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Why O2 Wants to Buy Jajah

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3332409432_7c43cfced3_m.jpegO2, a division of Telefonica, a Spanish telecommunications company, is in talks to acquire Jajah, a VoIP startup, for about $200 million, Reuters reported today. The company had raised $35 million from various investors including Deutsche Telekom, Intel Capital and Sequoia Capital. According to some rumors, Microsoft (s MSFT) and Cisco Systems (s CSCO) were also bidding for Jajah, which has had its shares of ups and downs.

The company is over 4 years old and started out as a wannabe Skype killer that offered cheap calls. It tried to do everything — partners with media companies offer cheaper plans, but it never really got the traction it needed to kill Skype. Even today Jajah has only about 25 million subscribers who use its Internet phone service for placing dirt-cheap calls across the globe. In comparison, Skype has over half a billion users.

However, Jajah’s struggles didn’t prevent it from building its own virtual network with special VoIP servers across the planet, connected through leased fiber connections. It also connects with various PSTN networks (see map). Think of it as a virtual global phone company that allows it to route calls from one place, say New York, to another like Shanghai, at ultra-low prices.

Jajah also has built a software layer that can be used to offer add-on applications such as click-to-call to wholesale customers. The company’s platform not only marries web with voice, but also provides vital features such as real-time billing. This approach struck a chord both with tiny startups and large companies like Yahoo (s YHOO) and AOL.

For O2/Telefonica, it makes perfect sense to buy a service such as Jajah. Some reasons I can think of just off the bat:

  • Cheap international calling plans are a way to retain/attract new customers. Telefonica has a strong presence in Latin America, and Jajah’s network can be a good way to increase its share of voice minutes.
  • Jajah’s VoIP platform can be used to essentially turn O2 into a long-distance voice company.
  • Like BT which bought Ribbit, O2 could rethink its approach to the voice business and start focusing on how it can marry voice with web/mobile apps.
  • These mobile applications could then leverage not only Jajah’s platform but also O2’s next-generation wireless broadband networks that use Long-Term Evolution (LTE) technology.

If you have additional thoughts on why O2 should buy this company, let us know. I obviously think it’s a good idea, but if you have a counterargument, I’d love to hear it.

Photo of Jajah at eComm 09 by James Duncan Davidson for Jajah via Flickr

25 Responses to “Why O2 Wants to Buy Jajah”

  1. There is a Rylwy adapter that can beat jajah and skype.
    it connect your own landline and cell phone to skype, jajah or any other ferr voip service, so all your incoming landline and cell phone calls are free, while your outgoing landline calls are charged by your local own landline provider for this calls as if you are near them

  2. Besides Skype, Jajah is the only company with a decent mobile solution in terms of availability. You can easily dial in two different ways:
    1. From your country, you can create a local number for every frequent contact abroad and dial through Jajah.Direct from your phone’s Contacts.
    2. When abroad, clik Jajah’s mobile site favorite icon and dial in seconds.

    This is very compelling to the end user because of the simplicity and availability everywhere. And I believe that this is one of the points that interested O2, if they manage to introduce it as a simple service to everyone, those 25 million users can multiply themselves very fast.

    There is also one common mistake when you do comparisons to Skype: in the Skype network, around 80% of the calls are free Skype-to-Skype calls; in networks like Gizmo or Jajah, around 90% of the calls are paid network-to-phone calls. This makes a lot of difference.

    Regarding the source of the news: The Marker is the leading financial newspaper in Israel, and it is taken by many international agencies as an excellent source regarding the Israeli financial market.

  3. It seems that unified communications platforms–or infrastructure that can provide much of the underlying plumbing for UC–is going international as never before. In addition to this potential deal, look at the Cisco/BT UC deal announced a couple of weeks ago.

  4. Hans Blaauw

    Well, I think Microsoft should buy it. 200 mil. is not that expensive.

    Jajah has a SIP trunk for Microsoft OCS and I don’t understand why MS isn’t buying this company to make cheap international calls possible and better.

    This could even be great to integrate inside SharePoint or other MS products.

