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#7562 by msegroves
Wed Apr 15, 2009 2:19 pm
tjnamtiw wrote:Nice post................ Why don't you just ask them to go out of business so we all own pretty looking 'bricks'????? It's a startup business, for heaven sake! Have you subscribed to Premier service to help support the company???


"The amazing disappearing phone bill
It doesn’t take a magician to make your phone bills disappear. It just takes ooma™. Simply connect the device to your high-speed Internet and phone, and, presto, your phone bills are no more."

"HOW DO WE MAKE MONEY?
Well, of course we make some money by selling you this device and the services that come with it. And if that's where our little relationship ends, we'll be just fine with that. You can ooma-away to your heart's delight. But we figured if we offered some really cool services, you might just want to sign up for them. These services are part of ooma Premier, which will always be completely optional."

Another ad line that I've seen but that seems to have disappeared is "OWN YOUR OWN DIALTONE".

I'm guessing that at this point there are something around a hundred thousand ooma users out there. So if the company actually sees $150 for each box sold and their Cost Of Goods Sold is $100, they've taken in a gross profit of $5 million. These are ball park guesses but I'm betting they're pretty close.

When I made the decision to switch to ooma, I was paying Vonage $45 a month for two lines with basically unlimited calling. I had decided that I really didn't need that second line so a basic ooma hub without the Premier Service was all I needed. And I'm guessing that 50% or more of current users arrive at the same decision.

For me this means that if ooma stays in business for 7 months after I made my purchase (March, 2009) I'll break even. Anything beyond that and I'm making money.

Because in my view ooma is a high tech Ponzi scheme. That is, the company is dependent on selling more and more basic units every month to keep their revenues growing and cover their operating costs. When they hit the point where sales stop growing at x percent they will either have to change their business model, find something more compelling than the current Premier features to sell or go out of business.
#7563 by oomg
Wed Apr 15, 2009 2:37 pm
msegroves wrote:
When I made the decision to switch to ooma, I was paying Vonage $45 a month for two lines with basically unlimited calling. I had decided that I really didn't need that second line so a basic ooma hub without the Premier Service was all I needed. And I'm guessing that 50% or more of current users arrive at the same decision.

For me this means that if ooma stays in business for 7 months after I made my purchase (March, 2009) I'll break even. Anything beyond that and I'm making money.

Because in my view ooma is a high tech Ponzi scheme. That is, the company is dependent on selling more and more basic units every month to keep their revenues growing and cover their operating costs. When they hit the point where sales stop growing at x percent they will either have to change their business model, find something more compelling than the current Premier features to sell or go out of business.


I doubt that ooma would ever be found to be a ponzi scheme under California law. And nothing prevents ooma from changing their business model, at least not as to prospective customers. Thus, as I understand, the Premier service was segregated from the Hub and Scout to lower the cost of the unit. I don't know for sure whether prior customers have been treated the same or in some different manner.

Now, if you want to see some unhappy campers, go to:
http://www.magicjacksupport.com/rants-and-raves-f6.html
#7583 by niknak
Wed Apr 15, 2009 4:55 pm
...Because in my view ooma is a high tech Ponzi scheme. That is, the company is dependent on selling more and more basic units every month to keep their revenues growing and cover their operating costs. When they hit the point where sales stop growing at x percent they will either have to change their business model, find something more compelling than the current Premier features to sell or go out of business....


This is the same business model used by many companies - satellite tv, satellite radio, cable tv, vonage, ooma, cell phone companies, etc They are all dependent on subscribers
#7584 by msegroves
Wed Apr 15, 2009 4:59 pm
oomg wrote:I doubt that ooma would ever be found to be a ponzi scheme under California law. And nothing prevents ooma from changing their business model, at least not as to prospective customers. Thus, as I understand, the Premier service was segregated from the Hub and Scout to lower the cost of the unit. I don't know for sure whether prior customers have been treated the same or in some different manner.

Now, if you want to see some unhappy campers, go to:
http://www.magicjacksupport.com/rants-and-raves-f6.html


Don't get me wrong, I'm not suggesting that ooma is breaking the law, just that their business model is flawed. And they could continue to operate for years before it breaks. The vast majority of US consumers are still paying one of the traditional phone companies for landline service - or they're switching to an unlimited cellphone plan. I'm guessing that less than 5%, 10% at the outside have switched to a VOIP service - whether offered by their cable company, or Vonage or one of their competitors. Right now, ooma is drawing the majority of it customers from those of us who've already tried VOIP and are ready for something more. That is, the traditional pool of early adopters.

