A big week for VOIP

I have been helping a friend of mine who is moving into town get access to local resources such as carpenters, painters, and restaurants. An email I received from him today had the standard list of questions on utilities but the one that surprised me most was, “Who is your cable provider and do they offer VOIP?” This was a surprise since he is not the most bleeding-edge technical guy. In my mind VOIP really hit the mainstream this week with this email, Thursday’s Wall Street Journal (unfortunately subscription required) article about VOIP’s threat to the Bell companies, and today’s New York Times front page coverage in the Money and Business section.

While programs like Skype offer free P2P telephony over computers, services like Optimum voice offered through Cablevision and Vonage are the true groundbreakers that are bringing VOIP to the mainstream. Mainstream users do not want to be tied to their desks with computer headsets. With these services, customers can simply plug their phone into an adapter which converts analog signals to digital. There is no need to buy new equipment or even change how you use the telephone. Vonage claims to already have 55,000 lines. Since there is no competitive advantage technically in the VOIP service business, it will be interesting to see how cable companies, startups, and Bells compete with each other on marketing services and pricing. The great news is that consumers will only reap more benefits as VOIP continues to gain market share.

Where are they now?

Do you remember the name Jonathan Cohen? Jonathan, who was negative on Internet stocks in the late ’90s, was replaced by none other than Henry Blodget at Merrill Lynch. Henry’s $400 call on Amazon.com put him well on his way towards equity research fame or infamy. As I was catching up on my reading and looking at top performing funds for Q3, it was great to see Johnathan Cohen’s Royce Technology Fund top the charts. He did it by building positions in technology value stocks which sounds like an oxymoron but made a ton of sense if you began buying in early 2002. Many of these stocks like Maxtor were trading at or near cash at some point in time during the last 2 years.

Price isn’t everything

I had breakfast with a friend the other day, and he was in the process of a bankruptcy filing for his startup. We started talking about why his wireless company had failed and one of the main reasons he cited was that the price was too high. Many of you may ask why is that a problem. Isn’t getting a high price a great thing? The term sheet that the company signed was led by a strategic investor and contingent on finding another VC as a co-lead. While he had some strong interest, no other VC or purely financially driven investor was willing to step up at that price. The only other term sheet he had was at a much lower valuation but in his mind a little too onerous. He was willing and ready to take the term sheet, but he had made a promise to his team of 10 that he would make sure they got some backpay as part of the deal. While it was a hard decision, I applaud him for sticking to his deal with his team. Consequently, the company had no other choice but to shut down since it was not at a stage to generate meaningful revenue. So what can other entrepreneurs learn from this?

1. Price isn’t everything-sometimes too high of a price can cripple your company. Other investors may not want to fund the company, and you may set unrealistic expectations for you, your employees, and your investors.

2. VCs like sweat equity. Don’t hire people that expect to get paid back salary. Isn’t the whole point of working at a startup to build real value through equity? If your employees want backpay then you probably have the wrong people for your stage of company. It is a tough proposition for us to fund a $3mm round and have $500k get paid out as salary. This is easy for me to say as a VC, and it may sound self-serving, but it is true.

No more annoying calls at dinnertime!

Court lets ‘do-not-call’ list go forward.

In this fast-paced world, I have to admit that having dinner with my family is sacred time. During dinnertime, the last thing we want is a seemingly endless, annoying barrage of telemarketing calls. We never really had a problem until we moved from the city to the suburbs and got on every credit card list known to man due to our new mortgage. Our name and phone number spread like a bad computer virus. We got 3-4 calls a night for the first few months. The worst calls were the computer-dialed ones which left long-winded messages on our answering machine. So when www.donotcall.gov became available, we were one of the first to sign up. 51 million numbers have been registered since then.

The Telemarketing Services Association is claiming that the registry is a violation of their free speech. I say screw their free speech. The telemarketers’ calls are an obvious invasion of our privacy. I am glad that the judges had the sense to rule in favor of our personal privacy over the telemarketers’ economic interests. Yes, there are exclusions as to who can call, but shouldn’t everyone have the right to a sacred family dinner? Who knows what will happen in the appeal by the telemarketers, but it is satisfying to know that one day in the not too distant future, there just may be no more annoying calls. Now how about that anti-spam list?

Is the ASP Model Back

Siebel and IBM team on hosted CRM service

It feels like 1999 again when the ASP (application service provider) business model was all the rage. Why is Siebel trying this again when their most recent foray was a complete disaster? Bottom line: Salesforce.com is eating their lunch. Siebel’s enterprise license revenue model is coming under real pressure as large enterprises are getting tired of spending millions of dollars upfront with no real ROI.

Could this be the return of the ASP model? In the old days, the promise and hype of many ASPs were as high as their burn rates. A number of these companies poured tens of millions of dollars into infrastructures that only had a handful of customers. The end result for most was disastrous. Despite the many failures, I am conjecturing that the ASP will be back in a BIG WAY for the following reasons: tight budgets, increased comfort level of customers to have data offsite, broadband connections allow for always-on access, and vendors with right-sized business models designed to make a profit. When and if the capital markets return, let’s see how these companies perform.