MagicJack's Next Act: Femtos, Softphones, and…an IPO?


Amongst all the burning wrecks of the voice over IP startup scene, is it possible that a $40 device hawked on late-night TV may be emerging as one of the biggest VoIP success stories ever? If you believe founder Dan Borislow, that is what is happening with his idea called MagicJack, a simple USB-based VoIP device that Borislow claims will generate $100 million in revenue this year, a market momentum that may spark an initial public offering to help fund his ambitious expansion plans.

Before we get too far into IPO dreamland, a caveat — Borislow’s company, which we wrote about when it was getting off the ground a couple years ago — is still privately held, so there’s no proof behind any of MagicJack’s claims other than your trust in Borislow’s word. That said, Borislow and MagicJack seem to have largely delivered on their main promise of two years ago, to create an easy-to-use, dirt-cheap voice service based on a simple device that you can now buy at Radio Shack or Best Buy.

Following the suggestion of one of the ardent followers of our earlier post on MagicJack — which has turned into somewhat of an ad hoc user forum board — we decided to call Borislow for a MagicJack update. (Even though I have moved on to other blogging locales myself, I am honored to update the GigaOM MagicJack followers.) As usual, the always-interesting Mr. Borislow didn’t disappoint, talking up lots of innovative ideas while dissing Skype as a competitor because of its “inferior voice quality.”

In addition to hinting that an IPO was “something we have in our mind,” Borislow said that sometime in the next year, MagicJack will ship a femtocell device which (he says) will allow users to make MagicJack-based calls from any GSM cell phone — theoretically saving cell phone minutes while in your home. Perhaps more believable is Borislow’s claim that a “major PC manufacturer” will soon include a MagicJack softphone pre-installed, eliminating the need for the USB device now necessary to link the broadband-enabled PC to a standard phone. Borislow also said there is a new device planned that will eliminate the need for users to leave their PCs powered on while making MagicJack calls; unfortunately, no ship date was given.

On the subject of number porting — the ability to switch your current telephone number to a MagicJack account, something the company has promised but never delivered — Borislow said he’d rather weather the storm of user complaints instead of subjecting potential customers to the mercies of the incumbent telcos who might hold their numbers.

“We’ve built up a lot of love over the last year or so, and I don’t want to give that love away [by making people tussle with sometimes-uncooperative telcos],” Borislow said. While he is confident that new FCC rules will help ease the number-porting pain, Borislow didn’t seem too concerned about hitting the latest self-imposed number-porting deadline of late 2009.

He also hinted of some new applications — perhaps VoIP-based conferencing — but there is only so much time and space, so we’ll leave those ideas for a day when they are closer to reality. As far as a potential IPO goes, Borislow said he took his last big company public on his birthday in September — “why not keep that love?” he asked, about using the same date.

Could MagicJack be the next big tech IPO? In this economy, who knows what the rules are? What MagicJack has in its favor is a solid network core and patentable technology. In a public statement earlier this year, Borislow claimed the company had a big network footprint with lots of hardware and interconect sites, and had patents pending for femto equipment based on designs from a chip company MagicJack’s parent company bought up along the way.

Perhaps most important is how many people are actually using the MagicJack, which is still an unanswered question. While Borislow is quick to claim that MagicJack has “sold” almost 4 million of its devices, now at a rate of “10,000 per day,” he won’t own up to the exact number of active accounts, so nobody’s sure yet whether MagicJack has passed Vonage’s base of around 2.6 million in terms of VoIP users, or whether there are a lot of MagicJacks buried unused in desk drawers. Maybe that answer can wait for the MagicJack SEC filings, where we might see exactly what Borislow has up his sleeve.

(Paul Kapustka, former managing editor at GigaOM, is the editor and founder of Sidecut Reports.)

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