Why do I think that ooma's business model is flawed? Because they're a venture capital backed startup. I've been there and done that too many times myself. I'm betting they've made two big mistakes:

1. They've way over-estimated the number of customers who will opt for the Premier service. Like maybe as high as 50%. And the real number will probably be in the low teens. They may get more who opt in for the first year, but in the second year it will dramatically drop off.

2. I'm also guessing that they've way over estimated what their basic operational costs and how much of that they can cover out of their margin on selling the Core package. Every startup does this. When you write a business plan you've got to sell the investors so you make the most optimistic guess on every single item on that spreadsheet. You figure that you'll fine tune your numbers as you gain the experience of real operations, but in fact, once you've sold the plan to that first round of investors, you find that you're locked into the assumptions you originally made. Or even worse the investors push you to be even more optimistic. Because they've got to suck in the next round of venture money. And that's the way it keeps going until - if you're really lucky - you hang in there long enough to go public. Or you get bought by someone big enough that you get folded into someone else's P&L.
#7585 by oomg
Wed Apr 15, 2009 5:08 pm
msegroves wrote:
oomg wrote:Why do I think that ooma's business model is flawed? Because they're a venture capital backed startup. I've been there and done that too many times myself. I'm betting they've made two big mistakes:

1. They've way over-estimated the number of customers who will opt for the Premier service. Like maybe as high as 50%. And the real number will probably be in the low teens. They may get more who opt in for the first year, but in the second year it will dramatically drop off.


I disagree with this part of your analysis. I believe as people become more familiar with theri system, and/or the features available with the Premier service, they will likiely expand from a single line to multiple lines, particularly as their families grow.

Let's face it. $100 per year for the Premier service is an excellent value. I didn't really need the extra line, but opted into Premier only a couple days after registering my unit. The voicemail system by itself is far superior to AT&T, and costs less than AT&T's messenger center as a stand alone add on to an existing landline.
#7696 by thively
Thu Apr 16, 2009 10:55 am
I don't think anyone here is qualified to make the call on the business model of Ooma. We don't know what their plans are. The current phone product is just the beginning of a line of products and services they plan to sell.

While they may lose money on this product, or at best break even, future product offerings planned should bring in profit.

A little like your cable company doesn't make money off selling you just broadband, but broadband + cable TV or broadband + phone services is profitable.

The venture capital would not be investing if Ooma did not present a plan of profitability. Not this day in age.
#7704 by lohertz
Thu Apr 16, 2009 12:01 pm
thively wrote:A little like your cable company doesn't make money off selling you just broadband, but broadband + cable TV or broadband + phone services is profitable.


It's about profit margin with these fat cats. Broadband service is a fixed cost and some providers *cough* TIME WARNER *cough* dont think they're making enough on it so they wanna charge per GB.

The industry is profitable, just some want it to be a cash cow
#7716 by thively
Thu Apr 16, 2009 2:03 pm
lohertz wrote:
thively wrote:A little like your cable company doesn't make money off selling you just broadband, but broadband + cable TV or broadband + phone services is profitable.


It's about profit margin with these fat cats. Broadband service is a fixed cost and some providers *cough* TIME WARNER *cough* dont think they're making enough on it so they wanna charge per GB.

The industry is profitable, just some want it to be a cash cow
There is a cost associated with laying the infrastructure (wiring) and installing the equipment. As a result there is an average cost of just bringing someone service, including equipment and installation not to mention promotional discounts.

If you have say just broadband, it could take on average say 2 years of you paying your bill for that cost to break even. I don't know exactly, but the point is you have to have an average revenue per customer over a certain amount for you to be profitable.

Just having broadband, for example is considered an only slightly profitable customer. But if you have multiple services, the set up cost remains about the same while the revenue you bring in is much higher. The 2nd services is all profit.

I'm not going to debate the greed of cable companies. That has nothing to do with my point. The point is like with Ooma, the core phone system may be cost break-even if not only barely profitable.
When you have a 2nd product from them, it would allow them to have an actually measurable profit from you.

There is a certain short sightedness to people's assumption that with the current product the way it's prices means the company has no way of ever succeeding. I'm saying I believe they're just getting started and you'll eventually see up sell or additional products coming.

One example could be for them to go is to come out with a new model that can bring in news and weather to a video screen or something and start offering reasonably priced paid services in addition to your free phone service. Just a hypothetical example.

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