When Michael Robertson talks about his latest venture, Internet telephony startup SIPphone, he uses fighting words.
"We're going to rock the telecom world," he says. "The industry as it exists today is a complete hose for consumers. The cost structure just isn't fair."
The San Diego entrepreneur is known for high-profile battles. Microsoft sued his most recent venture, Lindows, arguing that the Linux-promoting company's name violates trademarks for the Windows operating system. MP3.com, the company Robertson founded in 1998, was the subject of a notoriously large lawsuit initiated by the Recording Industry Association of America over copyright matters.
Launched Wednesday, SIPphone sells $65 phones that call anywhere in the world essentially for free. Users don't pay per-call or per-minute fees, just the cost of their regular broadband service and a one-time cost for the device, which arrives pre-configured with a unique phone number in the area code "747" ("S-I-P" on your phone keypad). Turn the SIPphone on, plug it in to your broadband connection and place your call.
But unlike services offered by many of its established competitors, with SIPphone you can only call other compatible SIP devices, not "regular" land lines or cell phones.
The service is based on session initiation protocol, or SIP, a voice-over-IP, or VoIP, technology standard that manages voice traffic moving throughout Internet-based networks. For more than a decade, proponents have touted VoIP as a cost-saving, flexible alternative to the conventional public telephone network, but its use has so far largely been limited to corporate users and tech-savvy early adopters.
Cisco Systems, Nortel Networks and Avaya are among companies providing VoIP services to corporate users. Subscription-based services from Packet8 and Vonage also offer consumer packages for a monthly fee and relatively low per-minute international rates. SIP startup Free World Dialup was founded by Jeff Pulver in 2002, and claims more than 40,000 members for its "community service."
Poor voice quality, dauntingly complex service setups, and high hardware costs have relegated VoIP to the consumer market sidelines until recently. But as more households upgrade to broadband connections, and companies such as Apple Computer and Microsoft offer SIP-compatible software to consumers (iChat AV and forthcoming versions of Windows XP, respectively), the technology seems to be gaining new popularity.
By offering low-cost SIP phones -- $129.99 per pair, with plans to reduce the price to $40 per phone within a year and $20 within two -- Robertson hopes to tap into SIP's early momentum, just as he did with his Linux and MP3 ventures.
"Wherever there's massive potential disruption, there's massive business opportunity ... that happens wherever you can completely digitize a product -- with music, MP3s; with software, Linux; with voice communication, SIP," says Robertson. "By moving something from the offline world into the digital world, you're placing it back in the consumer's control."
"There's no per-minute cost for the phone company to zap electrons from one set of copper wires to another, so why do we pay per minute?" he says, "If you intersect with the (regular phone) system, you inherit their cost structure. With SIP to SIP, it can all be free."
But free or not, analysts say the company needs an early network-effect boost to survive. In other words, since the service only works with compatible devices, a lot of people need to buy SIPphones, and soon, for the business to fly.
"So many new technologies require early adopters to force early rejecters to sign on," says Glenn Fleishman, technology pundit and editor of Wi-Fi Networking News. "I don't know of any other company offering the full hardware and SIP gateway together, and that's what makes this a unique proposition."
"Selling fixed-price items and running free service indefinitely is untenable, and the business model can't be funded out of selling what will become marginal-profit equipment," says Fleishman. "The next step is having 2.9-cent-per-minute optional service add-ons through resellers, offering add-on services like voicemail, conferencing or selling long-distance."
Robertson says he hopes to attract several million members in the next six months, and that future plans could involve teaming up with traditional providers.
"Companies like Verizon might start asking, 'Why don't we start interfacing directly with SIP networks?' and T-Mobile might say, 'Let's interconnect our two phone systems and champion pure IP calls,'" says Robertson. "Any of that would present a huge opportunity for the telecom industry."
And a huge opportunity, of course, for SIPphone.
