In its early days,
8x8 (News - Alert)
developed technology and sold products that enabled service providers to enter the emerging VoIP space. When the telecom downturn occurred, the company chose to become a service provider instead, marketing its offerings under the Packet8 brand name.
8x8 has its roots in video and retains a slew of industry patents. In fact, before many of today’s VoIP companies came into existence, Packet8 was already in the business. Having visited the company’s offices over the years, I was consistently blown away at how many patents adorned the walls at corporate headquarters.
8x8 has straddled the line between being a very well-known company and an aggressive entrepreneurial entity doing things others haven’t thought of — or at least executed on.
I recently spoke with the company’s CEO Bryan Martin about what his company is doing now and what the future may bring. Here is that interview:
RT: Tell me about the Packet8 Virtual Office service and why you feel it is such an important component of 8x8’s offerings?
BM: In 1998, 8x8 bought a company, Odesei, which was the genesis of our Virtual Office technology. Odesei was later spun out as an 8x8 subsidiary, IP communications platform provider, Centile.
Shortly after the Packet8 residential offering was introduced, we decided to launch a small business VoIP service called Virtual Office. We saw a huge market opportunity for 3–50 extension organizations that could benefit immensely from a business VoIP phone service that not only offered a very low cost unlimited calling plan, but also provided corporate-class PBX functionality companies this size would not normally be able to afford. Although this is the small end of the market — in terms of business size — 99 percent of all U.S. businesses are micro-sized or home-based.
Virtual Office gives small businesses a complete business VoIP phone solution with robust PBX features they can afford, and eliminates the need for costly premise-based equipment with high maintenance fees. Our cost is $40 per extension per month, including unlimited calling to the U.S. and Canada. Our average customer spends about $400 each month, whereas, prior to switching over to Packet8, they were paying at least a $1,000 a month for their phone bill, including 5–7 cents per minute for local calls.
The average Virtual Office customer has 10 extensions and is a distributed or multi-location business. Take a local retailer, for example, with several regional stores that needs an easy and reliable line of communication between locations. With Packet8, they simply dial three numbers to connect with one another. In addition, they can request a single phone bill they could easily pay with a credit card — just one of many advantages we provide our customers.
RT: What Virtual Office features do your subscribers value most?
BM: Virtual Office includes the same powerful business-class phone features you’d find in high-end PBX systems like auto attendant, dial-by-extension, conference bridge, voicemail, call transfer, music on hold, and many more. The auto attendant is very popular, as is the Web portal, allowing drag and drop greetings to be created. There is also a receptionist application, if needed, but most of our customers use the auto attendant, which allows for an answering tree.
Customers can record greetings and upload WAV files of their greetings. They can also set up the system to ring multiple phones. With these and other features, like music on hold, a small company can easily sound like a large enterprise. A company with locations around the world can have 24/7 coverage and seem even bigger. Our voicemail is state of the art and conferencing is included as well — either can be accessed by three-digit dialing.
But, one of the most important features for subscribers is the option to transfer over their existing number or choose any direct dial number (DID) for each extension, even one with a different area code. For example, a business can have a NY phone number for their office in Florida. They can also get an 800 number, if they prefer.
RT: What is your biggest competitive threat?
BM: In the near term it is
Vonage (News - Alert)
; it has a known brand and many customers. That said, analysts argue that cable companies actually pose the greatest threat. I think that as mobility takes hold, the cable companies will have issues as well. In the long term, I have a lot of respect for SBC and this is where I believe the battle lines will be drawn. We need to seize some of their business customers. The longer war will be VoIP vs. Ma Bell.
RT: What about your
BellSouth (News - Alert)
BM: The partnership is strong and we launched our residential service with them late last year, where we provide everything except the marketing. In fact, BellSouth is coming out with its own small business service based on the Packet8 platform.
RT: What is happening beyond our shores?
BM: Internationally, we are looking for existing brands to partner with. For example, we are partnering with Dixons in the UK and Europe. The company is like Best Buy in the U.S. and has 1,200 stores. Dixons had a service called Freeserv, which was akin to NetZero in the U.S. Dixons sold the service to
France Telecom (News - Alert)
, which then converted it to Wannadoo. When Dixons launched our service, they called it Freetalk, making use of the brand equity. Because Dixons is the largest retailer in the region, we have effectively been able to lock Vonage out.
RT: What about MVNO relationships? Is this coming?
BM: I’ve looked at structuring MVNO relationships, but none of the U.S. carriers have opened their networks to third-party VoIP carriers yet. I see potential in video, as wireless carriers may be interested in allowing their customers to have high-quality video conversations.
RT: What other interesting things are happening?
BM: It is exciting to see how Yahoo! and
Google (News - Alert)
bring new ideas to the space. We are getting to “everything over IP,” which means everything, everywhere, and all the time. We will have access from any location, from any device, and we will control how and when we want to receive our personalized content. We will see tremendous innovation as the puzzle gets put together.
RT: How has being a public company affected you?
BM: Being a publicly traded company has two disadvantages. We had to grow the service from nothing, though now the business model looks good. It also has been tough for investors, as the numbers have not grown as quickly as they would have liked.
In addition, Sarbanes-Oxley has been a challenge, in terms of both cost and time. Year one was a tremendous investment and, now, year two requires time, but is much more manageable. On the plus side, there has been access to capital — we took in $60 million in the last three years. Also, we haven’t had been exposed to debt deals or exploding VC financing.
RT: What about the Vonage IPO?
BM: We were not surprised to see they were losing $60 million a quarter. Once our investors saw what Vonage was doing, they said Packet8’s numbers are not as bad as they originally thought.
We are on equal footing now that we are both public companies. Our other direct competitors have not had to break out the numbers, as VoIP is only part of what they do.
RT: Are you surprised a foreign service provider hasn’t bought an American VoIP company?
BM: I am. For years, foreign telecom companies have wanted to buy a wireless company, which, of course, is fraught with regulatory issues. VoIP is a simple way for them to get into market. Regulatory uncertainties in the United States have likely deterred them.
RT: What do you think of Kevin Martin?
BM: We have done everything we can to comply with recent 911 mandates. We and others were waiting to see what the response would be late last year. As yet, nothing has happened; we have no guidance. The silence has him and others confused and we aren’t getting any feedback.
RT: Where will we be in five years?
BM: Two major trends will dominate as we go into the future. Video will become prolific as bandwidth gets increasingly cheaper and more ubiquitous. In addition, wireless will continue to gain traction, though I won’t profess to know whether
WiFi (News - Alert)
or WiMAX will win their war. I hope, in five years, the wireless issue gets worked out. We should all have gigabits of access and application providers will go nuts. Business productivity will improve and new entertainment applications will come onto the scene.
The key takeaways from this interview are that the regulatory environment is, indeed, clouding the VoIP investment market. In addition, it would seem that video and wireless are going to play an integral part in our future. One point on which I thought I stood alone is the potential WiFi/WiMAX conflict. I get the feeling that WiFi will morph into something else with a larger range but with low-cost access points, allowing very robust competition to WiMAX in certain areas. I haven’t heard anyone other than Bryan think that WiMAX and WiFi will compete.
One thing is certain: Packet8 will be battling aggressively with the old new Ma’ Bell, the cable companies, and Vonage for a number of years. That is, unless a foreign carrier decides it is irresistible.
Rich Tehrani is President and Editor in Chief at TMC.
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