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Content Tagged with startups + voip

The business of providing voice services to users of social networks is a tough one - you need huge volume to basically make money off what is essentially a new age call-back/calling card business. That is why many companies that aimed at this market have either retrenched or gone out of business.

Jaxtr, a Menlo Park, Calif.-based company, on the other hand, is ready to double down and stay in the game. Helping it do so is $10 million in Series B funding from Lehman Brothers Venture Partners, announced this morning.

The funding announcement is contrary to the rumor I had heard about Jaxtr hiring Lehman Brothers to sell the company. Good thing, I didn’t post that one ;-) Jaxtr plan includes making money to selling minutes for outbound calls to non-network members and ad-supported calls. “Combo of viral growth, ad revenue and paid services is a promising model,” Konstantin Guericke wrote in an email this morning. Jaxtr says it has 10 million users, a number they have been using since early 2008, though I would prefer if they start telling us about active users per month.

The out-of-network calling is a new service from Jaxtr, and is ultra cheap. For instance calls to China cost a mere penny a minute, while calls to India are 6 cents a minute. That’s low price, and I am not sure how they are going to make a ton of money doing that. Advertising-supported business is not an easy one either - as we have noticed in the past. To sum it up, I channel Brian McConnell, a former phone guy, and an occasional columnist for us.

The liquidity and exit opportunities for small telecom companies are also not good. You either need massive amounts of capital, or you need to be bought by a phone company (the stereotypes about phone companies exist for a reason). There are exceptions, of course, but they are rare.

Good thing, Konstantin has the money to soldier on!

One of the most important calls I make during the week is the one to my mother, followed by another one to my baby brother. These are international long distance calls, and for the first 15 years of my American life, those calls went over AT&T’s wired or wireless networks, forging a very special bond with Ma Bell.

This past year, however, that bond has been broken. AT&T has been replaced by Truphone, a UK-based mobile VoIP company that offers better quality voice calls at lower rates and doesn’t require me to own a landline. A WiFi-enabled Nokia phone is all it takes. (These days, I am totally in love with my Nokia E61.)

Truphone has become indispensable to my work and personal life, and perhaps that is why I’m glad to learn it just raised a whopping $32.7 million in Series B funding from “new investors,” although the company wouldn’t name names. Previous investors who have pumped in over $24.5 million in Series A funding — Burda Digital Ventures, Eden Ventures, Independent News & Media and Wellington Partners — came back with more cash as well.

Truphone recently acquired Sim4Travel, a company that made cheap cellular roaming possible. Alec Saunders points out that, with that particular acquisition, Truphone can extend its footprint beyond expensive Nokia WiFi-enabled phones. This has been Truphone’s Achilles heel and had limited the company’s growth prospects.

This is the crucial point. Even though Truphone has made great progress, the mobile VoIP game is still about cheap minutes and low-cost SMS. And that business is all about volume. I just hope Truphone can build that volume — this is one service I really want around forever; if it’s not, I will get an earful from mom.

VoIP startup Jaxtr said today that it has attracted 5 million registered members, up from 500,000 users 140 day ago, making the company “the fastest-growing Internet communications service in history — ahead of Skype, Hotmail and ICQ,” according to its press release.

But where is the money?

You might think that scaling to meet the needs of these millions of users represents Jaxtr’s biggest challenge. Indeed, Jaxtr expresses concern in its announcement over its ability to meet user demand. To that end, it recently hired Taneli Otala, former CTO of MySQL, as VP of engineering.

But Jaxtr has bigger problems than scaling and tuning their systems for millions of users. To make Jaxtr a real business, they need to convert sign-ups into satisfied users, and from there, transform those users into customers who pay.

Even then, there are no guarantees Jaxtr will succeed. If the promise is cheap calling, it’s just the same old VoIP thing.

How Jaxtr works

Jaxtr offers free international calls via a web-based widget. To use it, you sign up for an account then publish your Jaxtr widget on your blog, web site, or social networking profile page. You can also email callers a link to your Jaxtr page, which shows the widget. Callers click on the widget, enter their phone numbers, then Jaxtr rings the caller phone and your phone to connect you with one another.

If the caller is located in one of 50 supported countries, they will be given a local phone number they can use to call you next time — without paying long-distance charges. Otherwise, they will be provided with a U.S. number.

Each Jaxtr user gets 100 “jax” a month. Jax represent a Jaxtr-specific currency that is exchanged for minutes at different rates in different countries. Currently, once you run out of jax you have to wait until the next month to get more. In the future, you’ll be able to buy jax — and that, along with web and mobile advertising, is where Jaxtr plans to get its revenue.

The big challenge for Jaxtr: Turning try it into buy it

It’s no surprise that Jaxtr is seeing so many sign-ups: the promise of free international calls, mobile-to-mobile, is compelling. And compared to Skype, Jaxtr doesn’t require any special client software. A caller simply uses the widget once, then subsequently dials the number the widget gave them for future calls. But turning registered members into ongoing users — and paying customers — won’t be quite as easy.

First, the Jaxtr service is somewhat complicated, as a quick glance at the frequently-asked questions list proves. Plus, though it does provide for mobile-to-mobile calls, the first time a caller uses it, he or she must use that web widget.

Second and more importantly, there are doubts as to whether the Jaxtr money-making math adds up. The company must be spending some serious cash on those local numbers it gives out, as well as on connecting phone calls. Will they be able to come up with a pricing scheme for jax that makes the business economically feasible?

Five million users is impressive, but how hard can it be to find 5 million people that want mobile-to-mobile international calls for free?