Excite@Home, Intel, others fund Net voice start-up

A group of tech heavy hitters invest $100 million in an Internet conference-call start-up, effectively putting their money where their collective mouth is.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
A group of tech heavy hitters have invested $100 million in an Internet conference-call start-up, effectively putting their money where their collective mouth is.

VStream, just over a year old, is one of a growing number of Web start-ups looking to erase the line between traditional telephone services and Internet-based communications. The firm offers online conference call, voice email and other multimedia services primarily to small-business customers.

"What this [investment] does is allow us to realize our vision of a convergence between the phone and the Internet," VStream chief operating officer Jim LeJeal said. "This allows us to aggressively pursue our model."

VStream tomorrow will announce that firms including Excite@Home, Intel, Panasonic and General Electric, among others, have invested $100 million in the firm.

VStream's core service, dubbed "NetCall," takes a traditional conference call and streams it over the Internet. Callers can listen either on a phone or through their PC speakers, while potentially watching an online slide presentation operated by the call's moderator.

Another service called "Beep" lets users send free voice mail over email. Other products let users send slide shows with a recorded narration over email, or post video and other multimedia presentations online.

But the company has considerable competition in the business messaging market. Big telephone companies already dominate the conference call business, and companies like US West and AT&T have been vocal about trying to merge their phone and Internet operations.

Other Net rivals like Contigo and WebEx have also received funding in the past. Some Web conferencing firms also provide extensive free services.

Nevertheless, the financial endorsement provides a substantial boost to the young company.

VStream already has attracted some valuable customers, like Microsoft, 3Com and Level 3 Communications, and it says it logs about 1,000 active users monthly. Revenue, executives say, is growing by 40 percent each month. But the firm still needs to establish its brand before it hits the big time, analysts say.

"I think they have a very thoughtful and unique business model," Cahners In-Stat analyst Kneko Burney said. "But they're early. They're going to have a tough eight- to 12 months ahead of them."

The trouble, some analysts say, is that VStream is looking for mass-market acceptance, marketing to the small office and individual corporate user before many are even comfortable with using the Web for voice calls. By contrast, companies such as Envoy i-Con that focus on higher-end corporate projects might draw smaller customer bases, but they claim higher initial revenues.

Tomorrow's investment round will likely allow the company to extend its strategic partnerships, adding its voice services to partners' Web sites. Already it provides voice greetings included in Web cards sent by Blue Mountain Arts, the Net greeting card company recently acquired by Excite@Home.

The company says it plans to use the new funds for marketing purposes and for network expansion. To date, however, it has done little on the marketing front, LeJeal said.

Cahners In-Stat's Burney said that Vstream, if successful, could be an attractive takeover mark for one of the big local phone firms that have traditionally been the leaders in conference call services.

"I think in a year, if things take off, they might be a takeover target for an AT&T or an MCI WorldCom," Burney said. "It would make a lot of sense for them to own the network their calls are using."