Talk is cheaper on the Web

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Internet providers also deliver nearly free long-distance

As if the long-distance wars weren't enough, soon we'll be dealing with the cyberphone wars.

Thanks to aggressive marketing and bundling campaigns with computer products, marketers of Internet phone products will soon be making a play for consumers and business people who want to make virtually free long-distance calls.

The devices work by allowing users to talk to one another by compressing speech into digital data packets and piping them through Internet access connections.

"The time is right for Internet phone products to break into the market," said Danny Wettreich, CEO of DigiPhone, Dallas, which will soon break a $1 million TV, radio and print campaign from Sullivan Pattison Clevenger, Eugene, Ore. "DigiPhone and its competitors will soon take the place of e-mail because voice is a more natural way to communicate."

On the surface, the Internet phone concept is attractive. Calls are free--the user pays only for connect time with his local Internet access provider, avoiding long-distance phone companies' per-minute charges.

But the market for this type of product is still quite small. Computers must be equipped with a microphone, sound card and high-speed modem. Additionally, users can only talk to other users who have the same software.

And it will take at least a year for any product to build up a significant user base.

"Phone companies see a real opportunity with this type of product," said Daniel Nissan, VP-marketing at VocalTec, with offices in Israel and Northvale, N.J. "It's the integration of voice, computer, communication and entertainment."

"This represents an opportunity for us, and at the very least it's worth getting a better understanding for the nature of the technology and the dimensions of the market," said an AT&T spokesman.

None of the Internet phone companies has the marketing budget of an AT&T or MCI. Instead, they're trying to get their product bundled with computers, modems and other software, and onto the shelves of as many retail distributors as possible.

The first player on the field, VocalTec, estimates that since its February launch almost 1 million copies of its Internet Phone (Iphone) product have been distributed. In fact, the company in November introduced a second version of Iphone and is expected to select an ad agency by yearend for its multimillion-dollar account.

VocalTec has deals to bundle its $69 software with America Online's GNN, PSINet and NetCom, among others. The company also has a distribution arrangement with Ventana, which distributes Netscape and America Online software.

Quarterdeck, Marina del Rey, Calif., launched Web Talk just last week with a print campaign by agency CKS Partners, Cupertino.

Web Talk, which retails for $50, has limited partnerships with Internet service providers including NetCom and PSINet as well as hardware and software manufacturers. The Web Talk package includes a microphone, the And Dallas-based Camelot is readying a mid-December launch for its improved $89 edition of DigiPhone, which originally launched two months ago. DigiPhone is focusing on retail store distribution and a souped-up advertising campaign to promote its product.

"Bundling software and licensing arrangements will be crucial to the success of the Internet phone providers," said Greg Wester, associate director with consultancy Yankee Group, Boston, Mass. "This is a very small marketplace, and although consumers will like the price point, they may not be ready to exchange it for quality and reliability."

The products may find their first widespread use in business settings.

"In the short term there's no threat to long-distance companies because the technology is still very clunky," said Jeffrey Kagan, president of Telecommunications Associates, Atlanta. "In the long term, it could impact the small-business or consumer markets, who talk to a select group of friends, relatives or business associates."

Quarterdeck, VocalTec and Camelot all recognize the potential an Internet phone holds for business marketers on the Web to offer customer service, sales support and Web site tours.

"We're talking to different organizations about linking between pages and using Web Talk for advertising and marketing reasons," said Michelle Messina, senior director and general manager of remote computing at Quarterdeck. "This is just the first piece in a much broader story of the convergence of communications."

Copyright December 1995 Crain Communications Inc.

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