Skype goes Cellular with the 3 SkypePhone

skypephone_logo.JPGSkype and UK-based cellular service provider “3” have launched the 3 Skypephone, a mobile phone that allows users to make free Skype calls via the Internet. The 3 Skypephone could also send free Skype Instant Messages (IM). Right now, SkypeOut calls, SkypeIn calls, and voicemails are not available, but the phone makes conventional calls.

The phone is being launched in nine markets including the United Kingdom, Australia, Italy, Hong Kong, Sweden, Denmark, Austria, and the Republic of Ireland. In Britain, the phones will be available for sale in 3’s UK stores on Friday November 2, 2007. It costs 49.99 pounds ($102.6) with pay-as-you-go service, and free with a contract. The company hopes to sell “several hundred thousand” units worldwide in the fourth quarter of this year.

Skype acting CEO Michael van Swaaij expects the launch to boost the group’s 246 million-strong registered user base because “the service was now available to people without computers”. I doubt that the skyphone will make a dent in Skype’s customer base for the following reasons:

  1. 3 subscribers are likely to have access to a computer. In other words, many of the users of the 3 Skypephone will be current Skype users.
  2. “3” is a relatively new company and doesn’t have a large subscriber base.

The 3 Skypephone does not work in the U.S. spectrum bands, so Skype enthusiasts in the U.S. will have to wait!

I wrote an article recently on “4 Reasons you won’t have Skype on Cell phones anytime soon”. Interestingly, “3” is the first operator to open up its network to Skype. For “3” it makes sense as an upstart 3G/UMTS operator, but I highly doubt that the major cellular operators will open up their network (hey, they have to protect their primary revenues) anytime soon.

Agito Networks seeks gold in fast WiFi/Cellular handoff

agito_networks_logo.jpgFixed-mobile convergence (FMC) and the quest to make quick, smooth hand-offs between cellular and WiFi got a shot in the arm when Agito Networks formally launched this week. Agito Networks is founded in 2006 by Pejman Roshan (VeeP of marketing) and Timothy Olson (CTO), both formerly of Cisco’s Wireless Networking Business Unit, and backed by $9 million in investments led by Battery Ventures.

FMC is one solution to spotty cellular RF coverage within buildings (another answer is Femtocells, which Sprint Nextel launched recently). Furthermore, FMC helps leverage the increasing number of WiFi networks in offices and hotspots to make low-cost VoIP calls.

So why jump into a pit with hundreds of FMC players such as Tecore, T-Mobile HotSpot@Home, Kineto Wireless, LongBoard, and Motorola? Turns out that no-one has adequately solved the problem of transitioning from cellular to WiFi quickly and smoothly.

Agito Networks claims to achieve sub-second handover between WiFi and cellular RF networks through a patent-pending location-aware technology that utilizes RF to tell when an individual is approaching “predefined points at an enterprises WiFi coverage edge” after which a mobile-based client cooperates with a RoamAnywhere router (which integrates with the company’s IP PBXs) in order to hand the call over.

Agito Networks’ is targeting its products at medium-to-large businesses looking to save on cell phone bills – Agito claims a 60% reduction in phone charges by routing in-building calls over dedicated IP infrastructure and connecting outgoing calls originating indoors over VoIP.

Agito plans to introduce models ranging from $9,995 to $24,995 in the US later this year. The RoamAnywhere 2000 series Router is designed for small to medium deployments and scales to 100 simultaneous users per appliance, while the 4000 series, designed for medium to large deployments, can handle up to 1000 simultaneous users..

Agito also provides “Zero touch” client deployment which helps administrators to pre-provision groups. In addition, the location-aware policy engine enables users and administrators to create and enforce corporate-wide mobile policies. The Network/IT Admin can even set up RoutePoints and instruct calls to be directed to voicemail when users are off duty.

Seems like an interesting approach – but the FMC space is still at the early stages and feasibility cannot be assessed until products/trials are available.

Will Jaxtr upstage Skype?

Jaxtr has raised a $10 million Series A round led by August Capital with Mayfield Fund, Draper Richards, Draper Fisher Jurvetson and Luxemburg-based Mangrove Capital participating. Jaxtr’s registered user base has been doubling every month since its March launch. Most recently, it jumped from 500,000 to 1 million in just 27 days. So, it’s no surprise that Jaxtr needs more money to continue its expansion.

The interesting thing is that three of the investors, Draper Richards, Draper Fisher Jurvetson and Luxemburg-based Mangrove Capital, were early investors in Skype. Overall, there’s a lot of venture capital flowing into voice startups. Rebtel grabbed $20 million, Truphone collected $23.4 million, Jajah hauled $20 million, and last month newcomer Ooma topped the list with $27 million.

Why would the same folks invest in Jaxtr? Does Jaxtr have a better future than Skype? The investments indicate that Venture Capitalists, who have insight into these companies and know the market, feel that the voice market is still up for grabs. Perhaps they feel that Skype can be beaten at its game, especially since Skype is not a great solution for mobile phones and seems to be losing its way at EBay.

Here’s the thing. In the voice world, the mobile phone is king, primarily because of the anywhere, anytime convenience of mobile service. Whoever makes voice easy to use (and cheap-er) on mobile phones will be king.

It’s clear that Skype is not this king. Skype has made little progress with being on mobile devices because Skype requires a special client and it is very difficult to facilitate mobile clients. For one, users don’t know how to and cannot be bothered to download and install a client on their mobile device. Second, a lot of wireless phones are pretty much closed to unsanctioned 3rd party applications. More reasons can be found at 4 Reasons You Won’t Have Skype On Cell Phones Anytime Soon.

On the other hand, Jaxtr gives users a unique phone number and web address, so a mobile user can make and receive calls without any special software on a cellular phone, like Skype, or without having to access a web browser, like Jajah. The numbers show this too – Apparently, between 70 and 80 % Jaxtr calls involve a mobile phone.

Jaxtr will incorporate advertising into its services and may also pursue new services on social networks. Longer term, Jaxtr plans tiered monthly minute plans like that kind available today with cell phones. Jaxtr also plans advertising within user accounts. Jaxtr hopes to get 20 million users in the next twelve months and expects around one percent to purchase for additional minutes.

This indicates that Jaxtr has an uptapped market that Skype cannot easily reach. Especially with EBay fumbling with the Skype acquisition (EBay’s acquisition of Skype never made much sense to me). My bet is that Jaxtr will give Skype a run for its money!

Ooma to Raise Prices

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!

Why Skype is Better than Ooma


ooma_logo_lg.gif skype_logo.png

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

Lessons for Venture Capital firms from SunRocket

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!

5 reasons why VoIP providers will go Bust

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.

voip-provider-landscape.JPG

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.

Raketu Launches Mobile VoIP client

Raketu company logoLast 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).

What is Ribbit up to?

ribbit_logo.jpgRibbit 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.