SMART Letter #33
Febuary 6, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #33 - February 6, 2000 Copyright 2000 by David S. Isenberg -- "best effort" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > First a note on my business interest in CallWave > Kiss Your Second Line Goodbye: CallWave's Virtual Telephony > On 'Net Taxation > Announcing Asia Tour > Conferences on my Calendar, Copyright Notice, Administrivia ------- FIRST A NOTE: The article below is the first time I have ever blatantly sullied my commentaries with an a priori, personal, greedy, selfish, pecuniary business interest. That's because (a) the CallWave story is a great one, one that I'd tell anyway, and (b) CallWave is ready for the publicity. I'm working with a couple of companies that satisfy 'a' but not 'b'; there are a couple of stories that I want to write so bad I can taste it! Conversely, I've worked with others that have satisfied 'b' but not 'a'; one in particular wanted me to write a puff piece that'd appear on the eve of the expiration of the insiders' six- month equity lock-up. My bottom line is that I wouldn't write a SMART story without 'a' and 'b'. So, for the record, yes I have a business interest in CallWave, yes I have an equity stake, yes CallWave's success will be my success too, yes she drew me down to her breast all perfume, yes, yes, yes. I acknowledge that it is a slippery slope; seen any television stories sympathetic to medical marijuana lately? I'm not immune to the lure of lucre, but I do promise to continue to be up front, to tell you where I'm coming from, to keep my relationship with SMART People transparently motivated. David I ------- KISS YOUR SECOND LINE GOODBYE: Startup uses the Internet to provide a 'virtual second line' -- for free By David S. Isenberg Now, telephone customers can surf the Internet without missing calls -- and without a second line -- thanks to Santa Barbara, Calif., startup CallWave ( "We're competing for the multibillion-dollar residential second-line business," says Dave Hofstatter, CallWave's president. It works like this: When a CallWave subscriber is online and a new call comes in, it is forwarded-on-busy to the CallWave platform. The caller's experience is that he's reached an answering machine. The CallWave platform uses an instant- messaging-like protocol to notify the subscriber's computer of incoming calls. When a new call arrives, the subscriber's computer rings and its CallWave window displays "new call" (and other call progress messages). When the caller leaves a message, it is instantly downloaded as a compressed audio file and played through the subscriber's computer sound system. To set up the application, the subscriber downloads the CallWave client from the company's Web site. Once installed, the CallWave client displays a tiny window whenever the subscriber goes online. The subscriber also needs to order forward-on-busy from the LEC (at $0.75 to $3.40 per month) and set it to forward calls to CallWave's platform. CallWave's application is evolving in 'Internet time'. Soon it will show caller ID, allowing subscribers to screen calls in real time. Subscribers also will be able to cause the CallWave client to drop the Internet connection so the CallWave platform can complete the call by extending it to the originally called number when the line clears. The price is unbeatable -- it's free. CallWave's business model is based on ad revenue; the CallWave window displays ads when there is no incoming call. A click on any ad starts the browser and brings up the advertiser's Web site. LOVE MAIL Since CallWave's early-October launch, over half a million people have downloaded the client; as many as 15,000 have downloaded it in a single day. CallWave has handled some 10 million calls. CallWave gets 'love mail' every day. "Today, for example, I heard from a nurse who was delighted that she could log on while she was on-call," Hofstatter says. Competition is weak, Hofstatter claims. Similar LEC offerings are starting to appear; these carry a monthly charge, require customers to buy LEC call waiting and voice mail, or require them to use the LEC's Internet service. Internet-oriented companies such as Pagoo and Internet Call Manager charge for similar services. Still others, like Onebox and Ureach, offer unified messaging services, but these appeal to super-techie power users, he says. "The huge opportunity is down market," Hofstatter explains. "A new wave of people is discovering the Internet. We're borrowing the familiar answering machine paradigm so everybody can relate to it." Harvard Business School Prof. Clayton Christensen thinks this strategy is well-positioned to disrupt the LEC second-line business. "CallWave fits the pattern of other successful disruptions," he says. CallWave's biggest hurdle is getting the LECs to sell forward- on-busy at all. "One in five CallWave subscribers is misinformed by their LEC," asserts Hofstatter. "Sometimes the LEC's agent says that forward-on-busy isn't available when in fact it is. Other times, the agent tries to steer our subscriber toward expensive LEC services like voice mail." "The major LECs have forward-on-busy tariffs in every state," adds Dave Trandal, CallWave's vice president of operations. "This obligates them to sell it to all comers. But every state with an uncooperative LEC requires separate action. What a pain!" CallWave is working with major LECs to resell forward-on-busy. The company is developing the ability to provision the feature seamlessly. "It will be easier for subscribers if we do it," Trandal says. REDRAWING THE COMPETITIVE PICTURE There are many ways to compete in The Stupid Network. Hofstatter believes that CallWave is fulfilling the promise of the Telecom Act of 1996 by bringing innovative, practical competition to local markets. "Today, local competition exists for business markets, but not for residential service," Hofstatter says. "CallWave's mission is to redraw this picture." (Gentle reader, if you think this column is biased, you're right! I'm on CallWave's advisory board. We're working to free millions of residential customers from LEC second-line charges. The big LECs still don't comprehend