June 23, 2008

Jaxtr raises $10 million to expand cheap international calls

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Jaxtr now has a buck for every one of its users. The company has raised $10 million in a second round of financing to expand its cheap overseas internet calling business.

The Menlo Park, Calif.-based company uses a voice-over-internet-protocol service to knock the costs out of overseas calls. It can charge as little as 1 cent a minute for calls to China because of its unique system. It lets users advertise to an online community how they can be contacted via a widget they place on a blog or a social networking page.

A user puts the widget on a page, and a would-be caller clicks on the widget. The caller then enters his or her phone number on the widget and then clicks the “call me” button. Jaxtr figures out the location of the caller. Then it finds a local phone number to call the caller back. It gets the caller on the line and then proceeds to make a call to the user. No one realizes it’s actually a three-way connection. The caller is connected via a local phone call, the call itself is routed over the Internet to Jaxtr’s servers, and then the servers complete the call through a local call to the user who is being callled. The call goes through as a local call for a fraction of the cost of an overseas call. Every time the caller and user want to make a call across the same country lines, they use that same local phone number.

Konstantine Guericke, chief executive of Jaxtr, was also a cofounder of LinkedIn, the social networking company that recently raised $53 million at a $1 billion valuation. While his company isn’t that valuable yet, Guericke said he’s excited at the opportunity because overseas calling is a $60 billion business.

“I like to do new things, and I see the same kind of change happening here as when LinkedIn started four years ago,” he said.

We’ve noted how fast Jaxtr is growing in past stories. In contrast to Skype (which is projected to hit $500 million in revenues about five years after its launch), most of Jaxtr’s calls are phone-to-phone rather than PC-to-PC.

He also believes that his company does a better job of passing the low costs of VoIP on to its users in 220 countries. Calls within the U.S., to Canada, the United Kingdom and China are all just a penny per minute. Calls to India are 6 cents a minute. The company’s main competition is the cheap international calling card, but Guericke says Jaxtr’s service is much easier to use than calling cards, which are more expensive and require you to type in a bunch of numbers every time you make a call. Calling card company IDT generates $2 billion a year in revenue — four times as much as Skype.

Jaxtr also competes with VoIP social communication companies such as mig33 and Jajah, both of which also have millions of users. Jajah had the advantage of starting earlier in March, 2006, and it also boasts more than 10 million users in more than 200 countries. Its rates are slightly higher, at 2.9 cents a minute and up, and it is advertising heavily.

mig33, based in Burlingame, Calif., also offers social networking features in addition to VoIP calling. But unlike with Jaxtr, mig33 users have to download software to their mobile phone. mig33 raised its own $13.5 million round in January. Calls cost 2 cents a minute or more.

Another competitor, Jangl, went out of business in May, and its assets were sold to Live Universe.

Jaxtr members can use their credits, dubbed “jax,” to call people who aren’t members of Jaxtr. Such out-of-network calls are convenient for callers who don’t have computers. Added benefits include privacy, since a user doesn’t have to expose his or her actual cell phone number on a Jaxtr widget. And users can also forward calls to any location.

The company is also offering new premium paid services to its active members, such as customizable contact pages, enhanced digital voice mail features, more free SMS text messages per month, and social networking.

Guericke said that the company will invest more money in its cafe Jaxtr social networking web site, where users can build out their profiles and discover friends with similar interests. Cafe Jaxtr launched in February and will be beefed up in the second half of the year with the aim of growing ad revenues. Jaxtr has 35 employees.

Lehman Brothers Venture Partners led the round. Ben Boyer, a partner at Lehman, said that Jaxtr’s advantage is that it can acquire millions of customers a month without spending any money on marketing. Guericke said that the fundraising effort wasn’t too difficult, given the company’s fast growth.

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