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Summary:

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 […]

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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.)

  1. 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

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    1. Claudia Porras Wednesday, July 22, 2009

      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

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    2. 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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  2. 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. :)

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    1. 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.

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      1. 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.

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  3. 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.

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

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    1. That’s what I always said: Make it PAP2, use an ATA. Here in Germany people use millions of them. Feels like landline, but is much cheaper.

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      1. 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?

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  5. 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).

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  6. 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

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  7. Are any of these claims substantiated?

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  8. S.L.Armstong Sunday, July 5, 2009

    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”.

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  9. 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.

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  10. [...] a bit of a corollary to the post I wrote this week for my pals at GigaOM, there is the question about why aren’t MagicJack and Clearwire working [...]

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