It is essentially a binary language, just like what machines use.
Unless they never stop vocalising, it isn't really binary as you have O, U and silence. Binary signals just have high and low, or on and off. Tri-state stuff is distinguished from plain old binary.
How can each word be differentiated without any pauses between words?
So, study of spoken language isn't my forte, but I note that many foreign languages that I do not understand do not have word-boundaries that I can recognise... they just seem like more-or-less seamless flows of sound, broken up into sentences. I can understand the word boundaries in languages I'm more familiar with, because I recognise individual word-sounds and my brain does the parsing for me.
If you really wanted, you could consider having a special sequence to defined End-Of-Word, but that just seems unnecessary and would take up valuable conversation time.
You'd probably still want to pause for end-of-sentence though.
Assuming you can get past the above problem, will it simply take too long for them to convey information?
Depends how fast they can modulate their voices, doesn't it?
For a technological example, consider radioteletype, aka RTTY (sound sample, youtube link) which can give you 60 words per minute, which is less than half the rate of spoken english (faster rates do exist, but they're not reall meat-emulateable). This is done by sending one character at a time, 5 bits per character. The efficiency at which you can send information depends on how you've put together your lexicon. Morse operators used many specialist abbreviations for important common words, questions and answers. Your language probably needs the same. Uncommon words might take much longer to say, which means that unless the race is quite patient they might have issues communicating complex or technological concepts.
For non-technological examples, consider birdsong. I'm having trouble with the precise search terms that will be of most use to you, but trilled portions of birdsong can go as high as 30 distinct pulses per second (1800 bits per minute, 6 times faster than the basic RTTY mode). That needs some fairly sophisticated muscles and brains to do that trick, though.