8x8 Retools Videophone Distribution Strategy

Santa Clara, Calif. — VoIP provider 8x8 has retooled its distribution strategy for its Packet8 IP-based videophone, according to Bryan Martin, CEO, 8x8.

The company pulled its Packet8 IP videophone off store shelves and lowered the price of its videophone from $499 to $99 with a two-year contract. Selling the phone directly through its Web site, 8x8 saw Packet8 sales surge to the point where it began to pull the remaining languishing inventory from its retail partners.

“Videophones had a black eye with consumers and when we initially launched, sales were slow,” Martin said. In the wake of the price cuts, sales have jumped and video lines now account for five percent of 8x8's VoIP subscribers.

“Those are great customers,” Martin said, “because they can't defect.”

The thin margins for VoIP operators coupled with the need to incentivize retailers with activation bounties makes selling VoIP through retail a difficult proposition, Martin said. “Retail is still a critical component to our effort, but we want to get out of the hardware business.”

8x8's partnership with phone maker Uniden “gives us a 500lb gorilla when dealing with retail and takes the burden of inventory off our hands,” Martin said, adding that 8x8 was looking to expand its hardware vendor assortment.

Martin also noted that with the SBC, AT&T merger there has been a renewed interest from dealers in 8x8. “AT&T is frozen now, and retailers want more than one product on their shelves so they're giving us another look.”

The Packet8 videophone will eventually return to retail store shelves, Martin predicted. For now, the company is finding alternative means of distribution, announcing last week a deal with Melaleuca, an international consumer direct marketing company. The agreement lets Melaleuca's several hundred thousand home-based marketing reps market and distribute Packet8 Internet videophone services under the MelaCom brand name.

Melaleuca markets its products through a consumer direct marketing model which it describes as “a hybrid of the best aspects of the insurance, direct sales and catalogue sales industries.”

Ultimately, VoIP will migrate from the close integration of device and network to a more open system where hardware can work with multiple VoIP networks. Martin said. “The hardware vendors have the clout and that's what they want. We may get there, but it's still early.”