A dot-com flameout enters the VoIP spotlight

TheGlobe.com President Ed Cespedes understands why his company's name brings to mind the worst of early dot-com era excess.

TheGlobe, one the Internet's earliest portals, achieved notoriety after the company's stock soared and then crashed during the stock mania of the late 1990s.

After three years of relative tranquility, TheGlobe is stepping back into the spotlight with the launch of Voiceglo, the latest service to enter the white-hot market for voice over Internet Protocol (VoIP) services. Voiceglo, which sells monthly unlimited dialing, will compete for customers alongside MP3.com founder Michael Robertson's SIPphone Internet phone service, free dialing from the creators of file-swapping company Kazaa and many other service providers.

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Aside from hypercompetition, Cespedes conceded during a recent interview that Voiceglo will also have to fight the stigma of its parent company's pedigree. He recently spoke about these issues and other VoIP-related topics with CNET News.com

Q: TheGlobe is still around and in business. But would it be fair to say it is best known for its failure?
A: TheGlobe became iconographic of the dot-com bubble burst. It was exacerbated by the fact that we had two young co-CEOs who were a little too enamored of the limelight. But it's also easy to say the limelight was enamored of them.

When we went public, and the stock jumped from nine to 90 on its first trade, it put us on the map across the world forever. The initial public offering story played for six months. I couldn't tell you the number of times the company was on CNN, CNBC and Lou Dobbs. It was the stratospheric craziness of the dot-com era. When the dot-com era ended, it was easy to pick on the guy you knew.

You weren't in the limelight. But isn't it fair to say you were just as culpable?

TheGlobe.com, for all its reputation, never filed Chapter 11, has paid all its bills and has settled all the BS class-action lawsuits.

We were investors, and we were on the board. At the time, we were living in a world where capital was flowing freely, and we had invested an enormous amount ourselves. Whatever happened, good or bad, we absolutely take responsibility.

But TheGlobe is still around--something you can't say about the others of the late 1990s.
TheGlobe, for all its reputation, never filed Chapter 11, has paid all its bills and has settled all the BS class-action lawsuits. Guys like Webvan and Etoys, among others, raised a billion dollars, blew it all, filed for Chapter 11, and all their investors and creditors got zero. We were never like that.

Doesn't that level of notoriety make Voiceglo suffer from a stigma?
When we do something at TheGlobe, for better or worse, we can get noticed if we want to. We feel very strongly about growing a legitimate company.

What are some of the lessons you've learned from your experience at TheGlobe?
When we developed TheGlobe advertising model, we were growing very rapidly. We went from zero to $49 million in sales in just a few months. That was real money, not phony baloney accounting. But the business model--giving away content for free and selling ads based on how many people could see them--was very fast being commoditized. I had a billion impressions a month. Yahoo had 10 billion. There was too much supply and not enough demand. The advertising model, along with the economy, fell out of bed.

Do you still believe in the advertising model?
The advertising model isn't necessarily a bad thing. Networks all live

VoIP will 100 percent displace cellular.

off advertising. The Internet advertising model is very different today. But in any business, you should diversify your revenue base. It's no longer a question of generating free cash flow with our products. Now we ask, "Is it defensible? Is it sustainable?"

Michael Robertson, the founders of Kazaa and TheGlobe have all migrated to VoIP. What's the connection?
You'll find that those people are entrepreneurial, and entrepreneurs look for the front end of waves. No matter what happens to Voiceglo or others, the point is that VoIP will be huge. It'll be bigger than huge.

Bigger than huge? Will all calls use the Internet rather than traditional phone networks?
About 20 percent of all calls today travel at least a little over the Internet. It's being done by real carriers--the Sprints, the AT&Ts. It's just a better delivery mechanism. VoIP's much cheaper, much more efficient. It's been late to the game. VoIP's like the Internet--around since 1968, but things really didn't get commercialized until 1997. A lot of things had to happen for that, and it eventually followed the typical curve of all new industries.

How disruptive is this technology?
VoIP will 100 percent displace cellular. You can surf the Net now on your cell phone, but the throughput on even 3G phones is a joke. It's so slow and so expensive. A Wi-Fi-enabled device surfs at 100 times the speed virtually for free. If Wi-Fi can get ready for voice, as soon as next year, you'll see Wi-Fi-connected phones, and all these Wi-Fi carriers will have roaming agreements. The next thing you know, bye-bye cellular.

There don't seem to be enough Wi-Fi hot spots right now--or projected for the near future--to support that vision.

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I remember in the 1980s when I could go block by block on my cell phone. I'd have coverage on one block and a dropped call on the other. That's changed completely. In a lot of areas, cell phone coverage is pretty much saturated. There are now 10,000 hot spots, and that figure is growing rapidly. You can barely walk into a hotel lobby and not have Wi-Fi. Five to 10 years from now, Wi-Fi--or some form of it like extended Wi-Fi--will be the dominant data delivery mechanism for data and voice. Sprint and other carriers see it coming. That's why they are converting to VoIP.

Where does that leave today's major phone companies?
I think you've already seen what happens to the long-distance folks. They are in tremendous trouble. Ask them how the last five years have been. Their business has been beaten to next-to-zero. VoIP takes it the rest of the way.

How about the Bells?
The Bell companies themselves are in very big trouble. Don't get me wrong: Companies like that don't go away gently. But I have 50 employees, maybe. I have no debt and no capital to maintain. I sell a $12.99-a-month phone service. Verizon offers the same product for $60 a month and has tens of thousands of employees. They aren't going to be able to compete with me. They'll be in Chapter 11 before you say "Boo."

How do you compete against bigger cable companies that offer VoIP?
They are no different than the phone companies. They also have more debt and are married to their infrastructure. We have absolutely no geographical boundaries. We're serving the entire United States, and we are but six months old.

Doesn't VoIP technology have to solve its power problem first, before it dominates, as you suggest? If power goes out, so do the phones. That's not true of traditional phones.
Most phones in homes nowadays are cordless, so they are already living with that problem. I think that this is a nice big argument that can be made, but in reality, it's not a major issue.

You can't call 911 on most VoIP phones. And you recommend owning a cell phone--to have around just in case. Doesn't paying for two phones at once kill VoIP's whole point of low-cost dialing?
Everybody has a cell phone. People don't buy them as an alternative to Bells like they would our product. They just want to be mobile. So they have it already. Ultimately, one device will do everything. It'll be your home phone. Ultimately, we're going to that.