Tech Untangled

Ooma just announced that it is taking pre-sales orders for the ooma Hub™ and ooma Scout™ in advance of the company’s consumer release slated for September 2007. Pre-sales orders will have for first priority fulfillment next month when the company opens up the online store.

Pre-sale Ooma systems come at the introductory pricing of $399 for a ooma Hub™ and $39 per Ooma Scout™ device. However, buried within this announcement (thanks Mike P!) is the news that Ooma is planning to increase prices!!!!!! Here it is:

In 2008, when the introductory pricing period expires, the ooma Hub™ device will carry a suggested retail price of $599.

I’ve had some concerns about Ooma, as outlined in Wanna get Ooma, Be Careful!. I’ve also outlined a preliminary comparison of Ooma and Skype, concluding that Skype is a better alternative for most people.

$600 for a device for free domestic long distance!!!! One has to have a really long investment span to see how this becomes a better value proposition than something like Skype. Frankly, I don’t see many users flocking to this anymore!

Ooma is just getting ready for lift-off and somehow I feel that it’s quickly forgetting about the consumer and thinking only about its profits (or perhaps the VCs are trying to cash out quickly). Or better yet, maybe Ashton is trying to Punk’d the general public this time!

Ooma has a lot of buzz and hype around it, despite still being in private beta. But let’s look beyond the hype and compare Ooma with other telephony services. I’m specifically choosing Skype although there are other players to consider. This will give a good idea how Ooma stacks up against Skype and for who Ooma may make sense.

First, looking at features, both Skype and Ooma offer unlimited calls to telephone numbers in the U.S. and voicemail. In addition, Skype has a nice colorful user-interface where you can set your presence status and see your contacts’ (buddies) presence status. There’s also Instant Messaging (IM) capability, and the ability to call both telephone numbers and buddies, no matter where they are in the world. While Ooma charges for all international calls, Skype only charges for International calls to telephone numbers (calls to buddies anywhere are free). Skype also higher voice quality because it uses high-quality codecs (e.g. iLBC) that provides better than toll-quality (what you get with landline phones) that is even good for music. The good thing about Ooma is that you can just use a single telephone number to reach all the contacts (kinda sorta like GrandCentral). Whereas for Skype, there’s a buddy name and a telephone number.

Also, neither offers 911 service, so you still need a local service for 911. In addition, Ooma users your local telephone service. Of course, a broadband service (e.g. DSL, cable) is also required.

Next, Ooma has several concerns about it service, especially relating to privacy. It’s all on this page, and there’s no need to replicate it.

Last but not the least, lets look at price. Ooma costs a flat one-time fee $399. There’s talk about a monthly charge for premium services, but that’s in the future so let’s ignore that for now. On the other hand, a Skype-enabled cordless phone or a WiFi phone costs about $150 (the Netgear WiFi Phone is $120 after a mail-in-rebate). The SkypeOut service to call anyone in the U.S. and Canada is $29.95 per year. SkypeIn (so your buddies can dial a phone number to reach you) with Voicemail costs $60 per year. That’s $90 per year or a whopping $7.50 per month. The cost of a Skype system is even cheaper, considering that Ooma costs up front and Skype costs on an annual basis. Skype devices also come with some nice extras - the SMC WiFi Phone ($160) comes with a free FON WiFi Router and + 12 months of Skype Voicemail. You can use the WiFi router for other purposes as well and comes with a revenue-sharing opportunity.

The break-even price is about 3 years. In other words, Ooma is cheaper if you keep it for more than 3 years. Till then, Skype is the cheaper option. Overall, Skype is a better option for most people because their time-span for electronics is less than 3 years. Three years is a long time - people tend to break things, want to get new stuff, or wont have the receipts when equipment breaks down

SunRocket, the standalone VoIP provider, has gone belly up. This is just the beginning - there will be more casualties among standalone VoIP providers. What’s interesting about SunRocket is that they raised $80 million from BlueRun Ventures (formerly Nokia Venture Partners), Mayfield Fund, Doll Capital Management and Anthem Capital Management, but only have 200,000 customers. That’s a huge amount of money wasted by Venture Capital firms!

I remember the professor (Hello Dr. M) from the Venture Capital class that I took at biz school emphasizing several times that Venture capitalists have “deep pockets but short hands” meaning that VCs have a lot of money but are very careful/stingy with it. Looks like the Private Equity firms that invested in SunRocket weren’t like that.

So let’s look at why anyone would plunk down $80 million. Now I can understand the Series A ($9.25 million in November 2004) and Series B ($25M in September 2005) because VoIP must have looked like a very lucrative opportunity in the 2002-2004 period when VoIP providers were springing up like mushrooms in the dark (the market potential is usually very rosy, but risky at the beginning) and it would’ve been important to get moving fast and get big fast (VCs love that!). Because VoIP features aren’t differentiating, it’s important to iron out kinks and fine tune the technology, customer service, billing, and marketing tactics early on.

