Net2Phone Ringing August 9, 1999
After leaping skyward in their first day of trading late last month, shares of Net2Phone (Nasdaq: NTOP) -- which makes software that allows customers to make long-distance telephone calls and send faxes over the Internet -- had recently moved back toward their $15 offer price.
But the shares got a boost today as the company, a spinoff of international telecommunications firm IDT Corp. (Nasdaq: IDTC), today reported a deal that will make the service a prominent tenant on NBC Interactive and CNET's (NYSE: CNET) Snap.com portal, NBC.com and other NBC online properties. NBC, Snap.com and GE Capital will all get equity stakes in Net2Phone, although terms of the deal weren't disclosed.
Net2Phone is a good example of how a company can benefit from working closely with its investors. NBC owner General Electric (NYSE: GE), online services leader America Online (NYSE: AOL) and Japanese tech investor SOFTBANK are all Net2Phone investors -- and those names pop up frequently in Net2Phone's business deals. Net2Phone has marketing pacts with AOL's ICQ messaging service and Netscape's Navigator and Communicator, and a sizable chunk of the company's proceeds from its IPO went to prepay NBC for television advertising.
Those associations could prove make-or-break points for Net2Phone. Besides the fact that there are other companies with similar offerings -- Net2Phone named VocalTec Communications' (Nasdaq: VOCL) Internet Phone and Microsoft's (Nasdaq: MSFT) NetMeeting in its SEC registration, among others -- it further expects the large telecoms from which it's currently sniping business to do the same.
And each time a new product is offered, particularly if it's by long-distance/Internet service providers that might have been customers, that stands to shrink Net2Phone's potential market. So, too, might the company's relationships with its investors, since it appears many companies are choosing sides on broader issues like instant messaging and cable network access that could conceivably restrict the options of a company like Net2Phone.
So being associated not only with an expanding online community but with a prominent media company could prove vital, particularly as the company will need brand exposure when the big boys -- with their larger ad budgets -- start to make noise.
NBC plans to eventually package its online assets, as well as online direct marketing company Xoom.com (Nasdaq: XMCM), into NBCi, a broadcast/portal/e-commerce partnership, which will probably further increase Net2Phone's reach as that family of sites builds out.
Net2Phone has plenty of other online associations worth noting, though, including deals with Yahoo! (Nasdaq: YHOO) and Excite@Home (Nasdaq: ATHM). Compaq (NYSE: CPQ) makes its software available as a download from a special Compaq site and it is preinstalled on some Compaq-branded computers distributed internationally.
But an even more effective market for Net2Phone, which gets most of its revenue from per-minute call charges (it's software is available via free download) by competing on price with calls made through traditional telephone companies, might be corporations and other entities that could see value in making a large proportion of their calls online -- particularly international calls, which when made on the Internet bypass international long-distance tariffs.
Net2Phone corporate site
Dave Marino-Nachison (TMF Braden) (TMF Braden)