Morpheus Morphs Into VOIP Provider

Peer-to-peer (P2P) file-sharing companies have proven eager to get into the voice-over-IP (VOIP) market, but so far their efforts have been limited to integrating VOIP software into their file-sharing programs. This week, StreamCast Networks Inc. took a new approach: using its Morpheus file-sharing program as a channel to sell a partner's VOIP hardware and service package.

On Monday, StreamCast introduced Morpheus VoiceBox, a private-label version of InternetTalker, which is made by i2Telecom International Inc. (OTC: ITUI). Users plug the portable box into a broadband Internet connection and standard telephone, allowing them to make VOIP calls for free to other VoiceBox users or for a fee to numbers on the public-switched telephone network (PSTN). Calls are routed through network operations centers (NOCs) run by i2Telecom. The hardware-service combo is similar to that of Vonage Holdings Corp. (see VOIP Player Gets Listed).

StreamCast is marketing the VoiceBox through ads and links in its Morpheus software, which has been downloaded 122 million times since May 2001. Proceeds from sales of the product are shared by StreamCast and i2Telecom; StreamCast shoulders the cost of sales and marketing, while i2Telecom pays for manufacturing.

Because file-sharing software users fit the profile of VOIP users, companies like Morpheus believe they can profit from VOIP without spending a lot on acquiring new customers. "Morpheus users are inclined to have a broadband connection, and they are early adopters of new technology," says Elizabeth Cowley, VP of business development at StreamCast. "So, we believe the Morpheus channel is ideal to target the Morpheus VoiceBox to."

In addition, StreamCast believes Morpheus users comprise a tight-knit community, making them more likely to buy VoiceBox units in pairs or groups and use them to call each other for free. To encourage such use, the company is offering a two-for-one promotion on the VoiceBox through May 15.

Two-year-old i2Telecom distributes InternetTalker exclusively through resellers – a key reason StreamCast chose the company as a partner. "We wanted to expand our brand into this area, and that's how they distribute – through private label," Cowley says.

StreamCast is i2Telecom's first channel to the U.S. consumer market. Since the manufacturer began shipping product six months ago, it has distributed through resellers in Asia, Latin America, and the Middle East, offering inexpensive overseas calls to the U.S. So far, it has sold about 4,000 InternetTalker boxes at an average price of about $80 per unit.

I2Telecom's main source of revenue is VOIP service, which it provides through two NOCs. "We make the unit so that we can sell the service," says Rick Scherle, senior VP of marketing at i2Telecom. In the case of Morpheus VoiceBox, i2Telecom and StreamCast are offering a basic calling plan for $6.95 a month, which provides unlimited calls to other Morpheus VoiceBox users, calls to PSTN numbers in the U.S. and Canada for 3.9 cents a minute, and international calls at low rates.

At such rock-bottom prices, profits for i2Telecom could prove elusive. But the company's cash cow remains international calling to North America. Morpheus VoiceBox offers two international plans: the North America 1,000 Plan offers 1,000 minutes of calls from anywhere in the world to U.S. and Canadian PSTN numbers for $8.95 a month and 1 cent a minute (additional minutes are 3.9 cents each); the North America Unlimited Plan is $18.95 a month for unlimited calls to U.S. and Canadian PSTN numbers.

VOIP is emerging as a new line of business for many file-sharing companies. Sharman Networks Ltd., a StreamCast rival, is developing a version of its Kazaa P2P file-sharing program that comes integrated with Skype, a VOIP software program created by Kazaa's inventors (see Skype Me? Skype You!). In March, StreamCast launched a version of Morpheus that includes Morpheus VoiceChat, a VOIP software program from Talking Tech Enterprises Inc.

Unlike Morpheus VoiceBox, Skype and Morpheus VoiceChat run on PCs and let users talk only with other users of the programs. The VoiceBox is the first foray into hardware reselling by a P2P company.

— Justin Hibbard, Senior Editor, Light Reading