Comments on: SunRocket did not crash due to a management failure, it was way more fundamental than that

By: John McKinley

John McKinley — Mon, 06 Aug 2007 17:48:38 +0000

Jleary- It depends on their aspirations. Niche (and perhaps regional) players happy to carve smaller scale operations can keep the costs in line and perhaps stay alive. Players on the high sub-growth aspiration track are not going to make it – the math just doesn’t work.

By: jleary

jleary — Sat, 04 Aug 2007 19:32:38 +0000

So, John, from you comments, I take it the privately held voip.com in Boca Raton, which started providing service in January of 2006, stands about a snowball’s chance in Florida of providing service for an extended period of time. Is there any way to determine if they suffer from the same acquisition issues SunRocket did?

By: John McKinley

John McKinley — Fri, 03 Aug 2007 22:38:21 +0000

George -I think you have touched on several elements of the answer in your own post: businesses with balanced revenue stream, who don’t take on the consumber primary line market as their reason for being, and who leverage the disruption economics of VoIP in other ways. Skype, Jajah, and some of the SMB VoIP players are all examples of people with potential staying power. I think the other niche players like Packet8 players may exist for a few more years, but never go much farther beyond their curretn scale.

By: George Mitchell

George Mitchell — Fri, 03 Aug 2007 16:33:13 +0000

John,

I have to say, you have me worried. I was a happy SunRocket customer, now an “undecided” user of another VoIP provider. The sad part is, I work for a major telecom, and did not sign up for their service. It is too expensive. I get the cost figures you put up, and I am hoping my new company will be around a while, because it has other computer based businesses besides VoIP. So it is not putting all its eggs in one basket, like SunRocket and maybe American Home Mortgage (which had other issues). It seems to me that any company with multiple revenue streams might make it. Who do you think will be left in VoIP after all this, besides the telecoms and cable companies?

By: cavalierrusticano

cavalierrusticano — Thu, 02 Aug 2007 20:19:40 +0000

Yeah just blame in on them AOL people… Although I hear the same thing from other places, NEWcorp for example, how can any serious discussion ignore the squeeze from CMCSA, COX, TWCable, not to mention the lawyers from VZ?

By: John McKinley

John McKinley — Tue, 31 Jul 2007 17:49:42 +0000

Dear Grumpy,

Thanks for the post. Having read it, I would say that the founders and the new management team were all pretty consistent in both public interviews and the positioning of the company to potential investors (from VCs who heard the pitch directly) throughout the lifecycle of the company. The company was focused on establishing a beachhead in the consumer market with a primary line replacement product as its lead offer.

I am sure there were other potential products in the pipeline that reinforce your point that the original vision included expanding beyond that, but I will only give both the original founders and the senior management partial credit for talk about that. Collectively, they spent $80+MM over the company’s brief history pitching a Vonage-like value proposition.

To me, the sports analogy that comes to mind is “My real objective was to be an Olympic figure skater. Don’t judge me about the fact that the first move I tried to learn was the quadruple lutz.” Of course we should judge the collective old and new teams for taking on what, in my mind, is an impossible mission as its first move in the space. Other players avoided that fatal move (Grand Central, Skype, Jajah, etc.).

The mission remained pretty consistent from SunRocket’s 2004 inception – read some of the interviews by the founders. Talk of other products around the edges at this point gets no credit from me.

By: Grumpy

Grumpy — Tue, 31 Jul 2007 16:04:26 +0000

John,

You have premised your argument on SR being a primary line replacement service. If that is the briefing your AOL buddies gave you, then they certainly did not understand the fundamental idea of the company… and it is no wonder your AOL buddies ran the company into the ground.

Go back and read the blog to which you linked, and listen to the related podcast. SunRocket’s mission was to be an Internet communications service, of which PSTN replacement was a starting point. The fact that the AOL management focused the company on PSTN replacement when they knew that such a service could not survive as a one-trick pony does not speak well for them.

