Move over Skype. Another weirdly-named, European-based VoIP provider offering free or dirt cheap long distance calls has emerged to challenge the reigning champ. Jajah Inc.founded last year by Austrian entrepreneurs Roman Scharf, the company's marketing brains, and Daniel Mattes, its technology wizoffers what it claims is the first "Web-activated" VoIP phone service.
It could indeed give Skype a run for its moneyespecially with the announcement this week of a mobile version of the service that will allow users to bypass expensive cellular long distance charges and make calls via Jajah instead.
The trick with Jajah's flagship landline service is that it doesn't require users to download any software or invest in a computer telephone. You register for the service, key in the number you want to call using the dead simple Jajah Web interface, and click Call. Local servers running Jajah's patented VoIP codec place calls over the public switched telephone network (PSTN) to the caller's and the called party's regular phones and the two serversJajah calls them engines connect over the Internet using IP.
Using regular phones is a stroke of genius. As Scharf says, "It [the PSTN] is a system built up over 100 years. It's available everywhere and it cannot be beaten in terms of usability. So we combine this with the main benefits of VoIP, which is free or almost free phone calling."
How it works
When you place a call with Jajah, your phone rings once, you pick it up and hear a recorded message saying Jajah will now connect your call. Then the phone rings at the other end. It's a reasonably intuitive, if unfamiliar, process. Connection quality in our initial testing has been good. We sometimes noticed latency, but not enough to make conversation difficult. Unlike Skype, Jajah doesn't utilize wideband technology, so voice quality is never better than on a regular phone call. But it's at least adequate, usually comparable to normal PSTN calls.
Calls are free when registered Jajah members call each otherif they're both in Zone 1 (which includes the U.S., Canada, China, Singapore, and Hong Kong) or Zone 2 (which includes Australia, most of Europe, and places in Asia and South America). Other calls are charged at rates ranging from 7.5 to 65 cents per minute (with calls to mobile phones in exotic locations being far and away the most costly connections).
Jajah originally launched a conventional VoIP soft phone service last July (2005) using the codec Mattes' team had developed. The service was championed in the blogosphere and had phenomenal early success720,000 users signed up by September of that year. But the partners were, as Scharf puts it, "skeptical." For one thing, many of their friends and family members wouldn't touch it. "Only a select handful were using it," Scharf recalls. "The majority refused. Most said it was too complicated, or they had no broadband service."
That's the other thing about Jajah. As mentioned, users don't need a broadband connection, since calls are carried the "last mile" over the PSTN, not over the Internet.
At about the same time, Scharf saw an IDC report based on a survey in which the market research firm asked Internet users which Web applications they used. At the top of the list was search engines, with 95 percent penetration. Web mail was second with 70-plus percent. VoIP softphone servicesincluding Skype, Google Talk, MSN Messenger, etc.came near the bottom. As Scharf notes, however, IDC wasn't measuring how many people had ever tried these services, rather, how many were actually using them on a regular basis.
"It made us think that we should come up with an out-of-the-box approach [to VoIP]," he says. "We were inspired by the Google interface, which basically gives you a [text] box [to fill in] and a button to click."
So Scharf and Mattes went back to the drawing board and came up with the current Jajah service, which it launched earlier this year.
Registering for the service takes only a few minutes. You don't even have to give billing information to get registered. Jajah provides a balance of 65 cents to start. Users key in their home, business and, cell phone numbers and pick a password. Once registered and logged in, they select their location (i.e. home, office, or mobile) and then they can either key in a telephone number or select a contact from the address book that appears on the same Web page.
Building on the basics
The basic service was just the first volley. The newly announced mobile service is just the latest in a series of premium, paid services the company has introduced. It will require members to download a plugin and install it on their phones. Jajah is currently offering plugins for Symbian and Java phones but says it will have plugins for virtually all phones by the end of the year. There will even be a mechanism by which older phones will be able to initiate calls by sending a text message to Jajah with the number they want to call. For most phones, though, calling will be absolutely seamless.
