From the monthly archives: January 2009

image My friend Moshe Maeir just let me know that his company has something special to announce at next week’s ITExpo in Miami.

[We will] be introducing a unique LCR (low cost routing) engine for the mobile market … this solution together with our successful hosted VoIP platform for resellers (set up your own phone company in an hour) will be a great solution to sell to businesses.

…It works on all cellphones even those that are not smartphones. The account manager defines on the LCR server his costs when dialing direct and when using cost saving options such as callthru, callback, SIP over wifi/3G etc. Then all his users receive a SMS text message and synchronize their contact list with the server. The server automatically configures each contact on the contact list to dial in the most cost effective way. The process is invisible to the user. The dialing method is the same. Pick out a contact and dial. [more]

But is there still room to make money on “cheap calls”?

A recent GigaOm post declared that mobile VoIP startups need to “look beyond cheap calls”, saying:

These startups are realizing that in order to make real money they would need to create billions of minutes in calls to off-net services…even then, making profits isn’t all that easy.

(Some commented on that post here: Truphone and iSkoot – AppStores of the future?.)

I agree with the sentence above: In North America, calling costs (both fixed and mobile) are already below the “threshold of caring” for most consumers. Meaning that if you want to sell an alternative phone service, you not only have to beat an already low price, but the inconvenience that users are willing to tolerate for your “work-around” is very minimal.

However, in the world of international mobile calls, there still is a lot of room to save consumers money. It’s no surprise that the companies targeting this space are based outside the US (Truphone: UK, MaxRoam: Ireland, Flat Planet Phone & Fring: Israel, Jajah: Luxembourg). There are numerous solutions out there, including mobile apps, local access numbers and sim card tricks but none are truly transparent to the user. If Moshe’s figured out a way to do, there’s huge potential here.

EComm’09

I’m looking forward to seeing Moshe at the Emerging Communications Conference along with many of the other start-ups at the leading edge of telephony. (I’ve raved about this show before.) You can still get 20% off the registration using promotional code “Fonolo”.

 

I’m happy to announce that today we made call recording available to all users of Fonolo. All you need to do is sign up for a free beta account.

After you’ve logged in, you can preview the phone menu from any of the hundreds of companies in our database and click on any point in that menu. Fonolo will ring your phone and, when you answer, you’ll be connected directly to that point, through the magic of Deep Dialing.

using-fonolo

During the call, you can start or stop recording using buttons on the site.

CallRec-2

After the call, recordings appear in your call history and can be played or downloaded as mp3 files.

CallRec-3

Recordings are stored securely on our server and protected by our privacy policy. You can delete any recording and it will be removed completely from our system.

For now, call recording is free and unlimited. This feature is still in beta and more functionality is coming soon. In the meantime, please enjoy and let us know how you use this feature and what you’d like to see added.

[UPDATE: A few more details from Mike Pultz, Fonolo's VP Tech, here.]

 

A number of companies including Truphone, iSkoot, mig33, Fring, Eqo have all built mobile applications with the intention of providing low-cost calls to their users. Now, margins on that business model are shrinking, and pressures to make money are growing. So the question is: How can those guys leverage their install base and technology to find new revenue models?

Truphone and iSkoot show us two possible approaches. From a recent GigaOm post called Mobile VoIP Startups Looking Beyond Cheap Calls:

By supporting Skype, Twitter and other communications services, Truphone is hoping to become the default (or at least the most used) communication application on the iPhone, which would allow it to generate more call-out minutes and also open up other e-commerce opportunities…

[iSkoot's] funds are to be used to develop a new platform for AT&T that would allow Ma Bell to offer iSkoot’s myriad services to its customers…

I commented on the post that this is essentially a race to become a next generation “WAP store” for the carrier and at the same time, an answer to Apple’s AppStore.

AppStore showed us how compelling it is when you can discover, download and play apps from your device. Carriers have seen how much it lifts their data usage (iPhone trippled AT&T’s data traffic) and they already know how profitable it can be to take a cut of apps and digital goods (they made a fortune off of ringtones).

So the carriers that don’t have the iPhone want something similar for their flagship phones. And all carriers want to extend this concept to their lower priced phones.