  5. Chris Lengyel

    Telefonica (O2) already has a market-leading share of traffic that enters/exits Latin America and I don’t see O2 moving into the fixed-line long distance space, which is the territory of their parent company.
    I think the real driver is computer-based telephony. We know that Telefonica is powering Microsoft Live Messenger Chat. Maybe Telefonica wants the Yahoo Chat business too that JaJah currently owns. Possibly, JaJah is making in-roads into Microsoft and Telefonica is concerned and looks at this as a cheap way to remove a major competitor in the computer-based VoIP market and gain market share.

  6. After a private equity consortium bought Skype, Google with Gizmo5, Apple with iCall (possibility, now O2 wants to buy “Jajah”!?

    VoIP is in a good mood ;)

    But, 30 millions $ for 6 millions users for Gizmo or 200 millions $ for Jajah with 25 millions users, it’s not a lot!!

    Why? They have a lot of users but loose money or don’t make enough turnover or just a littel?

    I am the CEO of a VoIP provider “ippi” in Europe (1st SIP provider in France), and I will never sell a share of my company for this proportion price.
    For Gizmo, it’s make $5/user! For Jajah it’s make $8/user. We are really far from Skype…

    About, Skype, it will be good to make a difference between the app ‘donwnload number’ (500 millions) and the ‘users’. because every user, downloaded a lot of time the Skype app, when they installed it on a new computer or when there is new version. And how many user have multiple accounts on Skype. I know a lot!

    I am pretty impressed that OM Malik knows very well the VoIP world like no one else on the blog scene. Congrats! Did he works on that business before?



    • Price per customer starts becoming relevant when you are making money – or someone is pretty sure how you can make money. Giving something ultracheap and attracting customers is a no-brainer – because the customers will come in droves and they’ll go in droves as well. The day a biggie telecom player throws away $100m or something for a year to offfer free cheap calls – all these Jajah’s will vanish from the scene as the investors can’t keep pumping money.

  7. What’s to stop Telefonica/O2 from exploiting the rising usage of smartphones with WiFi capabilities and increasing hotspot presence? Might sound a bit off, but in these days of ‘open mobile’, shouldn’t a telco consider acting as a voice-MVNO in geographies that it doesn’t have presence in?…VoIP players such as Jajah offer ready infrastructure…Thoughts?

  8. I don’t get it? Why you buy cow for glass of milk? Voip is not technology any more, I am happy for Jajah as Israeli but don’t get the logic behind the numbers, make this pop’s in 4 location + local DID route to the closest pop is not really something you can say today WOW, if you look on the profit side, you can learn that VoIP carriers get cent or two in average call they route, so if they sell billon minutes per year they get 10M$ which is the expenses to keep the company alive (80 people working there+ pop’s+ DID’s). I would guess that the numbers the press is claiming is much less in reality. But they do have good PR.

  9. One has to assume that with the onset of VoIP and what it is expected to do to mobile carriers in the long term O2 may see this as an opportunity not a threat.
    • What is the value of free-banking?
    • Why do low-cost airlines offer free seats on their planes?
    • What could a large organization sell to millions of extra registered users?
    • What is the cost of attracting new users or reducing the churn of existing users?
    • How can you increase the ARPU of a sophisticated user base in a highly competitive highly mobile saturated developed market?

    Fill the empty seats with a budget package voice and data deal and enter markets that you currently are not in with access to a user base to extend your brand and other bolt on premium services and products.

    O2 seems capable of grabbing the VoIP threat with both hands and working with it and not fighting against it.

  10. This is a cheap acquisition when you look at the subscriber acquisition price. If you look at Telefonica they are aggressively looking to increase their footprint.
    Telefonica just lost its bid to acquire GVT in Brazil to Vivendi. Telefonica was willing to pay $4B+ for GVT which would have been approx $1,200 per subscriber. Jajah cost them $8 per subscriber.
    GVT offers wireline(VoIP) and broadband, whereas Jajah offers just the termination, but, its a no brainer and cheap acquisition for Telefonica.
    There is also another interesting Telefonica acquisition rumor on the horizon.