Gizmo Project, Part 2 - What About the Biz Model?

Yesterday, I posted about Gizmo's All Calls Free offering. Notice that I'm calling this an "offering" - not a "plan". It's an offering - you can take it or leave it.

I don't normally do follow-ons to my posts, but I am here. Yesterday I was rushed when writing my post, and overlooked what I think is a key angle to this story. It's been on my mind, and late yesterday I got an email from a reader who really brought the issue forward, so here we are.

As noted in yesterday's post, the blogosphere has this story well covered, so no need to get into the details. However, as my reader notes... what about the business model??? To paraphrase....

"Why are so many people in the VoIP sphere excited by business models with negative gross margin - eg todays offering by Gizmo. It costs money to terminate to PSTN. I must confess that I do not see what is so impressive about just buying something that costs money (pstn terminated minutes) and giving it away for free."

Well said! Some bloggers like Alec and Om (see previous posts for links) made passing references to the economics, but I think it gets lost in the buzz of having yet more free voice at our fingertips.

As mentioned yesterday, I hope only for success with Gizmo. Michael Robertson knows what he's doing, and obviously VoIP economics makes this possible. I also noted - as did Mark Evans - that it's one thing to attract a lot of interest and usage from those in the know, but getting mass market acceptance is quite another. On that level, I'm skeptical about where the pot of gold is. Skype has had plenty of time to upsell users to paid or premium services, but it hasn't happened in a big enough way for people to conclude that they've developed a viable business model built on free voice calling.

To come full circle, that's why I'm calling Gizmo an offering. It would be a plan if you had to pay for the calls, and as my reader notes, it still costs money to terminate to the PSTN. Sure, this may be just semantics, but still, it's easy to attract a lot of users to a free service. Sooner or later, you have to make money, though. And that takes volume - you need lots and lots of users. To me, that will be Gizmo's biggest challenge - growing this beyond the inner circle, and keeping things interesting long enough until they can find a way to make it pay.

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