Ooma wants voice to be free

logo_wht_thm.jpgVoice over the Internet, so far, has been a game of cheap minutes, shoddy quality, and unreliable connections. It’s also been a money-losing proposition. The promise of voice being free has remained just that – a promise. Palo Alto-based startup Ooma promises to resolve those frustrations in September 2007 while offering free voice calls for life.
In doing so, it’s relying on a very old tech strategy: Just as PCs shifted some functionality from mainframes into your house, Ooma’s boxes will handle locally some of the telecom switching that normally happens on phone networks. Go ahead, roll your eyes. I did too when I first met Andrew Frame, the founder of Ooma, over a year ago. [digg=http://digg.com/hardware/Free_voice_calls_for_life]

Frame, a former Cisco employee, came across as a paranoid startup founder hyping his company. “This will cause some major shifts in the voice business, it will make voice free,” he said.
But it’s clear Ooma is part of a large trend, one of chips and software commoditizing services. iTunes did it to music, Sling Media did it to television, and Ooma is on the right track to do it to voice calls.
That promise has attracted a number of investors: Draper Fisher Jurvetson, the Founders’ Fund, Draper Richards, WI Harper and Worldview Technology Partners are backers of the three-year-old company. From them, Ooma garnered $27 million in two rounds of venture funding. It’s not strictly true to say Ooma is offering free voice – after all, you do pay a monthly tariff for your broadband connection. Similarly there are other costs, including value-added services, the company plans to roll out later. The company will also charge a modest fee for international calls.
Ooma’s achievement was to build a slick box, which runs a couple of general purpose processors and embedded Linux, costing about $399. It will eventually be sold at consumer electronics stores with a promise: free voice service within the US.
The simplicity of the box masks complex technology. You plug it into your broadband connection and you are all set to go. You pick a number of your choice on the website. If you have an old fashioned landline, you can plug it into the box as well. A port allows you to connect to the kind of home phone network that most homes already have.
An optional device, called Scout, allows you to extend your Ooma network across your home via vanilla phone jacks. All your current handsets can plug into any phone jack. The phone rings, just as it always does. Using a hack that most DSL folk are familiar with, Ooma offers a second line that relies on sending information at higher frequencies, ones that are available outside of those used by the voice channel. You can use it to make or pick up a call on another handset without disrupting the first call. And like old-fashioned voice mail systems, you can listen to a voice message before picking up the phone.
So how does Ooma manage “free” voice calls? Say you call Manhattan. Ooma routes the call to an Ooma box to the 212 area code, with the local carrier accepting it as a regular outbound call. It works even if the destination number lacks an Ooma box.
It’s free to you, though it does cost the Ooma box in far-flung area codes, but most of the local call plans are flat rate and come with unlimited calling. Ooma piggybacks on existing phone services, bringing all the things you expect from a traditional phone service, like dialing 911. (Walt Mossberg gives his thumbs up to this service.)
In telecom lingo, this is called distributed termination. The more boxes on the Ooma network, the more termination points – and , more voice calls the system can carry to the public switched phone networks. This sounds eerily similar to Jeff Pulver’s Free World Dial-Up in concept. Execution is a different story, and we always can count on Jeff to think of the next big voice thing. Ooma has really done is basically take a media gateway and put it into its box.
Think of it another way: What the PC did to the mainframe, Ooma is doing it to the telecom switch. It’s a brilliant technological achievement, tempered by some serious regulatory and go-to-market challenges. These challenges are not simple.
I cannot overstate the wrath Ooma will feel from incumbents. Since Ooma threatens the carriers’ core business, they’ll do their best to crush it, arguing Ooma bypasses the local access regulatory structure. Don’t forget the mortal combat between Vonage and Verizon. If so, Ooma’s $27 million in venture funding will be nowhere near enough.
And Ooma will need to convince customers to buy the device. The $399 price tag for the box puts it out of range of people who need cheap voice: budget-conscious callers. Voice, local voice to be specific, is pretty cheap in the US, and that might cause adoption resistance.
It is a dilemma Frame and his team will need to figure out.
If you have any ideas, leave your comments below, or email Ooma using this address – [email protected]. The first 50 people to email will receive a free Ooma box.
Update: During the beta test, you will need an incumbent phone line, according to Ravneet who signed up. The company did not reveal this during our conversation. Secondly, this incumbent requirement will go away in September 2007, when the product launches. I have posted some clarifications in comments, and will answer more of your questions. This post was written late at night, so I might have skipped a few things.