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

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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.)

35 Comments

Adrian

The MagicJack is great for me, though the voice quality is sometimes good, but mostly mediocre. I’ve tried 4 different USB ports (2 on the monitor and 2 on my computer chasis) and they all seem to be the same; so no difference; you’d get echoing at times, and a constant hum. I love the voicemail; and in each call the is coming in and out, is recorded (the amount of time spent chatting). Love the calling waiting feature, as well-all of the features the MJ has are free; love that as well.

I’ve purchased a head-set with noise reduction which is digitally enhanced; hope it works out, but if not, I’m still happy with it. In terms of incoming calls, I forward a 416 toronto line to my magicjack american line (I live in Richmond Hill Ontario/Canada) so any incoming calls are not charged U.S long distance. I could simply be calous and only use it for myself and any incoming calls are charged, but that isn’t in my nature. This is my new land-line; the reason for choosing MJ, is my phone service was with BELL, but with all their lies and deceit, overcharge, I got rid of them; I’ll soon get rid of their TV service, and just use them for internet; I do keep my computer on from morning until evening prior to bed..

I’ve gotten a couple of other people using it, and they’re happy; I’ll keep encouraging people to purchase the service.. :O)

John Underwood

I have magic jack but after plugging it in I didn’t get a number so for me it was a waste of money…Philippines

Don

Have cable digital phone now. Land-line was disconnected. How to proceed with magicjack? Can entire home-wired phone system be connected, or just a single phone unit? DJC

Fred

I use magic jack as my office phone. Works fine, but the customers are beginning to complain about too frequent “all circuits are busy” messages. If magic jack can sell 25 MM units, it can find the circuits to run them.

E Hunt

I totally disagree with Joe W. I had problems with the install, got on chat and she did an update for me, and restarted, and it was up in seconds. Wow. I would recommend to anyone.

Joe W

The concept is good, the outgoing calling capability is noteworthy, but that is it. It requires technical expertise beyond the general consumer to even begin to have this thing receive your incoming calls. You have to run update programs, change usb ports, use or not use a powered hub, add ports to your computer and router, and deal with their non-American billing and technical support people. When english is not your primary language and you do not understand the idioms and you are not technilogically astute enough to even begin to render adequate service that the consumer ends up with a device that is very much inadequate and deceptive in it’s advertising. I found that tech support was reading from prepared scripts, and using gramatically incorrect idiomatic language and feigning customer concern. When I asked for a refund of a five year contract that is just over a month old I was told no. In blogs that I have read this is not an uncommon occurance. There are issues with the device and its functionality and this company is not interested in providing the most basic level of customer service if it means refunding money. It prefers to run a customer through the same circular script time after time. To all who are considering this device, use caution, and be tech savvy enough not to relie on help if you need it. Outgoing calls – Okay, useful, incoming – forget it, stick to a good landline.

E Hunt

Anybody using it for a fax machine? I just bought it to see. My freaking phone bill here at the house was $200 this month. I am disgusted. I have been able to fax out but not fax in. Anyone have experience with this?

lori

You do not need to be tech savy. That is the most insane thing I have ever heard. The device installs itself!!!!! Just plug it in and it does its own thing. You have got to be kidding me.

Andy

Why can’t you receive incoming calls I bought one last week hooked it up and not only called out but I also tested it and called in. It doesn’t ask for a software update or powered hub or change usb ports. I think that you must of had a simple installation problem (as can happen with any program on the market) and when you tried tech support you told them wrong information and made it a bigger deal than it is. My advice would be to uninstall the software, restart the computer. Then install it again clean and make sure it installs correctly. Personally I love my magic jack and my computer is own all the time anyway. I have also used my computer and products such as Flyimage to watch television through it, and have cut out my monthly cable bill. I still have my landline phone though. Just waiting for the number porting option to become available and when it does I will also switch all my business phones to magic jack accounts. Right now total I pay $220 a month for my home and business phones. That’s almost $3,000 a year. $60.00 a year sounds a lot better to me.

