THE NEW ADVENTURES OF NET2PHONE

YOU'VE GOT THE ABILITY TO TALK. NOW WHAT ARE YOU GOING TO DO WITH IT?"

David Greenblatt, chief operations officer at IDT Net2Phone, exhibits the up-front, "What's next?" attitude typical of the executives of the IP telephony pioneer. It's an attitude that's inherent to the company right down to its roots-IDT's aggressive and unquenchably promotional founder, Howard Jonas.

Jonas, one-time hot dog vendor, starter of multiple businesses before launching IDT in 1990 and recent autobiographer, has always pushed for what's next. Moreover, it's the attitude that executives of IDT's Net2Phone subsidiary will have to maintain through IP telephony's evolution as a mainstream service.

"The novelty status [of IP telephony] has been pushed out the window," says Jonathan Reich, executive vice president of Net2Phone. "Our goal is to serve as an on-line communications company using voice [over IP] to position us a in a unique way."

The IP telephony business is changing and has to change if the technology is to be a viable service used widely by both consumers and businesses.

This isn't exactly the original intention of the technology's first developers-they thought IP telephony would be a niche service for hobbyists who wanted to bypass their local phone company. Even after call quality stunted the viability of that business, IP telephony companies were quick to position it has a global service helping frequent international callers save 50% or more per call over average costs. Yet, international deregulation and increasing competition are narrowing the profit margins in that segment, too.

Now, all IP telephony service providers have important decisions to make. As the business changes, the next frontier may lie in broadening the use of IP telephony through new applications.

Ironically, many of these applications are directly related to existing Internet services. This is ironic because most IP telephony service providers shudder when their service is called Internet telephony. The Internet connotes a lack a quality, or quality that can't be controlled, they say.

However, the Internet also connotes ubiquity. On the Internet, ubiquity wins. IDT Net2Phone is one of the first companies to stake its strategic direction on that belief.

"The history of competitive success on the Internet has been about creating a model that ensures ubiquity," says Reich. He points to America Online, Netscape, Amazon.com, eBay and others as evidence of that notion. All of these companies have succeeded at least partly because they made their services easily and widely available from multiple sources, established numerous hotlinks and partnerships, and promoted themselves as the definitive providers in their service segments.

"We have a corporate commitment to do that," says Greenblatt.

The most recent and most explicit realization of that commitment was the company's agreement with Netscape to have a Net2Phone icon on the next release of the Netscape Communicator/Navigator browsers.

Howie Balter, president of the Net2Phone division, calls this a "defining deal" for how Net2Phone will spread the ubiquity message. "No other IP telephony player is in the browser," he says. And despite Netscape's dominance and power in the Internet world, it is a surprisingly flexible deal for Net2Phone. The affiliation is exclusive on Netscape's part for two years but not exclusive for Net2Phone. The non-exclusivity of the partnership will allow Net2Phone to pursue similar partnerships with other browser companies and major PC manufacturers, as well as bundle its software with virtually any other Internet product or service.

The Net2Phone icon will be featured rather prominently on the Netscape Communicator/Navigator 5.0, just to the right of the first button on the toolbar. That first button, by the way, belongs to AOL, which is presently acquiring Netscape. A Net2Phone icon also will be included in Netscape's NetCenter Web portal.

These efforts will raise the profile of Net2Phone as a service. "You will no longer need to download or buy our product," says Reich. This will be especially helpful in broadening Net2Phone's global user base.

But broadening IP voice's applications doesn't stop there. Voice e-mail, anonymous voice chat, unified messaging and e-commerce customer service are other applications Net2Phone is exploring.

Already, the company is promoting IP voice for e-commerce customer service through its own EZSurf shopping portal. While EZSurf wasn't the first on-line mall, it is currently the only one offering voice connection between retailers and consumers.

"There will be a lot of future applications on the Web for a voice component," says Balter.

Still, Net2Phone executives have to believe that other IP telephony service providers won't be too far behind in recognizing the strategic value of IP voice on the Web. Is this another IP telephony business opportunity that will be squeezed dry too soon by competitive pressure?

Mordy Rothberg, executive vice president, says that being first and staying ahead in the race for ubiquity is what counts. "On the Web, we're already establishing toe-holds that will be easy to defend. We are going to be on the browser before anybody." Even so, as IP telephony evolves, Rothberg believes several IP telephony carriers will be able to grow large without threatening each others' livelihood.

That assumes that the user base, traffic and minutes will grow well beyond current numbers. Rothberg says there is already evidence that average calling time is increasing among Net2Phone users.

Greenblatt adds that growth in minutes-per-call directly reflects call quality, something many IP telephony providers have been working hard to promote. "Quality will be a secret of our future success," he says.

Unlike some IP telephony providers, Net2Phone has been able to leverage the reputation of its parent company when it comes to proving call quality. "The mother company hired experienced people who knew voice, and that has helped us evolve," says Greenblatt.

However, Greenblatt, Balter, Rothberg and Reich know that dependency on the mother company can't become a crutch in a business where you need to keep asking, "What's next?" There are options. In late March, IDT initiated some corporate financial moves that will open it to as-yet-unspecified financing transactions related to Net2Phone. One scenario could have IDT spinning off Net2Phone as an independent public company.

Whatever the course, Greenblatt knows that Net2Phone has to maintain a mix of experience and up-front aggressiveness to succeed further. "In one pocket, you have what you've learned, and you need to apply that," he says. "In the other pocket, you have new opportunities, and you have to recognize that everything is changing."