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VOIP services

Ooma Takes Aim With VOIP Device

Startup ooma Inc. says it offers free, unlimited local and long-distance calling for life. Whether that's your life or the life of ooma is a key question, though, because the service costs you $399 up front.

Palo Alto, Calif.-based ooma launched last week, gaining lots of publicity for having "actor" Ashton Kutcher on staff as creative director. [Ed. note: They undoubtedly couldn't afford Uma.] The startup offers free local and long-distance voice service through a piece of hardware that connects to an end user's phone and broadband connection, just like VOIP modems used by pure-play VOIP providers like Vonage Holdings Corp. (NYSE: VG). (See Ooma Announces Service.)

Unlike Vonage, however, the ooma hardware works by sending voice packets over the IP network and then terminating calls through other ooma devices connected to the local PSTN. In this way, the company is able to terminate the call without paying interconnection fees to local carriers.

So what's the catch? Well, there's the little matter of the $399.

Perhaps more importantly, users may be wary of a new VOIP startup in the wake of SunRocket Inc. 's demise and ongoing litigation between Verizon Communications Inc. (NYSE: VZ) and Vonage.

(See Nuvio Picks Through SunRocket Debris, Vonage Taps SunRocket Users, Vonage, Verizon Fight to Go Into Late Rounds, Vonage Wins Stay, and Court Asks VG, VZ to Mend Fences.)

JupiterResearch analyst Doug Williams says the $399 upfront cost is going to be an inhibitor for some users. "Users are going to be very hesitant about signing up, particularly with the way SunRocket disappeared in the blink of an eye."

But ooma CEO Andrew Frame contends his company has a significantly better model than other pure-play VOIP providers, and even goes so far as to say ooma could be a "savior" for the industry.

"Independent commodity VOIP is dead," Frame says. "Vonage and SunRocket educated the market on VOIP, but they were not built with the best business models in mind. Who wants to offer a commoditized service and compete on price?"

Frame says ooma offers investors a value proposition different from that of most VOIP services. "We make money from gross margins on the hardware; we're profitable from day one [meaning the day the subscriber signs up]; and we're not subject to churn."

Still, there is some question whether ooma can make money from customers after they have purchased the company's hardware. The company will charge a nominal fee for international calling, on the order of one cent per minute to Europe and eight cents per minute to India. And as it gains more subscribers, ooma plans to offer fee-based enhanced services to collect ongoing revenue.

During the last three years, ooma has secured $27 million in venture capital through two rounds of funding. Investors include Draper Fisher Jurvetson , The Founders Fund Management LLC , WorldView Technology Partners , Draper Richards LP , and WI Harper Group .

Summing up his confidence in ooma's business model, Frame says, "You can't raise close to $30 million without figuring these things out." [Ed. note: Then again, SunRocket raised $80 million without figuring these things out.]

Funding alone is not a guarantee of success, says Jupiter's Williams. "A lot of people thought SunRocket had good backing, but it's a challenge for any company trying to disrupt the current voice model."

Yankee Group Research Inc. analyst Patrick Monaghan says ooma's viability will be a matter of "keeping an eye on its overhead," but he believes the company is on the right track to gaining consumer acceptance.

Noting that consumers ultimately think with their wallets, Monaghan believes ooma has an opportunity to gain customers in the VOIP market. "People are going to be wary for a while," he says, "but in six months they will have forgotten about SunRocket."

— Ryan Lawler, Reporter, Light Reading

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Pete Baldwin 12/5/2012 | 3:31:26 PM
re: Ooma Takes Aim With VOIP Device Oof. Ooma's raised another $16M.

http://tinyurl.com/3fodwz
DCITDave 12/5/2012 | 3:05:09 PM
re: Ooma Takes Aim With VOIP Device This is a weird one, eh? A VOIP service that makes all its money on the hardware sales up front.

Did I read this wrong or are they fine with having hardly any recurring revenue? And will they just eat support costs over the years following the sale of the first device?

Will they meet their Dooma?

Gotta admit, though, free calling even to someone who's not an Ooma user is a very attractive feature.

ph
DCITDave 12/5/2012 | 3:05:09 PM
re: Ooma Takes Aim With VOIP Device re: "Who wants to offer a commoditized service and compete on price?"

Have you seen what the telcos are doing in TV these days?
rainbowarrior 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device
Phil,

If I understand this propely, then this is peer-to-peer model and the only way to dial out of the network is to dial into another user. So the "free long distance" only works if there is another user in the area you are calling who owns an OOMA box and a landline, and has allowed the land line to be used in this manner, and is not being used by another OOMA call.
So you would need very, very high market saturation rates to get this to work. And at $400 a box, is that remotely possible?

And then you would also have to assume that the peer-to-peer directory service scales.

And then there are security concerns. What if someone makes a call through my OOMA box that goes through my landline and the call is threatening or obscene. Do I have some exposure or liability since the call was coming from my house as far as the PSTN was concerned?

All this to save on domestic long-distance calls which are not all that expensive and getting cheaper all the time. $400 buys a lot of domestic long-distance.

But, if it doesn't work and you can't get calls through, well, you already paid your $400 so I guess your out of luck.

sathyaw 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device Freeworld dial-up tried the same model may be 3-4 years ago, users should know that ooma is routing calls through their land lines. I do not know how they are going to make the line available if the user wants to use his land line when someone is on the line.

Bottom line is ooma is looking for usres who want to spend 400 upfront and then keep the land line + then have DSL. Call quality will also depend on what these other users are doing with their broadband.

Just a suggestion, how about paying back the users for the calls that are routed through their land line.
Ryan Lawler 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device To answer a few questions: At least during the trial stage, the company is requiring that users who receive free boxes keep their landlines so that they can build out the network of PSTN connections in local exchanges. When the trial period ends and the company starts selling the ooma devices commercially in September, however, they are betting on a number of users keeping their landlines for 911 service, etc. If they don't have coverage in a local area, ooma says it will pay interconnect fees to the local carriers.

And finally, unfortunately the service won't work if the company folds.
Ryan Lawler 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device To answer a few questions: At least during the trial stage, the company is requiring that users who receive free boxes keep their landlines so that they can build out the network of PSTN connections in local exchanges. When the trial period ends and the company starts selling the ooma devices commercially in September, however, they are betting on a number of users keeping their landlines for 911 service, etc. If they don't have coverage in a local area, ooma says it will pay interconnect fees to the local carriers.

And finally, unfortunately the service won't work if the company folds.
aswath 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device #4: Quoting the CEO (from a podcast available at Techcrunch) with as much of a straight face as I can muster: Given that local calling is about 12 mile radius, it does not take much Ooma boxes to cover the country. So coverage is not the problem. But capacity is. The beauty of this proposal is as customers are added, the capacity increases naturally.

Of course nobody asked him what if a large proportion of users opt out to share their PSTN line?

It will be nice if the box will continue to offer features even if the service folds. This way at least one can continue to use it as an answering machine and provide distinctive ringing etc. But it is not clear that the box is designed so.
aswath 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device #3: The international rates are that "very little". One can get the quoted rate to India from Reliance India that too from a PSTN line.
opticalwatcher 12/5/2012 | 3:05:08 PM
re: Ooma Takes Aim With VOIP Device Sounds like they still charge for international calls (though very little).

The thing I find fascinating is that they encourage you to keep a local phone line. They -use- this local line to route other customers calls to the PTSN in your area. They've found an interesting way of connecting to the PTSN.
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