the Internet, but the benefits of the Internet second-line boom go straight to their clueless bottom line. If there is justice in the universe, those second lines will return to the Internet, where they belong.) [This article originally appeared in the February 1, 2000 issue of America's Network. Copyright 2000 Advanstar Communications.] ------- ON 'NET TAXATION by David S. Isenberg The subject of "taxing the Internet" came up on the MetaMarkets discussion boards in January. The question is way too under- specified. It is like asking, "Who makes money from the Internet?" (Here, I pose an analogous question: Who makes money from roads? Answer: Car makers, gasoline refiners, mechanics, trucking companies, stores that get their goods from trucking companies, you and I when we drive to work, your kid who takes the school bus to school so she can learn to lead the next wave of value creation. In other words, the whole economy benefits, if "benefits" is even the right concept; really the system of road costs and benefits is inextricable from the economy.) Furthermore, the question of taxation demands another question: What gets taxed and how? Do you tax the goods sold on the net? Do you tax bytes transmitted? Connect time? Monetary transactions? Each Internet account at some fixed rate per month? Do you tax business Internet accounts but not home accounts? Or vice versa? Do you tax the Internet connectivity of people making more than $100,000 per year, but not if they make less? Do you add a tax to the sales price of every device with an Internet Protocol stack on the assumption that it will engage in net-based economic activity? Do you tax the ISPs and the telcos? Do you tax the ebays and the amazons? Do you tax the real audios and the broadcast.coms? The Internet is already taxed by an existing mechanism -- income tax. I pay income taxes to the governments of one country, three states and one city. I made a lot more money this year than I did last, thanks to . . . yes, the Internet. So please don't tell me that these governments lost money because they didn't get sales tax on the few books I bought them from Amazon! These governments made thousands from me that they wouldn't have made if there were no Internet. And the Internet is taxed by another existing mechanism -- property tax. Information technology is increasing productivity (dismals like Steven "Productivity Paradox" Roach notwithstanding), which is keeping inflation at bay, which is keeping interest rates low, which is driving up the price of housing, which is increasing the property tax revenues to my town's government. The rising tide of Internet-driven economic expansion increases the amount of taxes collected -- at least in the more affluent sectors of society. (And I, for one, would like to see it raise *all* the ships in all sectors of the economy.) Perhaps as e-commerce becomes just commerce, e-business becomes business, and e-shopping becomes plain old shopping, maybe we will see that the Internet is growing the tax base just fine, thank you, as it grows the larger economy. [The above piece originally appeared on the ThinkTank discussion board. I have an equity position in MetaMarkets, but that doesn't affect one bit of the piece above. -- David I] ------- ANNOUNCING the ASIA TOUR: February 19 - March 8, 2000. + Feb. 19-26, Tokyo. I'll be talking at GLOCOM at 2PM on Tuesday, Feb. 22; for information email + Feb. 27-29, Seoul. + Mar. 1-4, Singapore. Internet World. + Mar. 5-8, Hong Kong. I'd welcome the chance to meet SMART People in Asia. If you'd like to meet with me, or want more details of my trip, please contact me. ------- CONFERENCES ON MY CALENDAR March 9-10, 2000. Washington DC. Legg Mason Investor Workshop on "Investment Precursors (tm) in Telecom, Internet, and Electronic Commerce." I'll be on a 'technology visionaries' panel with SMART People Bob Lucky and Michael Powell. The other panelist, Royce Holland, hasn't gotten with it and signed up for the SMART Letter yet. Others on the program include Reed Hundt, William Kennard and Ed "buy 'em up" Whitacre. For more information, contact the Legg Mason Precursor Group at 202-778-1972. TELECOSM ASIA (originally March 12-15) has been POSTPONED. March 20-23, 2000. Orlando FL. IBC "Unified Communications Conference." It's not just "Unified Messaging" anymore! I think I'm giving the keynote at 8:45 AM on March 21st. The information on the web at is as thin as it comes. If you really need to know, contact Anne Bacon Blair, 508-481-6400 ext.645. May 7-12, 2000. Birmingham UK. World Telecommunications Congress. I am an invited speaker for the session entitled, "What's your network IQ?" Answer: Too high. For info, see May 23-26, 2000. Laguna Niguel CA. VORTEX. I am still lobbying Bob Metcalfe to let me run a session on "The Network We Really Want to Have, and Why We're Not Building It," but Bob is still being coy. For more info, see June 7-10, 2000. Toronto ON. TED CITY. My only role here is as a paying member of the audience, but I think that Richard Saul Wurman does a real job with his TED conferences -- every one I have been to has had deep lasting impact. You can't shoehorn yourself into his regular Monterrey CA stand in February, but there are still a few spaces for June, and I would like SMART People to be there if they can. ------- COPYRIGHT NOTICE: Redistribution of this document, or any part of it, is permitted for non-commercial purposes, provided that the two lines below are reproduced with it: Copyright 2000 by David S. Isenberg -- -- 1-888-isen-com ------- [to subscribe to the SMART Letter, please send a brief, PERSONAL statement to (put "SMART" in the Subject field) saying who you are, what you do, maybe who you work for, maybe how you see your work connecting to mine, and why you are interested in joining the SMART List.] [to unsubscribe to the SMART List, send a brief unsubscribe message to] [for past SMART Letters, see] [Policy on quotes: Write to me. I won't quote you without your explicitly stated permission. And if you ask for anonymity, you'll get it.] ** David S. Isenberg, inc. 888-isen-com (inside US) 908-654-0772 (from abroad) ** -- The brains behind the Stupid Network -- **