Jaxtr Inc.'s acquisition by SabSe Technologies Inc. probably wasn't the kind of exit investors had in mind. The Menlo Park, Calif.-based VoIP startup had been struggling for some time, as had small VoIP companies in general. Thus the undisclosed sum SabSe, another startup, paid for jaxtr surely won't be anything August Capital and Lehman Bothers Inc. will be boasting about. Still, even a relatively low-sum acquisition is better for investors, employees and users alike than simply shutting the company down. And it may give jaxtr, which will continue operating under its own name, a better chance to fulfill its potential than it otherwise could have.
Jaxtr began as a provider of click-to-call service targeting users of social networks. It let users embed widgets, or "call-me buttons," in their Web sites, profile pages or email messages. When individuals clicked the buttons, they were prompted to enter their phone numbers and click again. When they did, jaxtr called them, and then connected them to the user who had deployed the widget. Because the real phone numbers on both ends of the call could remain anonymous, the service was perfect for talking to people one wasn't sure one would like.
Jaxtr soon started adding features and services useful even for non-serial-socializers. In December 2008 it introduced FreeConnect service, which allowed registered users to call overseas from mobile phones and landlines, after entering their number and the number they were trying to reach on the jaxtr Web site. Soon after, it extended the service to nonregistered users, and to those who wanted to initiate calls from mobile phones but didn't have access to Web browsers.
All the services were based on the same principle: providing calling and called parties with local numbers to call, with the called party receiving the number in an SMS text or email message notifying them that someone was trying to reach them. When both parties called the numbers, jaxtr connected them for free, so they paid only for local landline or cellular connections. The price must have been right: jaxtr ended up with more than 10 million users.
The problem with offering free services is of course how to make money. Jaxtr earned some revenues from ads, and some from related paid calling services it later added. It introduced inexpensive pay-as-you-go outbound VoIP calling for registered users, for instance. It also offered premium packages of minutes ranging from $10 to $50 per month at rates 35 percent lower than pay-as-you-go minutes. And it let FreeConnect users pay to avoid the inconvenience of waiting for the recipient to be notified and then call in. Instead, pressing 1 after dialing caused the call to ring the recipient's phone directly. The user would then pay jaxtr's standard outbound rates for the call.
Still, creating a viable business, not to mention a spectacular ROI, from low-cost VoIP calling requires by definition a huge ongoing volume of paid calls. That's particularly hard to attain when there are so many other companies trying to do the same thing, and in a recession to boot. And the investments involved were substantial. The total came to more than $20 million, including $10 million in June 2008. Evidence of investors' dissatisfaction came in October 2008, when jaxtr laid off some 13 employees, about one-third of the total, and two weeks later fired CEO Konstantin Guericke.
Investor concerns aside, though, jaxtr had done a good job of building users and momentum, according to SabSe co-founder and CEO Yogesh Patel (HotMail co-founder Sabeer Bhatia is also a co-founder). And that made it a good fit for SabSe's larger plan, which is to offer a variety of cloud telephony services around the world, mainly in partnership with traditional carriers on a revenue-sharing basis. SabSe has its own call processing platform that handles both traditional TDM and VoIP calls. That versatility is necessary because the company is focusing on developing countries, where VoIP is less widely available than in developed markets. Other services in the mix include free and paid conference calling, which it is already offering in India under the SabSeBolo name. Hosted IP PBX services are coming soon, first in Malaysia and later in the U.S.
Jaxtr's FreeConnect will play an important role, because SabSe's strategy relies heavily on advertising. It will inject unobtrusive ads into the jaxtr call process, as it currently does with its free conference calling service, Patel stated. It will also emphasize FreeConnect's usefulness in helping travelers avoid international roaming fees by calling through local access numbers in foreign countries.
Though jaxtr service will also continue under its own name, current jaxtr employees will move from to the SabSe office in Mountain View, Calif., and there will be some consolidation, Patel said. By the evidence, the same will be happening in the VoIP business at large. Jaxtr wasn't the first acquisition resulting from an inability to reach critical mass, and surely it won't be the last.
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