $500 for nothing. The one down side is that you need to keep a record of any large purchases that you make through the site because every now and then one appears to be missing. In the 18 months I have participated the program, this has happened 4 times.
For a much larger number of people, Upromise is simply too much hassle for too little return. Another epinions reviewer commented:
Looking at the fine print of the service, you will see that your "savings" are pretty much capped at $500. To get this $500 you will have to go through a lot of work setting things up so that purchases fuel this account.”
US Personal Savings Rate, 2000 – 2004
In 2002, the savings rate for US households was around two percent. The most recent figures for 2004 show the savings rate is now under one percent. Active users of Upromise could boost their savings rate by 30 to 50%. But to do so, they have to pay attention to the kinds of products they buy and then track their purchases on the Upromise web site. For most consumers, this may simply be too much hassle.
More Information:
http://www.vonage.com/corporate/press_news.php?PR=2004_11_25_1
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