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Microsoft antitrust player's start-up cuts staff

Despite a promising market and a healthy war chest, attorney Gary Reback's start-up, Voxeo, lays off nearly 20 percent of its 135 staffers amid a drive for new funding.

Despite a promising market and a healthy war chest, Voxeo, a start-up from Microsoft antitrust-trial architect Gary Reback, laid off nearly 20 percent of its 135 staffers amid a drive for new funding.

Headquartered in Scotts Valley, Calif., Web telephony company Voxeo was launched with the intention of helping companies design telephone services based on Web technologies. Some analysts expect that market to boom.

Voxeo Chief Executive Nancy Faigen, who took the executive reins from now-Chairman Reback in April, expressed optimism for the company and the market it was tackling and characterized the job cuts as a way of attracting investors for the company's mezzanine funding round.

"The thing you really try to do is make sure you're focused on the right things, keep cash burn at the right level, and make sure your business is operating as efficiently as possible," Faigen said in an interview. "That's what makes you more attractive to an investor."

Faigen said the cuts would reduce redundancies that had cropped up with the company's growth and its acquisition of San Francisco-based Milo, a professional services firm. Four areas of Voxeo, for example, were creating application prototypes before the reorganization.

Voxeo and competitors--which include Tellme Networks, Telera, BeVocal and iBasis--are crafting a new generation of telephone applications based on Web technologies, such as XML (Extensible Markup Language), which give companies greater flexibility in tailoring the applications to their uses than traditional, proprietary telephone technologies.

"This is a very interesting and growing space," said Mark Winther, vice president of worldwide telecommunications for research firm IDC. "Take something like call waiting. In the telephone network, that's a complicated, proprietary application. But Voxeo has built it in a markup language that every HTML engineer can understand."

The high cost of maintaining traditional, live call centers has sparked keen interest in more automated systems. A simple call to an airline to get a frequent-flier miles balance, for instance, costs about $10 if a live person answers the phone. If the airline can answer that question automatically through a Web telephony application, the cost of the call could drop to 10 cents, Winther said.

IDC estimates that spending on call centers reaches $50 billion annually.

"There's no question that it's at start-up mode," Winther said of the market. "But in the next two or three quarters we expect to see the ice broken. By summer 2002 we could be looking at several implementations from different companies representing billions of minutes per year in calls."

Currently in the midst of securing a lead investor for the company's second round of funding, Voxeo's Faigen said the difficult venture market would not hinder the company's efforts. Initial investors Mayfield Fund and Crosspoint Ventures have pledged to keep the company going in any event, she said.

"We believe our future is secure," she said. "But it would be nice to get another investor involved. A lot of that is getting additional investors for advice and counsel and the other things VC s bring to small businesses."

Although the corporate market for Web telephony is still nascent, Faigen cited evidence that it is starting to take off. Only five of Voxeo's 44 customers are large companies, but all of those signed up in the last 30 days.

"The kinds of opportunities we're looking at are for significant companies you've heard of," Faigen said. "Big automakers, large airlines, large entertainment companies, major banks--that's when you see the market pick up a lot of momentum. That signifies a positive shift in the market."

Before founding Voxeo, Reback was an intellectual property attorney with Wilson Sonsini Goodrich & Rosati. He was largely credited with laying the legal groundwork that convinced the U.S. government to bring its antitrust case against Microsoft. He also successfully argued the first software case heard by the U.S. Supreme Court, a copyright dispute brought by IBM's Lotus against Borland.

Reback remains an active chairman of the board, Faigen said.