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MagicJack Climbs VoIP Ranks

6/30/2008 02:20:00 PM Eastern

West Palm Beach, Fla. — Telecommunications firm YMax is on track to reach 550,000 subscribers by June through its MagicJack VoIP phone and will begin selling the device through QVC next month, said company founder Dan Borislow.

The VoIP newcomer is selling roughly 8,000 MagicJacks a day, Borislow said. Each $40 device comes with a year’s worth of unlimited nationwide calling (inbound and outbound).

At 500,000-plus subscribers, YMax would vault ahead of every pure-play VoIP provider, save Vonage, currently the No. 1pure-play provider with roughly 2.6 million subscribers. YMax will know whether its customers will renew their subscriptions starting in January and February of 2009, a year after the MagicJack began to roll out to a large audience, Borislow said.

Launched last year, the MagicJack plugs into a computer’s USB port and features an RJ11 jack for connecting a traditional home phone. The service supports caller ID, voicemail, voicemail-to-email and call forwarding.

The device works when the computer is on and will forward inbound calls to a cellphone if the computer is off.

The company’s hook is super-low-cost calling. After the first year is up, it costs $20 for a full year of nationwide, all-you-can-dial calling.

“We originally thought that business travelers would use this, but what we’ve found is that in these economic times, people are desperate to get rid of their landline phone,” Borislow said. The most MagicJacks have been sold in Florida and California, respectively, where economic times are tough, he added.

They’ve also been embraced by retirees looking to minimize fixed expenses, he said. “People are under the impression that older people wouldn’t understand the technology, but that’s not true. They’re retired and they have time to experiment. It’s the people between 50 and 60” who tend to be techno-phobic, Borislow noted.

The company plans to move the MagicJack through traditional brick and mortar channels in the future, Borislow said. When it does, the MagicJack will be sold as a hardware device and not a service that provides a retailer with recurring revenue when a calling plan is activated.

“That model of service doesn’t work,” Borislow said. “[Retailers] sell the jack and they make a good margin — it will sell more than Vonage and Packet8 and the other fly-by-nights,” he said.

Since its launch, some have questioned whether a company offering phone service for $20 a year can forge a sustainable business. According to Borislow, YMax is more than just the MagicJack — it earns revenue from the search functions on the software that loads onto user’s PCs and is also a Competitive Local Exchange Carrier (CLEC), reselling phone numbers to other service providers.

“We spent years building a network before launching the product,” he said.

Indeed, he said the consumer-oriented MagicJack was just a first effort to go after “low hanging fruit” in the communications market and that other services and devices are coming.

“We’ll have a Skype-like service for calls without the jack,” Borislow said, as well as a device for the enterprise market.

The company has several patents pending, including one for a wireless MagicJack that lets users with wireless networks have access to the service whether their computer is on or off, Borislow said.

“Rather than have them try to plug it into a modem and figure out where the Ethernet cables go, they can just plug it into the wall and it self-configures.”