Don’t Call Us, Says MagicJack

MagicJack has a PR problem. Yesterday at the Internet Telephony Expo in Miami, MagicJack founder and “inventor” Dan Borislow was on a panel with several other service provider executives, from companies including Broadvox, 8X8, and tw telecom. Borislow is no doubt a very agreeable fellow, kind to animals and old ladies, a patriot and a paragon. He made few friends yesterday, though.

MagicJack has built a business, and claims to make money, by offering a flat-rate long-distance service to consumers for an eye-opening $20 per year. That’s per year, not per month. As it happens, a report by Bernstein Research analyst Craig Moffett came out as the IT Expo show was opening that questioned Borislow’s claims, and MagicJack’s business model.

“It’s not clear to us how MagicJack can make money,” Moffett wrote, “given the still relatively high costs of interconnection and termination (the company is private, so they don’t disclose much other than saying that they ‘have a relationship with a phone company that handles that for them.’)”

During the panel, moderator Andy Abramson asked the question, “How do you make money in this environment?” The other execs had fairly predictable answers like contain costs, work with the channel, match your goals with your customers’, and so on. Borislow, with a demeanor that indicated he’d rather be anywhere than in Miami sitting on that panel, responded dismissively.

“It’s the same solution to everything,” he said, “if these guys all built efficiencies into their systems, if they build it right and operate it more effectively, they can make money.”

Dale Carnegie I’m not, but I think it’s safe to say that commenting disdainfully about the business models of peers sitting next to you on a conference panel, and suggesting that if they were just as smart as you are they’d be more successful, is not the best way to build good will in the industry.

During the Q&A, the sparks really began to fly. Sharp and outspoken analyst Thomas Howe, of the eponymous consulting firm, stood up and asked Borislow a direct question: “Why don’t you provide a phone number on your Web site so that customers can call you?”

Borislow’s answer was reasonable enough: MagicJack offers customer service via online chat (which some studies have shown customers actually prefer).

“With VoIP, particularly on a softphone, we know their OS, we know what browser they’re using, where they’re coming from, we know their account information as soon as they log in,” Borislow said. “You get that information immediately through tech chat, and that’s info you don’t get if it’s a voice call.”

Customer satisfaction is “15 to 20 times greater with tech chat” than over conventional voice calls, Borislow added.

Howe persisted, pointing out that it’s a question of transparency: Nowhere on the MagicJack site is there a phone number or an address. (I’ve checked and I couldn’t find them either.) Borislow, looking like football coach Bill Parcells contemptuously answering a particularly lame-brained question from a sportswriter, said that all customers get a phone number to call when they sign up and receive their MagicJack transceiver. But, he added, “If you can’t wait a few seconds for [a service response via] tech chat, you probably shouldn’t buy MagicJack.”

Matt Bramson, chief sales officer at InPhonex, begged to differ.

“We’re going in the opposite direction,” he said. “We make it very simple and very fast to get hold of the most qualified employees to get your technical problems solved quickly.”

That kind of responsiveness is apparently not part of MagicJack’s business model.