By: earle robinson

earle robinson — Mon, 30 Jul 2007 21:18:24 +0000

It was clear from early on that sr was following the old idea that the way of reaching profit is to sell more widgets even if each widget is sold below cost. I also agree with your assessment about independent voip companies trying to compete with cable, adsl or even cellphone companies.

But, what shocks me very much is the cavalier treatment of the sr subscribers. Management knew the end was coming and should have announced closure in advance, as another voip company recently did. Though not felonious their actions mean they don’t deserve employment in another company, at least at management level.

-er

By: John McKinley

John McKinley — Mon, 30 Jul 2007 20:55:52 +0000

Scott. I think you are right: the folks carving out unique niches in the VoIP market (e.g., SMB) certainly have a better shot at making a go of things. I see interesting “switch in the sky” models (kind of IP versions of Centrex) in use in some of the small businesses I am helping, and looking at them, you see some unique things going for them that give me hope.

By: Scott

Scott — Mon, 30 Jul 2007 20:47:43 +0000

John, I find your insight rather interesting. I am not a participant (other than having tried SunRocket at launch and deciding to go with other providers) but am certainly an observer of the VOIP marketplace. It seems to me that there is some truth in what you say — that a primary line replacement will never operate as a Fortune 500 company. But that’s not to say that it’s impossible to be successful in the VOIP marketplace.

Time will tell, but it will be interesting to see if the economics work for providers like ViaTalk, VoicePulse, etc. who operate with a more small business/entrepreneurial model with lower acquisition costs and overhead.

By: John McKinley

John McKinley — Fri, 27 Jul 2007 23:15:18 +0000

Jim, first thanks for the thoughtful feedback. Let’s assume you had a front row seat and were there at SunRocket. I will stipulate that there were bad decisions made, and that they hurt the company materially. My point is that we are probably arguing about whether SunRocket shuttered in 2007 vs 2008. I got to hear about the CPA costs and the margin of the business directly, and the math just wasn’t attractive for any business wanting to go beyond the 100-250K subscriber niches that folk have carved out of the VoIP market. I remember a quote from Jack Welsh from my GE days: “First, second, fix, sell or exit”. It referred to only competing in markets where you had a path to first or second market position. There was and is no way for over-the-top VoIP providers to compete in the primary line phone business at scale – the profitability of the subs, weighed again their acquisition costs paints the picture of a really low margin business at best (and given the fact we haven’t seen a primary line player even hit that goal, that’s me being generous), and that’s a terrible goal for an ongoing concern.

I think you could be Jack Welsh himself, and you couldn’t make a winning hand out of the cards you were dealt as a primary line VoIP player. So much of the energy in this segment was around a build-to-flip model (think of all of Vonage’s efforts to find a buyer during their “will we or won’t we” pre-IPO period), and that’s always a leading indicator of a losing playbook in my mind.

By: Jim

Jim — Fri, 27 Jul 2007 14:05:20 +0000

I have to disagree with your comments that SunRockets failure was not due to senior managements failures. It certainly was.
Management did not get the industry, the costs, the competition. They just didn’t see the forest…or the trees. They screwed up. Start ups can’t spend money the way that they did. They have to be smarter than that. They weren’t. They didn’t solve many of the internal problems and created a number of new ones. One big mistake they made was not promoting from within. Old time employees of SunRocket were basically pushed aside and new people were brought in. Unfortunately people are not as interchangable as management wants them to be. (They never have been. ) This basically killed the spirit of the people who built the company. This management team killed SunRocket. When the new CEO came in she gave a speech to the team and in that speech she said that when asked what management books she reads she replied that she learned everything she needs to know from good people at AOL and that she didn’t read management books. Here is my suggestion read: Wikinomics, The Cluetrain Manifesto and all of the other books suggested at the AOL Web 2.0. seminar. Because apparently AOL is finally getting a clue after getting their rear end handed to them!