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Summary:

Ooma, a Palo Alto, Calif.-based startup that specializes in VoIP hardware and complimentary voice services, has raised a total of $18.3 million in new funding — of which $3.5 million came as a bridge loan from the investors. TechCrunch had previously reported that the company raised […]

Ooma, a Palo Alto, Calif.-based startup that specializes in VoIP hardware and complimentary voice services, has raised a total of $18.3 million in new funding — of which $3.5 million came as a bridge loan from the investors. TechCrunch had previously reported that the company raised $14 million in the new round, which was led by World View Technology Partners. Ooma says it’s looking to raise another $5 million from key strategic investors.

I spoke with Rich Buchanan, chief marketing officer at Ooma, who said that with the new round of funding, the company reset its valuation down from previous levels. The company has had a tumultuous history so far. It made a number of mistakes early on, especially on the marketing front, the biggest one being hiring Ashton Kutcher. Earlier this year, it eased out founder Andrew Frame from the CEO role, replacing him with Eric Stang.

All of which helps to explain how the company, whose investors include the Founders Fund, has blown through $43 million. One original investor, Draper Fisher Jurvetson, decided that it had enough of Ooma and as such did not invest in this round. The new valuation of the company is being pegged at around $30 million.

This is yet another chapter in the life of the 3-year-old company. I’ve been following it closely and have always liked it as an idea — buy hardware once and get voice calling service for free — though over a period of time even I became disillusioned by its inability to make an impression in the market.

Nevertheless, over the past year or so, Ooma’s board has brought in a new management team, established solid relationships with many well-known retailers and is now inching towards the 100,000-device mark. And it’s about to launch its new wireless product, Telo. As for how the company was able to raise new capital, Buchanan said, “We are now measured and valued on our retail sales.”

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By Om Malik

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  1. Glenn Fleishman Tuesday, June 23, 2009

    The biggest problem with Ooma seems to me that you have to sustain the belief that a startup can offer you free calls for life. Now, the device is cheap enough relative to the alternative cost of a landline and Vonage that a buyer of the device only needs to have, say, 6 or 7 months of service for the device to pay for itself; thereafter, it’s gravy.

    But the company clearly wants a large number of users giving them upfront cash, and a smaller number of recurrent premium users paying them $20 per month for a variety of extras. I’m just not sure this is feasible without them having done a massive educational marketing campaign that let them differentiate themselves from Vonage or even Comcast Voice in the way Netflix put the dump on Blockbuster.

    The funding information doesn’t make the situation seem much better.

    1. Glenn

      You bring up good point. The problem, as you articulate is that of education. And from the way I understand it, the company is going to spend much of its funding and energies on helping push the “utility” of Ooma to a mainstream user. I think guys at MagicJack have done a great job of outlining their value proposition and from that perspective Ooma can do it too. I think for the first time in a long time, Ooma seems to have a chance.

    2. $20 per month? Where does that figure come from. I subscribed to their premier service for $100/year which works out to $8.33 per month. Even if you choose to pay monthly it’s $12.99/month, not $20.

      1. I have been a Ooma user as well. I agree with Bryan about the 100$ a year figure. But What i like about Ooma, is the interesting features it offers its premium subscribers. Online blacklist for calls, and communuity blacklists are features i cnoot think living without. I am suprise Vonage etc. still do not offer this.

    3. I’ve been with OOMA since the start. I was a charter subscriber and my service started in September, 2007. I was one of the folks that paid approximately $450 for the equipment. Why? Because I can do the math. At the time I was a Vonage customer and was paying approximately $50 / month for two lines. Quick math shows a payback after 9 months – so after June, 2008 I had made my investment back and as of July 2009 I’m about $700 ahead of the game. Now, you can buy the equipment for about $200 but if you want the premium services, you have to pay the ongoing costs of about $100 / year. Still a great deal – but the deal I have as a charter subscriber is much better IMO. People have been talking since the beginning of how the company was going out of business so how it was a risky proposition. Well, so far I’ve saved $700 and every month they stay in business I’ve saved more $$$. The service isn’t the same as MagicJack, or for that matter Skype. Don’t get me wrong, each of those services have their advantages and disadvantages. I prefer the features and functionality that Ooma provides. I don’t want to have my computer on for phone service. I want a standalone appliance. Ooma is perfect for me, and the price was great and even now with the new price structure it is very compelling. Those of you who are on the fence pull out your calculators and do the math. If you want to do MagicJack or Skype, that is fine also, but remember that is an apples to oranges comparison. Ooma is much better IMO. Keep an eye out for their Telo offering, it’s going to be great with the integration with Google Voice. Looking forward to seeing SMS messages coming across on my Telo units.

  2. Glad you brought up MagicJack. Someone needs to do a market comp of these two offerings. How many customers etc…sounds like one has better management and vision how to sell this offering to the masses. And that not Ooma.

    As far as Ashton Kutcher being the worst thing they did – Why? Was he to expensive? Was he strategically involved in the design of the offering? Was he the CMO?…..Why? If someone is going to call out an individual and hang out to dry then back it up with a statement…. (Om, this is not directed at you, rather Rich Buchanan). Is Mr. Buchanan the silver bullet? Only Ooma’s income statement can verify this.

    1. Well at that point when Ashton was leading the charge on marketing, making some weird videos and what not instead of the company focusing on selling to the people who are likely to buy a service that is going to save them money. Too much sizzle, no steak.

      I am calling him out because marketing strategy and the product’s ultimate buyer were never in sync. Of course, the then management was too enamored with the celebrity and did those things so you can’t really say it was Ashton’s fault. Alex, do a look up on the web — you will see what I mean.

      I think they are getting back on track and in the year since Rich and others have been around, things have stabilized and growth has happened. I think I am ready to give them a second chance.

      1. @Om

        Points well taken.

        OK. Now I’m wondering where the Board was. I thought VC’s had operating experience:)

        1. I am assuming you are now just being funny :-D

  3. Free VOIP – Internode enters VoIP trunking market – Computerworld Australia « Free Voip Tuesday, June 23, 2009

    [...] Ooma Raises $18.3 Million, Resets Valuation – Gigaom.comOoma, a Palo Alto, Calif.-based startup that specializes in VoIP hardware and complimentary voice services, has raised a total of $18.3 million in new funding — of which $3.5 million came as a bridge loan from the investors. TechCrunch had [...]

  4. 1. They need some tv ads, on networks like Lifetime, NatGeo, Animal Planet, ESPN or MSG, Cartoon Network (need some in Adult Swim). This product is still not well known. Concentrate the ad dollars toward family, but also hit dad-or-mom-having-day-off demographic.

    2. To sell units just point up that it’s standalone and paid for in 4-5 months. Keep emphasizing that it’s standalone. Who wants to keep their computer on all the time? Not too many.

    3. The biggest gain to the customer on the premier package is the second line. (Does the second line come with an additional 3,000 minutes maximum, ie, 6000 minutes on premier?). They need to push that, and especially target both parents of teenagers and teenagers.

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