But the AppStore experience that Apple delivers is a combination of a mobile client and a desktop client (iTunes) and that’s a lot of software to write. Carriers can’t build credible alternatives because they simply don’t have the development skills in-house, so answer is to bring in a 3rd party that has a system where games, chat, digital goods can be delivered to feature phones with a good user experience.

It’s not how high the wall, it’s how green is your garden?

In a related post, GigaOm said: “I wouldn’t be surprised if [carriers] use technologies like iSkoot to create a new walled garden, though one with a perception of openness.”

Agreed, but hey, AppStore is a “walled garden” too: They decide who gets in and doesn’t and they take a cut of all sales. Walls aren’t simply open or closed — it’s all about the nuances. Some amount of wall (e.g. limiting malicious or buggy apps) benefits the consumer and makes the garden greener. So far, developers have voted loudly that they are happy to deal with Apple’s walls to get into the iPhone garden.

Blackberry Desktop Manager vs iTunes

I also mentioned in my comment that “Blackberry can’t make an AppStore either… comparing Blackberry’s Desktop Manager to iTunes is like comparing Notepad to Word” which drew some criticism from my twitter friends. I didn’t mean that as an insult. After all, Notepad is an excellent text editor. But Word’s proprietary format and extensive features gave Microsoft monopoly status over office applications whereas Notepad is easily replacable by any text editor.

Similarly, iTunes is the hub for a user’s music, movies and podcasts, and the most popular store for online music (by far). It gave Apple a huge advantage in introducing mobile applications to the user because iTunes is a “key app” for Mac users and iPhone users. Blackberry’s Desktop manager does a good job of syncing calendars and contacts, but at the end of the day, it’s mainly something that sits in the system tray and doesn’t get attention until something goes wrong.

The search is still on

Apple has shown the way that a mobile store should work. But it’s limited to their (admittedly awesome) hardware. The search is still on for the how that experience can be brought to other phones, especially lower-end models.

 

image In the second half of 2006, a slew of start-ups in the space that would come to be called "Voice 2.0" were very much in vogue and attracted an impressive amount of VC funding. GotVoice, Jajah, Snapvine, Jangl, GrandCentral, Jaxtr and others raised over a $100m from A-list firms like Draper Fisher, First Round Capital, Lehman Brothers, August Capital, Draper Richards, Mayfield and others.  Fonolo was just getting started at this time and we were incredibly motivated by all this attention and funding. It was an exciting time.

Most of those companies launched with the "freemium" business model (basic service for free, premium services for a monthly fee) that has proven successful for many Internet start-ups. Some even launched with what I call "proto-freemium" models (service is free now, we’ll add premium services later). Two years later, against a much darker economic backdrop, many of them are facing a reckoning.

Jott was part of that group, funded by Draper Richards and Skype founder Niklas Zennstrom, among others. They launched their product December of ’06 and I became an early user. Over time, they added features regularly, and created a very compelling offering.

As a Jott user, I can dial local phone number (which I have on speed dial) and then say things like "Remember to get bread and milk and eggs". When I’m back at my desk, those bits of info show up in my inbox transcribed into text. You can also send messages to other people, update your Facebook status, post to twitter, add an entry to your Google Calendar and several other things.

Their premium service, which costs $4/mo, had an impressive 30% conversion rate, according to the company. Nonetheless, the transcribing of text (which requires human labor), is expensive, and the revenue from paying customers was still not balancing out the freeloaders. So yesterday, Jott announced that they were abandoning the freemium model for the "premium model", i.e. there is no more free service. If you want Jott, you have to pay.

See coverage on TechCrunch and Lifehacker.

Part of Jott’s plan was to offset the cost of non-paying users with online ads. Writing on the company’s blog, their CEO John Pollard explains,

the [ad] model is not viable right now. This is true for several reasons: 1) it would have required plastering the product with so much advertising that we’d ruin the experience; 2) ads are a terrible fit for important features like email delivery, Jott Links, and Jotts to Others; and 3) all indications are that advertising rates are going to see an even bigger hit in the next year. We don’t want to bet the company, and the utility that tens of thousands of you pay for, on a model that is not sustainable right now.

