Wednesday, February 7

GizmoCall takes VOIP startup on a wild ride to where, exactly?

I think is an intercontinental ballistic missile that SIPphone has strapped itself to - the company will go stratospheric very quickly on the back of this, but will it achieve a stable orbit or crash back to earth?

If like me you've used SIPphone's GizmoProject VOIP/IM client, you've probably been grateful for the flexibility it offers - the ability to do IM and VOIP in one client, the ability to reach users on a variety of IM networks, and all the Skype-like premium voice features, such as call-in numbers, caller ID, voicemail, etc.

However, like me, you've probably also gotten lost in the massive user interface that SIP finds necessary to manage this gordian knot of different communication types and features. Often I give up and go back to Skype and Adium, just to have something clean and simple to use.

I would never introduce my mother-in-law to GizmoProject - it's too complex.

Which is a shame, as because she's a time-rich, money-saving pensioner with a Mac in her bedroom and many relatives and friends in the UK, she's the perfect customer for VOIP.

But, on the other hand, could become my mother-in-law's most-visited internet destination, overnight. It's so easy, and it's free.

I can handle installing the Flash plug-in for her (rather weighty at about 6Mb, one of the first apps I've seen built using Adobe's Flex 2) and then help her register for an account. And I'll add a bookmark for her in her Safari toolbar. Then she's one click and a phone number away from being able to call to almost any landline and almost any mobile number worldwide, for up to ten minutes a day, for free.

There's a massive usability advantage for Gizmo while they remain the only VOIP service you can use right in your web browser. That will pay off in much faster user growth.

So what's this all got to do with intercontinental ballistic missiles? Well, by offering free calls directly in the browser, I think Gizmo is in for a period of stupendous growth in new users, downloads, server traffic, VOIP-to-carrier connections, customer service issues, new staff... all good stuff, as long as it doesn't happen so quickly that it affects the product, the service, the company's working environment and the way the business is managed.

In other words, stupendous growth is not always a good thing.

The great part of stupendous growth is that it gives you more leverage when you sit down at the bargaining table with a bigger company that wants to acquire you. Nobody can say how much you'll be worth in a year's time, but a betting man would say it'll be a lot more. Somebody in an acquiring frame of mind will have to get their best offer on the table while they can still afford you. You have leverage.

But valuing stupendous growth can be particularly risky when you decide to fund the growth through advertising. Gizmo plans to display advertising on the same browser page you'll be looking at as you place your call.

SIP founder Michael Robertson talks about offering in-context advertising in the GizmoCall interface on his blog:

"...Because Gizmo Call is written in flash we can insert advertisements into the experience in a helpful manner. If you call 1-800-FLOWERS we can tell you about the great San Diego-based company ProFlowers which is running Valentine's Day specials starting at $29.95 and offer to connect you to them... f you need a plumber or a pizza just dial those words and we'll pop up a list of vendors you can talk to for those services. Not everyone will want advertising in and around their calls, but Google has proved that targeted advertising is actually useful and that's what we will strive for. There's no advertising yet on Gizmo Call which is why free calls are limited to just 10 minutes. Eventually we'll have text, audio and video advertising - let your mind run with that one!"

Seems like a no-brainer at first, right? Huge new audience of users worldwide, all guaranteed to be starting at the browser for the duration of the call, the opportunity to target the ad, and you've got acres of interface around the Flash plug-in to display text, graphic or animated advertising, right?

Well, maybe not. The history of ad-supported free internet access showed in the late '90s that not everybody thinks the exchange of access for ad exposure is one worth making. Typically, anytime you offer a free, ad-supported service in any market, you attract people who have more time than average, and less disposable income than average - the elderly, those on social security, and kids too young to work.

There are marketers who want to reach the elderly, the poor, and young children, but SIP must compete with an abundance of other media that are already proven to work for those demographics, such as daytime TV, direct mail, and radio. Unlike advertising on GizmoCall, those media are proven, stable, and their results and costs are known. It's no risk.

What GizmoCall needs is a lot of marketers used to very conservative, traditional advertising, that are ready to take their first step into something unproven, rapidly growing, and a little risky. And that's not a very big market. Very few of the creative, risk-friendly, outside-the-box marketers work in direct marketing, daytime TV and direct (despite what your annual direct marketing industry awards would have you believe.)

There are more significant challenges in pitching GizmoCall to marketers.

As Robertson suggests, perhaps there are opportunities to serve in-context ads, but as all it takes is an email address and a browser to register for GizmoCall, there are no demographics to offer marketers other than an IP address - SIP can't offer you 10,000 impressions to female professionals 35-45.

Even Robertson's own example of in-context advertising is a little flawed - showing the customer an ad for a competing flower delivery service only really works if you display the ad to the user before they initiate their call. I don't know about my mother-in-law, but personally I'd start to have a real problem with GizmoCall if I just wanted to call my local florist but kept getting interrupted with offers to connect me to another service that had paid to be there.

As I run a business with companies for clients, I'm going to lose my patience with GizmoCall if they offer to connect me to my client's competitor every time I ring in for a weekly conference call with my client.

I don't have any data to back this hunch up but I'd wager that more than 95% of calls placed on GizmoCall in the first year of operation won't be appropriate for in-context advertising. The majority of calls will be to/from friends and family, where SIP won't have any context on which to serve an ad. The remainder will be calls like mine above, where although I'm ringing a business number, I'm not in the market for a competitor's service or product.

Finally, ads served prior to and during a GizmoCall call will suffer from the same low click-thrus seen on any media where the audience has a task to complete and won't be distracted by an ad - just as we already see in free webmail and IM clients such as Hotmail and MSN Messenger.

They can work for branding, or they can work for call-to-action at CPA or extremely low CPM rates, but they are not what any online marketer would describe as desirable. Usually they're thrown in for free with a broader network media buy. But SIP doesn't have a media network, which brings us back to the future: the point at which SIP wants to be acquired by someone with a network, an experienced media salesforce, and a trading history with big brands.

If SIP is riding the ballistic growth of the easiest-to-use, free VOIP client on the market, while trying to fund that growth on the back of an advertising medium that may not set records for its high profit margins... well, let's just say that it might change who has what leverage at the bargaining table.

Meanwhile, I'm off to show my mother-in-law what a great son-in-law I can be when I really try...

Note: you may have noticed a lot of blockquote formatting in this blog post. Seems like everyone else is doing it these days to help readers get to the nub of a lengthy post. I'd be interested in your feedback on whether it works for you or not.

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