Tuesday, October 26, 2004

How much market share for $5m a month?

It's interesting to see the likes of Telio saying the company will be profitable at the net income level this year, and what seems to distinguish it is the complete lack of marketing spend to date. This is probably partially related to VoIP market dynamics in Europe, but also probably to management aspirations. Contrast with Vonage, which yesterday awarded French advertising group Havas its marketing campaign reportedly worth between $50 and 75m (http://www.adage.com/news.cms?newsId=41824, probably requires registration, but the site is free). At the mid-point of the range, this suggests a monthly advertising spend of $5.2m.

Admittedly, the markets are different, but just to put this in perspective, BSkyB, which is in a turnaround phase in its evolution after a couple of quarters of poor net additions, has earmarked an additional GBP50m ($91m) in above-the-line annual marketing spend this year. Remember, this is a $17bn company with 7.5m customers, and an entrenched market position to defend. The longer I follow this sector, the more I'm convinced that for investors, the way to play it is actually through ancillary sectors which might benefit from the competitive mayhem underway. As an example, take global advertiser WPP (which is reporting Q3 results today). In the first half, telecoms was the second-highest growth revenue category for WPP, at 15 - 20% annual growth. How many telcos are reporting those sorts of numbers?

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