Sandee

We are unable to get broadband (too many trees for broadband antenna), so I’ve just recently signed up for Verizon’s mobile broadband. Will MagicJack work this way? I’ve read that you have to keep your computer on, but Veriozn ‘hibernates’ after so many hours not being used. Thanks, non-techno

JAMES ONER

I bought aMAJICJACK AT WALMART. I CANNOT SEE HOW TO MAKE IT OPERABLE WITHOUT BUYING ANOTHER ONE.ALSO THEY CANNOT GIVE ME A TOLL FREE NUMBER FROM CLERMONT FL Di CANNOT REEQUIRE LOCAL FRIENDS TO PAY A TOLL TO CALL ME. THESE TWO PROBLEMS HAVE KEPT ME FROM INSTALLING MY MAJICJACK. JAMES

poonty

First off azzmuncher, turn off your caps lock key…
Why do you have to buy another one? You registered one which means you now have a new phone number for it. Did you try calling that new number?? moron

Hall

I’ve been thinking about purchasing the majicjack but am skeptical. I need to read or find other users and their views on the majicjack. Is it worth the time and effort because I already know the price is right. Let me know because I’m paying too much for my ground line and need to shut it off.

Ron

I have had my MagicJack for over a year now (just renewed my yearly subscription). I have nothing but good things to say about it. For the most part, the quality is good and I have never experienced any problems with it.

I use it whenever my family goes away and when we stay at a hotel that has ‘free’ internet access (that is a challenge these days because hotels are starting to charge for their internet now (that is unheard of!).

I am saddened that people have had some challenges with customer service (I guess I am lucky to not have had any problems with it). It has served me well and I will probably renew my subscription again when my year is up. Two Thumbs UP.

Steve

magicJack STILL has no TNs for Hawaii (NPA 808), which means Hawaii customers need to get an out-of-state TN. For outbound calling that’s OK, but if someone in Hawaii needs to call a magicJack user in Hawaii, that will be a long-distance call.

I bought magicJack for the advertised $20 price at BestBuy, after dropping by RadioShack and finding out that it was selling magicJack for $25.

The RadioShack salesperson also said Hawaii TNs would be available the following week. An online chat with a magicJack rep that same day revealed that what the RadioShack salesperson had said was not true. That sealed my decision to find another place to buy magicJack, which is why I ended up at BestBuy.

Shea

I been reading these post more or less just to pass the time, and this post bothered me a bit.
I worked at RadioShack for almost 2 years, i live in Hawaii and I personally have a magic jack with a LA telephone number… I love my magic jack and have no problem with the service. The only thing i have to say is that the sales person you were talking to (and if you were on the big islan could of been me) did not lie to you… we were infact told that hawaii TNS would be avaliable in 09 (i dont remeber when april i think) by MagicJack Reps, the big boys and they did not pull through on they’re end.
So to all of those reading this, i have been in sales all of my life, and all i have to say is it is people like this which are draging us down… not the ‘president’ ‘Dont Hate on the messenger, we are just doing our job’
Point being, keep it to ur self, both corbarations are full of ‘brown nosers’…

And the Magic jack is great, even if people calling me have to pay, lol they dont have to ;)

Lori

I bought magic jack after reading the ‘magic jack far from enchanting’ article. The way the readers comments rebutted the writers arguments were so convincing!. I am so pleased with this product. It’s an answer to my prayers. I’ve since cut down on my cell phone minutes to save even more money. I do not have a land line. Yes, It is a bit of a drawback that the computer has to be kept on all the time. I try to spread the word where ever I go. Most people think that I have misspoken when I say $20 a YEAR!!!!! They are skeptical of it’s clarity and price. Thank you magic jack for keeping me within my budget during these economical times. WOW.

S.L.Armstong

I am very, very disappointed in Mr. Borislow’s position on number porting. I have had the same phone number for over 30 years and being forced to give it up to use Magicjack is a “deal breaker” for me. I have checked the Magicjack website on or near the 1st day of each month since March, 2008 for their announcement that porting is finally available and have been disappointed with their company each month. Honestly, without number porting I am not willing to use Magicjack – even if the product was free. I began using Vonage many years ago and they somehow managed to port my existing number. Is it possible that they had more than “4 braniacs” working to solve this problem? Seriously though, I operate a PC support and consultation business and one of the services I provide is recommendations on how my customers can save money on the computing, telecommunications, and entertainment services. I always include MagicJack in my presentations but do not recommend it due to the lack of number porting and none of my customers have purchased Magicjack after these discussions. I hope the Mr. Borislow’s potential stockholders don’t frown on his “leaving so much cash on the table”.

