Vonage and Its Weather Vane Moment

Last week's IPO filings offered Wall Street an opportunity to invest in two technology companies -- let's call them Company A and Company B.

Company A is a telecom start-up that in four years helped pioneer a new form of telephony changing how people communicate -- a market forecast to grow 10 times over between 2004 and 2007. The company monetized this disruptive technology, posting revenue that more than tripled in the last year and was 230 times as large as revenue in 2002.

Company B has seen its revenue grow but expenses balloon even faster. It's posted a loss every single year. Its operating margin in the first nine months of 2005 was equal to 110% of revenue, above the 86% in the year-ago period. So, it's spending money faster than it can bring it in. And it recently swapped its CEO, who last ran a company that settled with the SEC in a stock-manipulation scheme, with an alumnus of another scandal-plagued firm.

So, who stays on the island?

OK, it's a trick question. Company A is Vonage, the VoIP (or voice-over-Internet protocol) telephony pioneer that could reap riches by offering super-cheap long-distance calls. Company B is -- that's right -- also Vonage, which is having a hard time not bungling the rare opportunity to overturn a stagnant and inefficient business model.

The schizoid choice that Vonage presents investors says as much about the company itself as it does about the crossroads at which Wall Street stands in the early months of 2006. For the past five years, the IPO market has looked on its pipeline with the same steely, unforgiving gaze that Kenesaw Mountain Landis cast onto baseball, i.e., a very sober gaze (although some would argue too harsh, in a few instances).

But with a new, improved Internet rising from the ashes of the dot-com bust, there is also a growing sense that public investors should be able to get in early on a new generation of upstarts that can improve on the sclerotic business models of the old guard.