There are a lot of interesting lessons here for a start-up like Fonolo, also betting on the freemium model. It’s mostly positive news: a 30% conversion rate and "tens of thousands" of paying users, in under two years.

In addition to internal discussions, I had an great conversation with serial entrepreneur Antony Brydon yesterday. He had some great insight which you can now read in his blog post The implication of Jott’s discontinued free service for your freemium service. He doesn’t think that ad market softness is really the story here.

… the most that advertising could contribute per user per month is a fraction of a dollar. Hit a user once per day at a $10 CPM and you’re making only $0.30 per user per month. The ability to offset the human transcription costs with advertising seems challenging in good and bad ad markets alike…I suspect the costs of the free service are more significant than the reference to the ad model suggests and the profits on the paid service aren’t near what’s needed to offset the marketing expense…

The big missing variable here is what it actually costs to do human transcribing, a number that Antony admits he doesn’t know, and I don’t either. The real problem is that it is a cost that doesn’t benefit much from economies of scale: more users doesn’t mean cheaper transcribing. Antony continues:

It seems more likely that the struggling venture market and the difficulty of raising capital in this environment drove the decision. If the free service is bleeding cash and the margins on the paid service can’t fund the expense, the company is not running a self-sustaining freemium model and needs venture capital to fund the loss. At the same time, they are showing investors a model that loses more money as it scales. This is much less attractive than in 2005 and 2006, where growth metrics were more important to many venture investors.

And there’s really the heart of the matter: the flavor of VC funding has changed sharply from 2006 and "Voice 2.0" plus "freemium" is no longer an easy sell.

Two companies that should be pleased with the news: ReQall and DialToDo. Both are companies with similar functionality to Jott and both are at the "proto-freemium" stage, so users unwilling to pay Jott should be heading their way. I hope they are ready!

Given that they too have to pay for transcribing (and lets assume that they won’t get much cheaper rates than Jott) they too will be facing a "de-freemiuming" point when growing audience meets dwindling cash. (And yes, I made up the word "de-freemiuming".)

 

image I am looking forward to attending the Pacific Northwest Wireless Summit in Vancouver on Monday. It looks like the organizers have put together a good program. Getting to visit one of my favorite cities is a bonus.

I will be on a panel discussing the impact of the iPhone on wireless carriers, a topic I’ve written about here and here. And it’s a topic of real importance to Fonolo because we have our own iPhone app (which is not available yet on AppStore, but you can see it here).

The most remarkable thing about iPhone, in my opinion, has been the eye popping numbers generated by the AppStore. In its first six months, 300 million apps were downloaded. There are now over 10,000 apps on the store. [UPDATE: It's now 500m downloads, and 15,000 apps.] Here’s something I read yesterday that really captures some of the excitement. It’s a letter from start-up Tapulous, makers of several casual games for the iPhone, to their investors, which got leaked and reprinted by the scoundrels at TechCrunch.

Holy cow. In late December, on one crazy day, we added 200,000 (!) new users to Tap Tap Revenge. When we started the company, our fundamental bet was that the iPhone was going to be different, and truly ring in the mobile decade. The first decade was about the PC revolution, the second decade was about the network, and the third decade, we believed, would be about mobile computing. It’s happening alright. The iPhone, with the new price points, is a huge hit, and the App Store has been a success beyond anyone’s dreams. When we started the company, people asked us why we didn’t focus on SMS and WAP, and some rolled their eyes when we told them our goal was to get to 1 million users in 18 months. Six months after launch, we’re at 5 million users. This technology is disruptive, and that means big new companies will be created.

You can read the whole thing here.

While at the Summit, I will also be participating in their Wireless Investment Forum which is run in conjunction with the Telecom Council of Silicon Valley. This event is what people generally call a “beauty pageant” where each start-up gets 10 minutes on stage before a panel of investors. What’s got me excited about this one is that the investors are all from the telecom space and in some cases are the venture arms of carrier’s themselves. This means I don’t have to do a lot of background and can use my time to get right to juicy parts about why Fonolo is a natural fit for carrier partnership. You can read more about that here (along with a 2 minute video.)