Paul L. McCord Jr.

I have had a Magicjack for over a year and have had no complaints. Many of my relatives also have one and they love it just as much as I do. I do love Skype and use it all the time because I love the video capability but Magicjack is absolutely amazing. Also, the Magicjack works great as a good way to hook up a cordless phone to Skype if I kill the Magicjack softwared. The only reason that I do not use Magicjack anymore than I do is because I have so many minutes available on my cell phone when I am out mobile. I love Magicjack and can not say enough great things about it.

Paul

Gadget Sleuth

I’ve heard some bad stories about MagicJack’s connection being wonky and inconsistent (though for $20 a year you can’t complain too much I guess).

Mike

I think MJ can make it big if it can be used by a VOIP Adaptor (PAP2..) legally

Norm

People might start using it then. That’s not in Maic jack’s plan. They count on people NOT using it.

Dan, how many people actually renew their account by paying?

Eideard

I’m still happy with Skype – and what stuck in the first day I logged in was the improvement in sound quality over POTS. The several Telcos still haven’t a clue and will continue their death spiral.

Don’t know anyone who uses Vonage anymore. Of that miniscule subjective sample that is acquaintances – MagicJack users are as happy as Skype users.

Markus Göbel's Tech News Comments

It’s great to read Kapustka @Gigaom again. And also I am happy to get a Magicjack update. ‘The Magicjack doesn’t seem magic to me’ is still one of my most read blog posts at http://www.goebel.net/technews. I criticized the concept heavily when Borislow launched it, we had a big discussion in Gigaom’s comments section. It still seems stupid to mee to keep my computer running just to eventually receive a phone call. It seems Dan took my advice for his next development. :)

Ryan

Dan is a great example of why its critical to understand the customer. You think its stupid to leave the computer running to receive a call, but Dan obviously saw that millions would do just that. +1 to Dan.

Libran Lover

Most MagicJack owners I know don’t keep their computer on all the time. They use the MagicJack to make cheap calls (international locations to US) and they just plug it into the computer when they want to make those calls.

I’m one of those who does not want to keep the computer on all the time. If a no-computer MagicJack became available, I’d buy it immediately.

Dan Borislow Inventor

Let me make a few comments on the article.First of all,Paul was one of the very first to pick up on what we are doing and deserves credit.Some points of clarification.The most important assets we have are the Network and our people,The telecom network of YMAX is the largest by area served,number of gateways,session border controllers and State certifications The other asset that is so important is our people,a group of about 4 braniacs.It is almost impossible to build something like this and activate so many accounts daily.No one else has ever done this to date.I know with the people we have and the struggle they go through,that no one else is copying us so fast.We do well over a half billion minutes a month now.The other point is that we are also selling in Walmart,Walgreens,Kohls,Target,office max,office depot,Staples,CVS and soon to be in 7/11 I believe and maybe sears and Kmart.

As far as numbers are concerned,I said we sell upwards of 9-10k a day.Some days we have even sold more,a lot more.And If you compare apples to apples,not every Vonage user has an active account,but pays anyway.Same thing with us and every other Telecom company.So Vonage claim to 2.6 mil subs,is the same claim as us,it means paying customers.The funny thing about Vonage,is I believe they could be a very viable company and much more so than Skype or OOma in the US.They started out at a very diffucult time,and carry the weight from doing so.They can be fixed though.But any home based service must have femtocell in their plans going forward.That is where owning your own chip company,our own software company and our own Softswitch and app server company come in.

I have been told my whole life you cannot do this or that,well I was born american and I can do whatever I want.Sometimes perserveriance is more important than brains.

Dan Borislow Inventor of MagicJack

Claudia Porras

Thank you for inventing the Magic Jack, I have saved a lot of money using it and I have talked to lots of people about it( My husband bought it and I enjoyed it). People in Colombia, South America is starting to use it too, Thanks a lot.

Please, send me your mailing address to send you an acknowledge letter .

Cordially,

Claudia Porras

Elijah Pepper

Im sorry but MJ is horrible I just got my account closed because I had an emergency and made several calls to find a 24hrs on call handy man. So in the event of an emergency it was completely useless. You think youre going to have phone service when it REALLY matters and they ban your account in the process of trying to get help… Horrible service.

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