But let’s look at the Series C. This is where the existing investors BlueRun Ventures, Mayfield Fund, DCM and Anthem Capital Management and new investors Varma Mutual Pension Insurance Company, The Grosvenor Funds, and Brú Venture Capital (BVC) plunked down $33 million on August 25 2006.

SunRocket has nearly tripled its number of customers in the first 8-9 months of 2006. This 200% growth must’ve looked really rosy when the market was projected to grow 65% (In-Stat, July 2006) to 100% (Telegeography, US VoIP 2006). However, the very high Customer Acquisition Costs for standalone VoIP providers should’ve been a BIG RED FLAG! Vonage’s marketing cost per acquired customer is nearly $275 and SunRocket’s shouldn’t be any different. Even if all the new money was spent in acquiring customers, this would’ve only got 120,000 new customers!

So, I don’t know what the VCs were thinking, especially during the Series C round, and especially the new funders. It’s a pretty sad story when VC firms plunk down $33 million for Series C (3rd round) and see the company go bust in less than a year!! I would also argue that there have been no game-changing events since August 2006.

The lesson here for VC firms is to continue to have “deep pockets but short hands”, do the proper due-diligence, and not get caught in the greed-trap.

Incidentally, Mayfield Fund appears to have deleted their pages on SunRocket. Gotcha!

Recent news has highlighted that VoIP service provider SunRocket has gone bust. This is no case of bad management - more and more VoIP providers will fall off the face of the earth in the coming months and years.

Before getting into the why and the who, let’s look at the different types of VoIP providers. Pure Play VoIP providers are those that provide VoIP via an adaptor to “bring-your-own-broadband” customers. Examples are Vonage, Packet8, SunRocket, Lingo, Netzero, Packet8, and Earthlink. PC-Centric VoIP providers are those that provide VoIP on PC platforms, typically as an extension to an IM client. Examples are Internet portal and PC messaging providers such as MSN Messenger, Yahoo! Messenger, AOL, Skype, and Google Talk. Facilities-based VoIP providers are RBOCs (the primary Local Phone companies) and Cable MSOs such as AT&T CallVantage, Verizon VoiceWing, Comcast Digital Voice, and Time Warner Digital Voice.

Being a Pure Play VoIP provider is tough, for the following reasons:

1. Low barriers to Entry - It is very easy to become a VoIP provider. With an IP-PBX such as Asterisk, a bunch of T1 lines, call termination agreements, an authentication server, a web server for user management, software, anyone can start a VoIP service. As a result, there are many VoIP providers in the market, leading to much competition.
2. High Customer Acquisition Costs - As easy as it is to become a VoIP provider, getting customers is a difficult task. A lot of people don’t know the company or have reservations about VoIP. Second, Pure Play VoIP providers have no brand recognition or trust relationships with customers. As a result, they have to market heavily to get customers. In contrast, PC-Centric VoIP providers can leverage their huge user base to gain a foothold in VoIP. For example, AOL, Yahoo, and MSN simply leveraged their IM customer base by adding VoIP to IM clients and by promoting it on their web properties. Likewise, facilities-based VoIP providers have access to a huge customer base that they can market at low-cost.
3. Lack of bundled service - This is where Pure Play VoIP providers are hit the hardest and the reason why Pure Plays will sink while Facilities-based and PC-centric providers thrive. Facilities-based VoIP providers such as AT&T and Verizon already have already have voice, video, data/Internet plays so they are able to offer bundled services with VoIP as an add-on. Likewise, Cable MSOs have video and data/Internet plays, and can provide VoIP/voice as an add-on in a bundle of services.
4. Expanding scope of PC-Centric VoIP providers - not only are new players joining the VoIP bandwagon, but existing PC-Centric VoIP providers are expanding into the Pure Play VoIP providers’ turf. Skype used to be only on the computer, but is creating an ecosystem of cordless phones, WiFi phones and gateways, to go beyond the PC.
5. New Game-changers: IP-PBXs are entering the home, especially open-source software such as Asterisk that can be loaded on any computer and you can connect a traditional POTS phone to it.

All these reasons point to a gloomy future for Pure Play VoIP providers. Now let’s look at how these providers compare in terms of market share.

As this dated market share report on from Telephia shows, only Vonage has significant market share. The small players will find it very hard to survive because they don’t have enough scale. VoIP has high gross margins (low incremental cost of service), but to make money when fixed costs are relatively high very high, one needs a lot of customers. If customer acquisition costs are too high, which it likely is for these small unknown pure-play VoIP providers, then no amount of customers are going to help you - eventually you will run out of money. I believe this is exactly what happened to SunRocket.

