Jon Arnold has a great post today about Telio and their impending IPO tomorrow. Jon considers Telio the “Vonage of Europe” and makes some illuminating comparisons between the two companies, their business models, and their strategies in going public. Primarily a Norwegian VoIP provider, Telio has avoided the massive marketing spending habits that seems to be getting Vonage into trouble.
Telio has built up a residential VoIP subscriber base of over 90,000, and guess what - they’re profitable, and they have money in the bank. Their future doesn’t ride on an IPO. They can make it without it, and it wasn’t a fallback position because nobody came along to buy them. Compared to Telio, Vonage is very Business 1.0 in the sense that they didn’t fully exploit the power of the Internet. They’ve spent most of their money on traditional advertising to build a business in a traditional - and very American - way. The more you spend, the more subs you get - but that’s a treadmill you can never get off.
Telio - very much like Skype - is Business 2.0 (not really Web 2.0, but that will come). I have learned that 75% of their customers come from referrals and friends - pure organic growth and viral marketing. Not as dramatic as Skype, who has zero marketing spend - but pretty darned close. Not only are their customer acquisition costs much lower than Vonage, but they do a better job of retaining those customers. They won’t reveal their precise churn level, but it’s below 1%, which is terrific. Vonage’s churn is respectable for the market it is in, but it’s quite a bit higher than Telio. These two simple metrics go a long way to explaining why these companies are on divergent paths.