Users will also be able to program when calls go via Jajah and when by regular cellular. You might want to automatically switch to Jajah when your monthly minutes are exhausted, for example. Or use Jajah only for some destinations.
Jajah had already introduced scheduled calling, text messaging, and what Scharf calls the "most stunning conference calling engine on the planet." The conferencing service, which Jajah has yet to officially announce, is certainly stunningly simple. You select parties from your Jajah address book or enter their numbers, click a button and Jajah connects all the parties. Users in Zones 1 and 2 pay 10 cents a minute for up to five participants anywhere in the world. That's 10 cents in total.
Scharf says he heard of one highschooler in California who uses Jajah conferencing to arrange movie nights with her friends. Rather than shuttle diplomacy to decide on which show they'll see, she gets them all on the line together and they hash it out. Families have used it for birthday callsfive people on the line all singing "Happy Birthday."
"It's something that is so simple that every school kid can do it," Scharf says. "And it's crazily cheap."
Will it really fly?
How can Jajah make this business model work? After all, it has to pay for those PSTN connections and it's giving many away for free. And unlike Skype, it's not using somebody's else's infrastructurei.e. users'to build its network. It has 200 switching engines in 85 countries, most of them leased or managed computers running Jajah's software.
The trick, Scharf says, is that the company is giving away only the cheapest minutesminutes for which it would normally charge 2.5 cents. It's paying carriers only a penny or less for those minutes (and wholesale minutes are getting ever-cheaper). For minutes into the U.S., Jajah is now paying half of what it was when it launched. That's partly the way the market is going, partly that the company can command better volume discounts now, and partly that it has learned how to negotiate more effectively, he says.
At this point 20 percent of calls made are to other Jajah members, 80 percent are paid. Some of those minutesto European cell phones and some South American and African destinations, for exampleare quite pricey. And margins on the paid minutes are good. Overall, Jajah's margins are about 30 percent, Scharf says. That makes up for the free minutes.
But as the number of registered Jajah members grows, the proportion of unpaid to paid calls will surely increase? True enough, Scharf says. But by his calculations, the company can make a comfortable living even if the ratio of unpaid to paid calls reached 90:10. "I don't see how it could ever go beyond that," he says.
If the economics don't seem to compute, the proof is in the pudding. Scharf claims the company is on target to be cash-flow positive by January 2007. Jajah is already earning on average $10 a monthover $100 a yearfrom every registered user. And although the company is supposedly constrained by investor agreements from revealing how many users it has, he says it's closing in on one million. Not bad for a one-year-old company with 55 employees spread around the globe.
"Our initial target was to hit one million by the end of this year," Scharf says. "But we're doing better than that. I believe that by the end of the first quarter [of 2007] we'll be up to two million for paid services." He has heard that Skype has only 1.8 million users of paid services. "I think that's quite an achievement. Skype is a mature company, part of the eBay group now. If Jajah after only 12 months has more paying users, that would be proof of our concept."
Scharf disputes the notion that Jajah must be more capital intensive than Skype because it owns more of the network infrastructure. The partners started Jajah with about $1.2 million of their own money. The company received $3 million from Sequoia Capital in October 2005 and another $5 million from Globespan Capital in April. But the $5 million is still sitting in the bank, he says.
"I think it's really a pretty cheap venture in terms of the burn rate, which is only a few hundred thousand a month," Scharf says.
The final piece in Jajah's strategy is partnerships. The company is willing to share its 30 percent margin with online companies such as directories, portals, affinity groups that can deliver large numbers of prospective customers. It already has partnerships with Plaxo, a Web-based address book company. Its users can make Jajah calls by clicking on a contact in their Plaxo address book. Jajah is working on a deal with , the dating service that would allow prospective daters to connect over the phone without revealing their phone number to the other person.
Is Jajah for real? To soon to say, but Scharf tells a compelling story. And the weird name? An Australian friend's aboriginal name. Go figure.