VentureBeat

Vonage, the Internet phone start-up, is apparently on the road to raise yet another $100 million in private financing before going public later this year. (Justin Hibbard, of Business Week, has the scoop here.) We usually focus on Silicon Valley start-ups, but this one is worth mentioning for the raw chutzpah of its investment strategy — it also has some valley-based VC money. Basically, it is using the Amazon.com strategy — grow as huge as possible, as quickly as possible, to dominate the sector before anyone else does. Don’t worry about the fact that you’re losing money hand over fist (in Vonage’s case, it’s sinking $150 to $200 to acquire each new customer, even though it only gets $30 per month in return), because once you own the real estate, you’ve got customers paying $30 into perpetuity. Some see a slight problem with this thinking, though. They don’t own the real estate, and they never will. There’s little network effect — for example, which Amazon.com enjoys, by having the largest store out there, more goods are sold, and so more customers are drawn in, etc — and in the telecom world, there will always be someone who can come along and undercut them (check out Tobias’ musings on this last year, when Vonage raised its previous whopping $100M round). We’ll be watching the end-game with interest.