The future is bleak for these pure play VoIP providers with little market share - they will be acquired or fade into obscurity soon. Ironically, Vonage, the pure-play VoIP provider in the news for patent infringement, may be the unlikely survivor.

Last month I talked about Raketu, the one-stop shop that combines social networking with integrated communications (VoIP, IM/SMS, feeds) and IPTV. While Raketu is unique in combining all three, which is where the future is, Raketu does not have a strong position in this space.

Nonetheless, Raketu has launched its Mobile version to bring free or real cheap national and international calls from a Smartphone with Symbian or Windows Mobile.

The VoIP client has to be downloaded onto the mobile device (bummer!). Frankly, I don’t think most users will care to or even feel comfortable downloading an application to a device. Furthermore, the user must have a Data Plan (bummer again!), which is still pretty expensive these days. See a related article on Skype complaining of high carrier data charges. Verizon has an unlimited data only plan for $49.99. I don’t think most uses would drop the voice plan and get a mobile with just a data plan (even though E911 will work just fine without a voice plan - something most people don’t know). The good thing is that one could use the service from anywhere in the world, as long as you don’t care about high data roaming charges! Unfortunately for Raketu, the mobile VoIP client is pretty crowded, including those like EQO and Talkster.

Mobile users can watch IPTV and VOD on they mobile phone, as long as they can access RakWeb via the Internet (No download required).

Ribbit is yet-another startup in stealth mode. According to its web site,

Ribbit offers a new way to communicate without the hassle of additional software or hardware, and without having to purchase a new device.

Putting voice and choice back into communications…is what Ribbit does.

So we now know its some kind of telecom or Voice service provider. Hmmm….no software or hardware…I hope its not vaporware :-).

Looking at the Management team bios, it is clear that these folks have hardcore telecom backgrounds (i.e. client-server centric rather than peer-to-peer)

• “carrier-class softswitch”
• “TDM and voice packet infrastructure”
• “carrier-grade products with reliability and scalability”
• “voice-activated dialing, single number service, personal telephony assistant”
• “distributed call control element and an ECTF S.100-based application platform”
• “converged VoIP and fixed wireless services”

No one would assemble such an experienced team without intending to leverage that experience, so I’d venture that this is a softswitch-based VoIP application. Nothing out of the ordinary here - everyone and their mother has been doing softswitch in the last 5 years.

Looking further, Ribbit is developing a flash platform. See Director of User Experience, Flash Platform and this for evidence. This also ties in with some of the management team’s titles - “VP Applications” and “GM Software as a Service Ecosystem”.

Ribbit appears to be a softswitch-based VoIP telephony service that is accessible from a browser via a Flash application. Flash works on both PC environments and on mobile devices, so it would be a good choice for a service that runs on both PCs and mobile devices and offers a great user experience.

Jingle Networks, the provider of the free 411 service 1-800-FREE411, is now easily accessible to Skype users in the United States. Skype is a leading Internet VoIP company that is looking to spread its wings and 1-800-FREE411 is a free Directory Assistance service in the U.S. - so this looks like a match made in heaven. Skype users could already access 1-800-FREE411 because Skype allows a user to access any phone number (no 911 support though) for free. This agreement simply makes it easier - Skype users can dial easily by adding “Free411USA” to their contact list.

TechCrunch doesn’t see the value in this:

Personally, I find this deal a little dumb. Skype users are generally on an Internet connected device, and a web search is almost always an easier way to find information on a business v. a 411 call.

I agree that on a large form-factor device like a desktop PC or a Laptop this doesn’t make sense, but Skype is not just on a Computer. Nowadays, skype is available on cordless handsets, WiFi handsets, on PDAs (mainly with WiFi access), and even trying hard to get on Cell phones (but not doing too well). Nonetheless, Skype is trying to get on each and every mobile/portable device and this is where this partnership makes sense.

Also, I would venture out to say that this partnership doesn’t involve a cost to either party. It’s just a win-win for Skype and Jingle. So, why not! I remember in the startup division I used to work in, we had a speech-recognition based system (much like Tellme), and we would make ‘Strategic Agreements’ like this every day (especially the kind that had no value). Seriously, both these companies could use some additional publicity anyway.

News is flying around the blogosphere and tech news sites, after TechCrunch broke the news that Google is in talks to acquire or has already acquired GrandCentral, the “one number for life for all your phones” telephony company.

The basic idea around GrandCentral is to give everyone one single number so that your business and personal associates don’t have to know all your numbers. Calls to the single number can be routed to a variety of phones, depending on rules set by the user. These rules can be set depending upon your relationship to the caller and the time of day. This concept is also called ‘one-number reachability”.

There are several strategic areas where GrandCentral fits within Google’s strategy.

