Free cake, she said

I use Skype all the time.  As for Vonage, when I see the name I get their annoying theme song stuck in my head, but other than that I get it confused with the Chevy Cobalt which briefly used the same music--uh, what is a Vonage?  Is it a telephone, or an economy sedan? 

So I just read this on VC Ed Sim's blog:

Whether it be consumer or enterprise, all companies should think about how they can utilize the Internet for delivering their product.  The more you do over the web (market, sell, deliver product, run your service) the more you can scale your business with incredible efficiency.  After all it only took Skype 2.5 years and $20mm of capital to create $2.5-4b of value .... While Vonage is doing quite well with its growth, it still requires an incredible deployment of capital and it still requires users to wait for hardware to be shipped to their house before using it.  There is more friction in using the Vonage service as compared to Skype.

Aha!  Vonage is a phone, sort of....but it's harder to buy than a car?  By the way, I've never given Skype a nickel.  I use their chat and PC-to-PC telephony for free.  But if I were to use broadband phone service (and someday I'm sure I will), Skype will have me at "Hello." 

Skype's marketing plan is the opposite of the old bait-and-switch.  It's more like Marie Antoinetworking: Free cake, come and get it! ...and nobody much minds paying for the birthday candles if the cake is free.

So far as I know, McAfee invented this marketing device in 1989 when they gave away virus software--and charged for premium services.  The idea is that you can corner a truly vast market, and do so without spending on advertising, when your loss leader is bigger than your product.  This model doesn't work for every business--wouldn't work with real cake, for example, since sugar and eggs do cost money.  But when you're an internet service company, it's going to cost you a lot less in the long run to give stuff that doesn't cost you anything away than it costs to buy airtime during an episode of Fear Factor.