Alec Saunders SquawkBox

The details of Gizmo Project’s new All Calls Free program are out this morning, whereas last night when Andy Abramson posted his piece, they were offline.  This is MCI’s Friends and Family plan in the age of VoIP calling. Essentially, when you call someone else who is an active Gizmo user on any number that that person has registered with Gizmo, the call is free (in the countries where the plan is available).

But wait!  Aren’t Skype calls free (in North America) to all calling destinations?  Why not just keep using Skype?

Well, just like the old old world of MCI vs AT&T, the devil’s in the details of a calling plan.

During the current promotion, Skype is free… nada…. zilch… zip for all calls originating from accounts in the US and Canada and terminating in the US and Canada.  At iotum, Steve Lecomte and Julien Raynal, who spend lots of time on the phone, are using Skype for business calls.  Integrated with the Outlook Toolbar, it’s a natural, since most of our calls are North American.  On weekends in July, calls are also free to the UK, Japan, and Mexico — any phone.

Gizmo Project is free for calling, between Gizmo users, to any phone in Canada, China, Cyprus, Guam, Hong Kong, Malawi, Malaysia, Puerto Rico, Russia, Saipan, San Marino, Singapore, South Korea, Thailand, United States, US Virgin Islands, Vatican City.  In addition, you can make a call to any landline phone in these countries, provided that other user is also a Gizmo user: Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Chile, Croatia, Czech Republic, Denmark, Estonia, Finland, France, French Antilles, Germany, Gibraltar, Greece, Guadeloupe, Hungary, Iceland, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Monaco, Netherlands, New Zealand, Norway, Panama, Peru, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, Venezuela, and Zambia.

If you primarily call North American numbers, for now Skype is a better offering. It’s really free. It may not always be, since free calling is supposed to be a promotion.  If you make lots of calls overseas, depending on where you call, Gizmo may be a better offering (if you can get your friends and family to sign up for it).  And, if you’re not North American, Gizmo gives you free calling to 60 countries (when you sign up the recipients of those calls as Gizmo users too), which Skype doesn’t.

Reading between the tea leaves leaves you with the impression that Gizmo has been hard hit by Skype’s free calling throughout North America promotion. Certainly I’ve used it less. However, because they’re not backed by EBay’s deep pockets, they’re looking for an offer that will accentuate the word of mouth growth of their service, without a dramatic impact to the pocket book.  The place where Skype is most vulnerable at the moment is internationally, where they haven’t extended the same offers that they have in North America.  Ergo, push there.

My take: it’s an interesting chess move, rather than a definitive strategy.  Here in North America, it’s simply easier for me to call the people I need to reach on Skype, than it is to convince those same people to buy a Gizmo account. Most of the time I don’t bother with Skype, even. In our home, we’ve spent about $30 between last October and March on long distance using a $.02 plan from NuFone.  On average, we use about 250 minutes per month of LD calling friends and family.  My monthly cost is $5 on NuFone, free on Skype, and would be $2.50 on Gizmo, assuming that I couldn’t get any of my friends or family to switch.  It’s not even two Starbucks latté’s. I’m not sure price is an issue any more.

Andy Abramson has learned that Gizmo project is about to make all calls free, in 60 odd countries globally.  This is an intriguing development, which I’ve been predicting for a long long time.  However, I wouldn’t have guessed it would be Michael Robertson and Gizmo to do it.  Aside from Michael’s penchant for grand gestures (I think he and I would be good buddies on that basis alone), I would have predicted a vendor with an alternate business model would be the company driving minutes to zero.

If Andy’s right, the cost of using Gizmo will be… nada, zilch, zippo, free… how then do they generate revenue?  Will there be a white label program to monetize the platform?  Click to call advertising?  Michael’s no dummy.  I’m sure there’s a business model, but it’s not obvious yet.

“ with this alliance agreement … I think you can clearly say that Microsoft with Nortel is in the business not just of unified communications, but in the business of VOIP”

Microsoft CEO Steve Ballmer

I must have had a half dozen people (including my Mum!) draw my attention to the Microsoft (MSFT) / Nortel (NT) agreement signed yesterday.  I didn’t think much of it after reading the Jeff Raike’s Q&A which Microsoft published.  Raikes appeared to position the agreement as initially an R&D arrangement, with go to market strategy to be developed later. However, as details came out it was apparent that it was much larger.  My initial assessment was just plain wrong. 

The companies are entering into a four year strategic alliance.  Nortel will be Microsoft’s strategic partner for advanced unified communications solutions and systems integration. The two companies will form the “Innovative Communications Alliance” as a go-to-market vehicle, and Microsoft and Nortel will deploy the other’s technologies in their enterprise networks.