1. Connect to the Telephone Network: Google Talk doesn’t have connectivity to telephone numbers. In other words, Google Talk is a PC-to-PC calling application that only works with GTalk clients and other XMPP-based VoIP services. Enter GrandCentral, and voila! Google can terminate calls to telephone numbers.
2. Collect User Information: Google knows your email address from Gmail or iGoogle, search habits from Web History, locations of interest from Google Maps, your locations from weather information… You get the picture - Google knows a lot about you. But Google doesn’t have a key ingredient to creating a full and complete profile about you; your phone numbers and who calls you. Incidentally, this is also one of the most private of all public information that people have. For example, I will almost-freely give away my email address (see my LinkedIn profile) but will almost never give my phone numbers unless I know the person well. With GrandCentral, Google has the opportunity to get all your numbers! Why does Google need this? so that one day Google can precisely target ads to you and customize search results not just to the context, but to your profile as well.
3. Store voicemails and recorded calls forever: Getting a voicemail in your email inbox is easy stuff these days. GrandCentral allows you to record calls too. With GrandCentral, Google can store voicemail and recorded calls forever. Google may be able to transcribe these audio recordings and use it to serve customized ads and to enhance what Google knows about you.
4. Call from a Web page: Google already has the store front, purchasing, payment, checkout available. All it needs is a way for customers to embed a call button on a web page and Google can take the fight to Skype and eBay.

PS. Although TechCrunch says “We are trying to nail down the acquisition price.”, the title of the post implies that Google is paying $50 million for GrandCentral. See http://www.techcrunch.com/2007/06/24/google-to-acquire-grand-central-for-50-million/.

Fring has further expanded its mobile VoIP (mVoIP) community by adding Windows Mobile 5.0 and 6.0 series devices to its list of supported handsets. The software is going to work on around 300 Windows Mobile series 5.0 & 6.0 handsets and PDAs!

Fring is a VoIP-IM aggregation client, that allows fringsters to communicate for free with fring, Skype, Google Talk, MSN Messenger, hundreds of SIP providers, and even twitter. In addition to the 300 Windows Mobile phones and pocket PCs, Fring is currently available for 20+ Nokia/Symbian-based phones over 3G, GPRS or Wi-Fi. Fring is a free, downloadable mobile phone application. Fring also support calls to the PSTN via SkyOut and is enhanced with real-time presence.

While Fring is london-based (hence, the primary support for Nokia/Symbian based phones which is the primary phone type in Europe), adding Windows Mobile support will help Fring grow its user base in the US.

Raketu combines social networking with integrated communications (VoIP calling, IM/SMS, info feeds) and media content (IPTV) - a one-stop shop for online socializing, communication, and entertainment from the desktop PC and mobile phones.

Let’s look at where Raketu stands in each area of social networking, communications, and IPTV.

For VoIP calling, Raketu has phone-to-phone and PC-to-phone calling. Phone-to-phone calling is initiated by entering the “Call to” and “Call from” from a web interface. Raketu plans to launch a mobile application that users can install on a mobile phone to make VoIP calls and send SMS and IM. These guys have really cheap calling rates; free unlimited calls to landlines and mobiles within the US and to 42 countries (limited time offer). Since I call Sri Lanka quite often, I know that the Raketu’s rates to Sri Lanka are really low. If Raketu can offer real cheap calls to Sri Lanka, they can offer cheap calls to anywhere!

However, the VoIP landscape has some well known players such as Gizmo, Fringland, Skype, Jajah, Google Talk, MSN. One could expect new players as well, given the low entry barriers associated with all things Internet.

Now, let’s look at IM and SMS. Raketu can talk to pretty much any IM client (Yahoo, MSN, AIM, ICQ, Google, Skype, Jabber), with conferencing across IM clients. Their secret sauce appears to be very simple; The Raketu application can speak every IM client’s protocol. Again, many of the IM players could easily do that.

When it comes to social network, again, Raketu is very limited. With much better known social networks such as Friendster, Linked In, myspace, and Facebook, Raketu just doesn’t have the momentum to be a leader.

Looking at IPTV, the story is similar. Joost and Babelgum have far better IPTV applications and much better content.

Many companies focus on one service, but Raketu is trying to carve out a niche by integrating social networking, communications, and video. Raketu has the right vision, but the problem is the competition.

Companies such as Joost are well positioned to do the same thing; Joost has a highly coveted IPTV service and has integrated IM (Jabber and Gmail) and news feed services and a “Widget Menu” to house a variety of future applications. Joost is formed by the experienced founders of Skype, who’ve been there and done that when it comes to Peer to Peer technology, VoIP, SMS, and IM. These companies tend to have more market recognition as well.

With all this competition (With Joost and Babelgum and other IM/SMS and VoIP providers), is there room for Raketu? Right now, Raketu does not look well positioned to lead the integrated service offering space.

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