Things That Won't Get Your Company Through The Recession: Limited, Hard To Use Free VoIP

from the well-trod-path-of-failure dept

Wed, Dec 17th 2008 8:23pm — Carlo Longino

The price of voice calling has long been moving towards zero, making the "cheap phone calls" business model a fairly unattractive one. But, as Om Malik points out, that doesn't stop VoIP startups from traveling down the same path as previous failures by trying to use "free calling" offerings to build a business. The latest is a company called Jaxtr, which is touting a service that allows its users to call each other for free (how original!). But it's not so straightforward: in addition to both people on a call having to be Jaxtr members, the service gives each of them a special local number to call to reach the other person. So instead of just dialing, or clicking on a user in a buddy list, this is the process:

Jaxtr members simply enter the number of the jaxtr member they wish to call. Jaxtr will then give them a local number to reach that person. Once they initiate the call, jaxtr notifies the person they are calling, and will give that person a local number to call, too -- allowing the parties to connect directly. They can then talk for as long as they like, free of any charge from jaxtr. These assigned local phone numbers can also be used again by the same parties on an ongoing basis.

Two points: it still requires members to have their own phone service and make a local call, and, as Om notes, it's the same kludgy approach that's been tried before by other VoIP companies, with little success. Prices of voice calls are falling across the board, making the inconvenience of systems like this a huge barrier for users to overcome when compared to direct-dialing or other voice-calling or voice-chat services. But Om hits the nail on the head when he asks how VoIP companies can make money from free calls. Jaxtr says its plan is to convert free users to paid customers; they should check out how that's fared so far for Skype, even with its tens of millions of users.

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Filed Under: voip

14 Comments

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Cheese McBeese, 17 Dec 2008 @ 9:57pm

Oh good grief. This is so 2001/2002. Any VC who is funding this kind of initiative needs to be spanked and needs to question the quality of their members that approved investment in this business.
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cram, 18 Dec 2008 @ 12:37am

jaxtr itself is so 2007, wonder why it's getting coverage here.
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Anonymous Coward, 18 Dec 2008 @ 12:42am

While I generally agree with this article, you should be careful when using Skype as an example. As an established company ranking near the top of the traffic rankings, eBay is situated in a position that if the free VOIP model was to work, surely they could have pulled it off.

However...

eBay basically did nothing to promote Skype, and continues to not promote the product to the millions of daily visitor to their ring of sites. eBay would (for some reason) rather lace their pages with ads for Netflix and ads for competing ecommerce site rather than promote Skype - the least they could do is to do both. eBay also has a built in marketing tool, and that is eBay's MyMessages. They have a captive audience of millions of sellers who MUST check their messages on a daily basis. One wonders why they do not bombard these sellers with messages and offers for Skype.

And speaking of offers...eBay seems reluctant to offer any deals to sellers who use Skype, despite a decline in revenue, core listings, traffic, and the utter failure to monetize Skype. The whole Skype debacle seems to have been a case where eBay bought the company just so Google couldn't get it - it's as if they don't even care about the billions of dollars that were spent, and they're just happy Google or Microsoft didn't get their hands on it.
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Peter Parkes (Skype Blogger), 18 Dec 2008 @ 4:25am

Monetising Skype
Skype�s doing pretty well converting free to paid users, in fact � see the below from a TechCrunch report on eBay�s 2008 Q3 earnings:
Another eBay business that is holding its own, surprisingly, is Skype. Revenues for the third quarter were $143 million. Although its growth rate is slowing, at least it is still growing, both on an annual (46 percent) and sequential quarterly (5 percent) basis.
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Anonymous Coward, 18 Dec 2008 @ 4:29am

You mean it is nearly impossible to make money from something that is free? Oops, don't tell Mike or you will ruin his whole free music business model!
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- Anonymous Coward, 18 Dec 2008 @ 8:45am
  
  Re:
  Way to miss the point. Being free isn't enough of a selling point. If its not useful or easy to use, people won't care that its free. Plus, Mike never said you make money off of selling free items. You make money in other ways, such as using the infinite resources (digital music) to make the scarce resources more valuable (merchandising, concerts, even making the media more valuable by offering special content or extra goodies... i mean, look at NIN's ultra limited edition Ghosts album that sold for, what, $300?)
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Anonymous Coward, 18 Dec 2008 @ 4:41am

$143 million for the 3rd quarter?

Wow

Not counting overhead, it will take about six more years to make back the initial investment in revenue.
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- Anonymous Coward, 18 Dec 2008 @ 8:48am
  
  Re:
  Not sure if you're saying thats a lot or a little, but in general, big companies sometimes don't expect investments to start paying out for a long time, even over a decade.
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- Juarez Traveller, 18 Dec 2008 @ 9:12am
  
  Re:
  Only six years? That's /fantastic/! They should be congratulated!
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Anonymous Coward, 18 Dec 2008 @ 7:38am

I paid for skype
put about $20 on when I traveled in europe for a summer. That made calls home incredibly easy and affordable. If I had kept Cingular it would have been $2 per minute or so.

never heard of Jaxtr before now and this description just sounds silly
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Brian Roy, 18 Dec 2008 @ 8:27am

Missing the point...
The VoIP model is just the same old telco model with a different network underneath. There is nothing new for the end user in terms of advantage or functionality - so that leaves quality and cost.
I've been in and around this space for 15 years and VoIP adoption is slow because there is no compelling switching motivator. Don't believe me - check out how VoIP companies pitch themselves - "You can save XXX dollars per year by switching to XXXXX".

As I said 2 years ago - VoIP will be mainstream when the applications exist which fundamentally change the question from "why would I use VoIP" to "How can I not use VoIP - I lose 75% of the value if I don't". We aren't there yet because no one will abandon the whole network/subscriber model and sell the application instead of the connection.
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Build a Business, 18 Dec 2008 @ 9:31am

Skype
Great tool. We save hundreds of $ in video conf fees this year.
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pwb, 18 Dec 2008 @ 6:44pm

It's hard to get traction but it's easy to make money on traction.
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jd, 18 Dec 2008 @ 6:47pm

"Not counting overhead, it will take about six more years to make back the initial investment in revenue."

Or two at the current, or even slowing, growth rate. Even less if they figure out other revenue streams.

Why are people so dumb?
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