As Microsoft’s strategic systems integration partner, Nortel hopes to generate new revenue through service offerings such as convergence planning, integration, optimization, monitoring and managed services.
 
The more interesting component in this agreement, in my opinion, is the commitment to do joint product development.  The companies will form joint teams to collaborate on product development that spans enterprise, mobile and wireline carrier solutions. They will cross-license patents, and Nortel will deliver solutions that complement Microsoft’s unified communications platform, including enterprise contact center applications, mission-critical telephony functions, advanced mobility capabilities and data networking infrastructure. Nortel becomes a very important software development partner in Microsoft’s ecosystem, accelerating the development of that ecosystem and its value to their joint customers.  At the same time, Microsoft intends to continue the development of its Dynamics product line, which, with the addition of voice, may become very compelling components of these joint solutions.
 
They will jointly sell the solutions, from either companies sales force.  They will also build channels with systems integrators, resellers, and service provider relationships.  They plan to target a range of customers, including small and medium-sized business, large corporations and service providers.

With the exception of Microsoft’s original partnership with IBM, there has been only one other time in Microsoft’s history, that I can recall, that the company has struck a similar agreeement.  That was the 1993 Microsoft-Compaq Frontline Partnership, which still exists today, 13 years later.  That agreement saw Compaq and Microsoft undertake joint product development, build channels, and mutually deploy each others products.  At the time, Microsoft got a powerful OEM partner, and a huge boost to its nascent Solution Provider channel with Compaq’s backing.  Compaq, who wanted to target the mini-computer market with its enterprise servers, got a committed development and channel partner.  The fact that the agreement still stands today testifies to its enduring value to both companies. 

You have to admit that the Compaq partnership, and yesterday’s Nortel / Microsoft Alliance, are eerily similar:

1. The companies will develop channels together.
2. The companies will jointly develop products.
3. The companies will deploy each others products internally.

Nortel, which has struggled to bring it’s unified communications products to market (and if you’ve ever experienced the MC5200’s wretched desktop software, you will understand why), gains an experienced, committed and resource rich software development partner.  Developing end user software is hard, and Nortel appears to have recognized that, after several abortive attempts to do it on their own.  Their product development efforts are going to be tied to the most powerful cash generation engine on the planet — the Windows/Office franchise. That can only help.

Microsoft, who has lacked credibility in the communications marketplace, gains one of the oldest and best known names in communications as a partner.  They gain access to a new channel to market, the importance of which cannot be understated.  And, they gain access to a large existing customer base.

Together, the two companies are strong enough to go after Cisco (CSCO), and that’s where the money is in IP communications today.

Just as the Microsoft / Compaq agreement wasn’t exclusive, neither does this one appear to be.  You wouldn’t expect it to be.  From Microsoft’s point of view, this agreement will accelerate the creation of the ecosystem of software development partners that are going to help make Microsoft’s unified communications platform a success.  They will want to spread that success to other hardware partners.  Despite not being the exclusive partner, Nortel can claim to be the most favoured partner, which is a great place to be.

This is a very smart, very savvy move for both companies. In particular, congratulations are due to Mike Zafirovski. This agreement won’t move Nortel’s stock today, but over the long term and well executed, it has the potential to restore Nortel’s fortunes in the market.

Note to the Microsoft PR team:  I am not the only person who dismissed the initial announcement as unimportant because the messages were incomprehensible.  See Bruce Stewart, Rob Hyndman, and Zoli Erdos.

The chess pieces have been moving around the VoIP board for the last couple of hours.  I’ve recently gotten mail on:

• The Comcast Cablevision announcement that it has passed 1,000,000 VoIP subscribers.  Om Malik observes that this is putting pressure on the incumbent carriers, but also makes life much more difficult for Vonage.  Indeed, Cablevision operates in just a few states as compared with Vonage which is an international carrier.  Vonage stock is down again, now below $7.
• The Nortel / Microsoft announcement of a new research partnership, which, according to Microsoft VP Jeff Raikes, will ultimately result in the sale of new products and services through a joint channel.  Because it’s a research partnership, this will be a longer term play. However, public cloud presence plays, like Tello, are going to come under pressure as a result.  For now, the alliance’s focus on enterprise and carrier means that there is plenty of room to innovate, even though the stakes have just become higher.

 We live in interesting times.

Ben Edelman’s revelation that Vonage customer acquisition is built around spyware advertising leaves a bad taste in the mouth.  Before the IPO it might have been explainable as the actions of a few overzealous affiliates, but in the post IPO era, the recipients of those ad dollars are available for anyone to see.

One wonders how long a business model built on customer acquisition via spyware can be sustained.