Ooma, a Palo Alto, Calif-based company that launched with much fanfare last year had run into a wall in recent months. It lost some key executives and failed to live upto its promise. Ooma promised free voice calls for life married to slick hardware was a classic case of too much sizzle, very little steak. Lately there were signs that the company was staring down a dark abyss.

Ooma is not dead, yet. In a bid to try and regain some of its lost momentum, Ooma is cutting the price of its Hub and Scout package by $150 dollars to $250. The company is going to sell a premier service package that is going to cost $12.95 a month or $99 a year. The company is refocusing on the consumer electronics retail channel, said Rich Buchanan, a former Sling Media executive who just joined Ooma as chief marketing officer.

I had a very candid chat with Buchanan, pointing out that it is hard to develop enthusiasm for a company that had overpromised and underdelivered. Instead of developing cheaper products and getting into the retail channel, the company focused on developing strange concept promotions for a device whose value proposition in a nut shell is: cheap calls.

Cheap calling is a tough, low margin and volume business - as Skype’s recent performance shows. Ooma device despite their slick packaging had some performance issues. Buchanan wants to refurbish the company’s reputation and brand. “Clearly I have my work cut out for me,” Buchanan acknowledged, admitting that “Ooma has a black eye.” He said the company had realigned and is focusing on building a retail channel.

I think even at $250 for the package, the device is still too expensive. You can buy PhoneGnome . Despite some distinct differences, the two companies serve the same end goal of making voice calls cheaper/free. (The comparisons between the two riles up .) Buchanan who has been a retail guy for a long time, acknowledged that the right price for Ooma is between $99-to-$199. But in order to get there, the company will have to overcome some serious odds.

In US, the introduction of unlimited plans and other cheaper options from say Skype, has put Ooma on the backfoot. Given that I was impressed by Ooma at the time of launch, I hope

James Seng, a fellow VoIP blogger from Singapore, was in town last week. We met up one afternoon for coffee, and my first question to him was: Why are you blogging less about VoIP these days? He expressed dismay at the lack of excitement in the sector right now; after all, how many times can one drum up enthusiasm for a USB phone or a soft phone? We agreed that VoIP is stuck in a “cheap calling” rut, and that it doesn’t appear to be going away anytime soon.

With the consumer market saturated, venture capitalists are funding companies that are trying to cater to small- and medium-sized businesses. Redwood City, CA-based RingCentral, a provider of web-based phone and fax services for professionals and small businesses, said today that it has raised $12 million from Khosla Ventures and Sequoia Capital. (I had erroneously said they were based in Denver.)

There is nothing about RingCentral that distinguishes it from countless other firms chasing the same opportunity and as such, nothing to convince me that they will not meet the fate of dozens of other small competitive service providers. In fact, the odds are stacked against a company like RingCentral. Not only do they have to compete with the phone companies, but they also have to contend with the cable operators, whose efforts to woo the small-and medium-sized business market are even more ambitious.

“Cheap calling” is a no-win business — the volumes need to be substantial in order to turn a profit. That is one of the reasons why I happen to be hesitant about Cubic Telecom, an Irish company looking to save you money on mobile phone roaming charges by offering a special SIM card that gives you up to 50 local numbers and turns every international call into a local one.

It’s a clever idea, and it’s addressing a pain point, but the founders have to execute flawlessly or they’ll see someone else do them one better. (Markus Goebel does a great job comparing Cubic to other offers on the market.)

The problem with competing on price is that the incumbents always have the scale advantage, which lets them play the game more effectively, especially given their bigger marketing reach. That’s one of the reasons why Vonage, despite its early start, is finding itself on the wrong side of the equation.

VoIP needs to break out of its rut and do something more interesting. The recent Facebook experiments by guys like Free World Dialup and iotum give us hope, but a lot has to happen there. Surj Patel recently threw up some ideas, but there has to be more. Care to contribute?

Even before I could jump-up-and-down on Vonage’s ass, Andy does a fine analysis of their marketing burn rate.

Vonage is expending $375 per customer in marketing expense before you add in the cost of the ATA and shipping, just to acquire the subscriber. So in round number let’s say they are spending $450 per sub. With average cost per sub pegged at $30.00 before costs, lets say $15 dollars for the PSTN number and termination if the usage is light to moderate it would take 3 years before Vonage has recovered the cost to acquire the customer.

My two cents on this came via Guy Kawasaki who stopped by the office to promote his book. “Between AT&T and Vonage, you know which one I am going to take,” he said. The constant battle of competing with the giants is going to weight on Vonage, which is having more outages by the day it seems. Yesterday another reader wrote in and complained about not being able to dial out for days. My two cents on telecom downward spiral.