The Magic behind MagicJack

MagicJack, the USB-based VoIP service from telco vet Dan Borislow, intrigued us from the moment we first read about it in a column by Herb Greenberg. In search of more details, we were finally able to track down Borislow Monday for a brief demo and some inside info, in advance of the product’s “formal” intro either later this month or early next.

Some quick tidbits: The company’s business plan revolves not so much around the USB gizmo but instead around a robust nationwide network that Borislow says is also a certified CLEC; the company has interconnect agreements with all the larger carriers, meaning it’s not about to be shut down like some other value-cost calling operations; and as part of its initial marketing push, MagicJack plans to give away a free phone number (of which it says it has millions) to the first wave of customers who plop down $29.95 or $39.95, a price that includes a full year of unlimited calling to the U.S., Canada and parts of Europe.


If we mess up on any details here, we will blame the noisy atmosphere, since our “interview” took place amidst wayward forklifts and booth-building crews during the exhibit-floor setup day at Spring 2007 VON in San Jose. While it’s possible that we are the willing victims in a measured slow-leak marketing campaign, any operation that claims to have spent two years building a nationwide network of Internet gateways (with 31 session border controllers, a number Borislow is quite proud of), and has spent the exhaustive and expensive time certifying itself as a competitive local exchange carrier isn’t some Web 2.0 play.

The consumer side of MagicJack goes like this: Users will plug the USB end of the ‘jack’ into their Internet-connected computer, and will plug a phone into the other end of the device. The device then boots a softphone onto the screen (in 28 seconds, in our impromptu test); you then can pick up the phone and start dialing. The MagicJack will cost $39.99 for a jack with a memory chip (for the softphone), or $29.99 for one without memory (you can alternatively download the client and keep it on your PC). Yearly subscriptions thereafter will cost $19.99, Borislow has said.

The business side of MagicJack, as best as we can tell, comes from the subscription plans as well as interconnect fees paid to MagicJack’s CLEC partner company (apparently called YMax Communications Corp.) whenever a MagicJack phone number is called. More details — such as additional features embedded into the product, like voicemail, conference calling, and a direct-to-Google search link — will be revealed at the “official” announcement, whenver that is. (At the current leak rate, Borislow might not have much left to tell, other than “some big marketing plan” that he kept to himself Monday.)

Borislow, who claims to have provided most of MagicJack’s $17 million in funding from his own pockets, thinks there is a huge market for value-priced VoIP-based telephony, even though others like Vonage and Skype are revenue-challenged right now. “There’s a lot of people with fixed costs of $700 a year for phone service who may now be able to buy a case of beer a week instead,” Borislow said, putting a thirsty twist on MagicJack’s purported savings. College students or teens who already have laptops and Internet connectivity are also target customers, he said.

On the networking side, Borislow is quick to diagram the MagicJack/YMax advantage, which he says comes from building a network that covers “80 percent of the U.S. population” with its gateways and SBCs. By connecting most of a call’s distance over the Internet between its own gear, Borislow says MagicJack will have far superior call quality to other VoIP providers (or even PSTN calls routed over IP) , who must traverse multiple equipment types and transports that can introduce latency and degrade calls.

(Look for MagicJack in the SJ Labs booth at VON, since MagicJack acquired the softphone-technology firm as part of its inception.)