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Summary:

[qi:004] Updated: A few years ago we saw a gaggle of VoIP start-ups pop-up, each claiming to have their unique twist on cheap phone calls. Some offered anonymous calling services as their signature feature. Others labeled themselves as social voice apps. Some of them tried both […]

[qi:004] Updated: A few years ago we saw a gaggle of VoIP start-ups pop-up, each claiming to have their unique twist on cheap phone calls. Some offered anonymous calling services as their signature feature. Others labeled themselves as social voice apps. Some of them tried both and other features. Most jumped on the social networking bandwagon. And many of them - Jangl, TalkPlus and EQO for example — went bust, because they learned the harsh lesson — selling cheap minutes or offering free calls isn’t really a business. One such company – Menlo Park, Calif.-based Jaxtr – apparently hasn’t learnt that lesson.

It is still hanging around, thanks to $10 million venture capital infusion it received in June 2008 from Lehman Venture Partners. They fell from my active-coverage list. Today they sent over a press release touting Freeconnect, their free member-to-member calling service, that has been tried unsuccessfully by other VoIP start-ups.

FreeConnect is easy-to-use. 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.

That announcement made me feel like Rip Van Winkle who just woke up. If my memory serves me right, this is just another variation on Rebtel’s initial model, one they launched with back in 2006. After realizing that they weren’t going anywhere, Rebtel (somewhat) re-focused and now (supposedly) makes a decent living. The whole process of using Jaxtr to make free phone calls seems so cumbersome and in this day of increasingly cheap wireless plans – almost pointless.

Now even if Jaxtr’s new offering does become popular — odds of that happening are lower than chances of baseball slugger Manny Ramirez returning to Boston — how is Jaxtr going to make money? Free calls don’t make money but they surely incur costs. Advertising isn’t going to cover the costs — at least not while this deep recession lasts.

“We believe a big portion of the free callers will convert to paid calling… The number of people who do that can make up for the people who only do free calls,” Bahman Koohestani, chief executive of the company told VentureBeat.

Maybe I should offer to sell him an investment opportunity in Bernie Madoff’s fund!

You should check out my twitter conversation with Jaxtr co-founder. 1. 2. 3. 4.

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  1. What is your current evaluation of OOMA? I followed the heated discussions about OOMA from last year and earlier this year but wondering if OOMA still has a business model to survive?
    Thanks!

  2. Norbert Mayer-Wittmann Wednesday, December 17, 2008

    There’s a service in Germany that has figured out a good solution to ad-sponsored calls (kind of like free 411) — but my guess why this doesn’t work in the US is simply that most Americans just don’t call other people (outside of the USA).

  3. Alex from Rebtel here.

    First off, thanks for the mention Om (even if it’s in a post dedicated to Jaxtr :)

    Just to clarify. We started out with the unlimited calling for $1 per week. Shortly after, we slightly shifted focus from the $1/ week model to settke with our current “pay-as-you-go” without the subscription fee. The latter has proven to work out really well for us.

    Alex

  4. Its trivial to add a software enforced cap at a later date ( example: IF x number of calls already made between two Jaxtr members, THEN enforce paid subscription ) so there isn’t much financial risk. Read the ToS, is that stipulation already in there?

    Also,

    Jaxtr and every other web VoIP company better hurry up and figure out how to make money…Adhearsion is about to make it possible for anyone to have their own VoIP.

    http://radar.oreilly.com/2008/08/adhearsion-next-killer-app-for.html

  5. Hi Om, I disagree with you on this. The Free-mium VoIP model is alive and well, in some astute cases. Jaxtr is minimizing cost by having users dial to incoming DID’s and patching the calls in the VoIP cloud – hence not incurring termination costs. It should especially work nicely if Jaxtr has a deal with the backend carrier/s for unlimited inbound minutes.

    At Phonevite, we are also continuing to offer free calls, because even though we are incurring termination costs, a good number of our free users are converting to Premium and generating healthy margins, even after factoring the cost of all the free minutes.

    I hope that a few rotten apples won’t destine us all to the coffin, and that the survival of a few of us will regain you as a believer in good-old-fashioned VoIP. Thanks.

  6. The “free” business model in telecoms has lined the streets with billions of dollars lost in bankruptcy. Customers do not perceive “free” as having any value. Have you ever noticed the difference in a child or teen that pays for something with their own money versus yours? A perceived value occurs when its not other peoples money.

    “Free” does not generate profits. Does anyone who builds a “free” based business model work for free?

    As the adage goes, why buy the cow if the milk is free ….

  7. Om
    This model as you know is dead in the water, just a last gasp attempt by Jaxtr to try hype their numbers before the cash runs out.
    This is a dumb model attempted by numerous companies and makes me want to “party like its 1999″ , time for a “broadbandits” follow-up on the amount of these guys that will go pop.
    On another matter hope you have a restful Christmas and I would like to wish everyone at Gigaom a very happy 2009.

  8. I read often, although rarely comment.

    I think OM is being overly critical here in the sense that this is no way Free Calls (in the ‘Free’ as free beer sense).

    If anything Jaxtr can be blamed for a ‘Me Too’ mentality.

    What they currently offer:
    -Local Number for International Calls on pay per minute basis(similar to Rebtel, MobiVoX)
    -Click to Call on a pay per minute basis (similar to Jajah)
    -FreeCallConnect is free between members (but just like Rebtel and Talkster it requires the other member to also call into an access number…hence since both sides are calling in, there is no cost to Jaxtr short of bandwith)

    If Jaxtr is doing anything, they are copying the models that have managed to stay afloat (Rebtel, Talkster, MobiVoX, Jajah) so it may not be as doom and gloom as OM notes above.

    All that said, I’d be much happier with something new, rather than a ‘me too’ offer

  9. the problem is with the valley VC’s , They were forcing most companies to go after the cheap calling business because of quick revenue traction. Jajah had some revenue traction and they thought thats the right way to build a business.
    i think the idea of social voice apps is dead. there are no clear visible revenue models – unless you work with carriers.

    any idea whats jajah revenues?

  10. a few random thoughts from my side:

    – there are half a million developers worldwide that can get a cheap internet calling service running in less than a week. so where are the entry barriers?

    – the mantra seems to be this: a fancy little twist + some marketing dollars + scale

    – scale is needed because you are essentially running a low margin game. and that is where things go wrong. a startup cannot rely on scale+low margin game.

    – startups prosper ONLY if they are able to command high margins

    – in most countries, agriculture is one of the safest low-volume-high-margin segments. better than a voip business for sure.

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