Here’s a recession winner: MagicJack, the super-cheap Internet phone gadget, is flying off the shelves. And parent company YMax Communications, founded by telecom veteran Daniel Borislow, is raking in big money.
MagicJack works by hooking a standard home phone up to an Internet calling service via a $40 USB jack, which sells via stores like Best Buy, RadioShack, and Walgreen’s. It lets you place and receive unlimited phone calls over the company’s Internet phone network for $20 a year. (First year free.)
The company is selling about 9,000 to 10,000 MagicJacks a day, according to Borislow, and customers are using about 500 million minutes a month. The company will do more than $100 million in sales this year, Borislow says, and is cash-flow positive.
Who’s buying MagicJacks? Many older people, so far, especially in retiree or seasonal-living states like California and Florida. (The company’s average customer is over age 50.) And about 20% of its customers are overseas — ex-pats or foreigners who want to make cheap calls with America.
But MagicJack is working on cool, new tech, too: A wireless base station for your home called a “femtocell” that lets you use your GSM mobile phone — perhaps even Apple’s iPhone — with MagicJack’s service. The company also promises that number portability — get your current number to work with MagicJack — is coming this year.
This at a time when competitors like Ooma are burning through VC cash, and Internet phone bigshot Vonage has struggled to reach profitability for years, watching its shares drop 98% since its 2006 IPO. Another would-be rival, SunRocket, went out of business in 2007.
One big difference between 1.5-year-old MagicJack and some other Internet phone providers: Because YMax is an actual phone company — a CLEC, or competitive local exchange carrier — it has a different business model than some of its competitors.
Specifically, YMax can get phone numbers for free — which others have to pay for — and can bill other phone companies when their customers place calls to MagicJack subscribers, Borislow says.