Q&A: MagicJack is an invention suited for the phone-bill weary

Entrepreneur, inventor of the VoIP device finds a success during the recession

Despite the recession, inventor and entrepreneur Dan Borislow said he is seeing dramatic success with his VoIP telephone adapter, MagicJack. The device plugs into a computer's USB port and a phone to allow voice calls for $40 for the first year.

Borislow is not the same man who pitches MagicJack on TV ads, although he is often mistaken for that actor, he said. He discussed his invention and what drives him as an entrepreneur and CEO of Palm Beach, Fla.-based Ymax Corp. with Computerworld.

Computerworld: Since I first interviewed you a year ago, sales of your little matchbox-sized MagicJack devices for making VoIP calls seem to have gone through the roof, despite the economy.

Borislow: Yes, we're selling 270,000 of them a month now, and have sold 2.8 million since February 2008. That's mostly in the U.S. About 20% of them end up outside the U.S. We're the fastest growing telecom company ever.

Dan Borislow
Dan Borislow

Computerworld: Why is it doing that well?

Borislow: I hate to say it, but the bad economy is working in our favor. MagicJack is number one in Florida and number two in California, and both states are doing the worst in this economy. We sell mainly to people on a budget, the Wal-Mart crowd. We launched in Wal-Mart stores the week of March 9 and expect it to do tremendously there.

It does well at Radio Shack where it has been sold for four months now. I know about Radio Shack, since I grew up there and got my first CB radio there.

Computerworld: So far, you haven't changed the start-up price of $40, which gets you the little matchbox-sized device that plugs into a USB port on your computer and a phone, and the first year of service. And the second year of service is still $20?

Borislow: We haven't yet changed the price structure. You get a lot for the value. People are trying to get rid of their phone bill of up to $70 a month. The home phone is a has-been.

If you travel abroad, you really save. If you are in Europe, maybe a student, where the long distance charge is $1.50 a minute, this doesn't cost you anything more than our set price. We're selling it a lot on military bases. You really save a lot of money overseas. Taxes alone on your traditional phone bill can be $20 a month, which is our cost for a full year.

Computerworld: It seems like your company had the right timing for this device.

Borislow: We did hit at the right time. VoIP, or voice over broadband, was really not available to be done on such a basis until recently. CPUs in the servers weren't there at such levels until recently. And there was not the Session Initiation Protocol stack. It's a lot like Moore's law, and the software we use has doubled in efficiency over a year. We couldn't even have done this two years ago.

Computerworld: I know you basically give customers VoIP service by creating a network, and you sell wholesale capacity to other carriers to keep your costs down. How does this compare to another Internet-based voice calling service?

Borislow: We provide basically the same service as Vonage, but we're many times cheaper, and our device is portable for international travel and plug-and-play as opposed to 20 minutes for installing Vonage. And we've gotten the best grades as far as voice quality.

Computerworld: So, once people buy the MagicJack, how much do they use it and do they renew?

Borislow: Our customers average 130 minutes a month per user, and about 30% of that is inbound calls. Almost everybody renews service or has purchased multiple years of service upfront. Our customers make a lot of 800 calls and we make money on those access charges from the company sponsoring the 800 number.

Computerworld: How are you different from other Internet calling companies like Vonage, or Skype?

Borislow: It took us over three years to build our own telephone network. It includes over 50 switches in over 32 locations. There are approximately 150 servers interoperating within the network. Each server has multiple redundancies. We have so many servers because we wanted to keep the voice path on a straight course and close to where the end user is.

Right now we have the largest telephone network by number of area codes directly available. Vonage and Skype do not have telephone networks set up and their costs are significantly higher. The reason for the great quality we have over Vonage and the others is the amount of switches/gateways we have. When a customer makes a call from Miami to New York, for example, the call comes over the Internet directly to our gateway in New York and then gets terminated locally. There are no hops and it is a direct route. With Vonage and others, the call goes to a switch, they hand it off to a switch somewhere else, and the system looks for least-cost routing, and that might be handed off, so the call quality becomes a mess.

Computerworld: What have you invested in the business?

Borislow: It's a very substantial investment. It's $25 million invested just in the network. We've bought three companies for another $25 million. We bought a software company out of Russia, a chip company out of San Jose, and a softswitch and session border controller maker out of Texas.

Computerworld: Which companies?

Borislow: We aren't exactly saying. We bought them before the big telcos could buy them and close them down.

Computerworld: How many people work for your company, Ymax Corp.?

Borislow: In the U.S., we have 90 people, most working on the network and application server, with 40 in R&D in Russia where the softphone is made and 30 of them are engineers. We have the chip company in California, with six people. They are all crazy engineer types, working with 1.7 million lines of code. That software could be put inside the iPhone or the BlackBerry.

Computerworld: What technology is next for your company?

Borislow: The thing that has me excited is femtocell technology. Those are basically small cellular base stations for use in homes or businesses. We're light years ahead on that, working with an invention that went to patent four years ago. What I originally wanted to do that ended up leading to femtocell technology was put a GSM wireless controller function into a proprietary chip, and we've done that with nine functions already in a prototype that was finished in early March. It puts a GSM radio into the MagicJack. It all started to solve the emergency 911 problem from anywhere so authorities can locate your position. It has a GSM sniffer that locates 10 nearby cell phone towers using GSM from AT&T and T-Mobile.

So back to the femtocell. Three years ago, we were already making this MagicJack work over GSM, so we said, let's build a femtocell working in the lab. If you get a femtocell to put in your house and use MagicJack with your GSM cell phone, you can use my MagicJack in your 10,000-square-foot-home wirelessly.

I predict the femtocell will go on sale hopefully by end of summer or first quarter next year. So you see, you can use that chip in a TV set-top box too, but our chip will cost less than $2 and weigh only five grams.

Computerworld: What are the skills that have made you successful as an entrepreneur?

Borislow: My real skill, was really two things. First, research. I always get a real jump on research whatever I want to do. Second, would be perseverance. I don't ever take no for an answer. All my early life I was getting, 'You can't do this and you can't do that, from everybody.' They said that about when we wanted to build a national long distance network, but we made it with five network switches. If you keep on researching something, somebody will be able to do it.

Computerworld: So, what motivates you?

Borislow: I was always looking for a more efficient way to do things. I have invented a number of things that increased productivity and/or made my costs less expensive. And, I wanted to make as much money as possible as fast as I could. I knew I would need something that nobody else had and since the Internet is where everybody hangs now, I knew this would be my best chance to pursue inventions.

Copyright © 2009 IDG Communications, Inc.

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