Ooma Takes Aim With VOIP Device
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