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Weekly Column

A Flash in the Pan: NeuStar Is VoIP's Only Guaranteed Sure Thing

Status: [CLOSED]
By Robert X. Cringely

In all the world of computing and the Internet, what technology has the greatest market share and the most loyal upgraders? Is it Microsoft's Windows operating system? Is it Sun's Java programming language? No, it is Macromedia's Flash web graphics software. Flash is installed on more computers than any other program. Not only does Flash have a market share that dwarfs Windows and Java, we upgrade relentlessly to new versions. Flash is huge, and Flash is a lot of the reason why Adobe Systems recently agreed to buy Macromedia, the home of Flash.

Of course, Adobe gets a lot more than Flash from its $3.4 billion (all stock, no cash) purchase. It gets Codeweaver and ColdFusion, and a bunch of web development tools that go a long way toward carrying Adobe from being a software company for print to a software company for the web. Heck, Adobe gets the FreeHand vector drawing package for the second time, having sold it to Macromedia years before after buying Aldus. FreeHand, which Adobe had to sell the last time because it competed too directly with Illustrator, might well go on the block again, though it is hard to imagine what company would be in a position to buy it. Microsoft?

There are a few more things I hope that Adobe will get from its acquisition -- things that I also hope the former Macromedia won't lose in the deal. These include a heart, for one. Adobe for the most part doesn't have one. It is cold and arrogant with poor customer support and developer relations alike. I have always gotten along well with Adobe founders John Warnock and Chuck Geschke, but the warmth that they project in person doesn't carry over to the company as a whole. That has always confused me. Adobe has simply the best technical people around, why can't they be more accessible and open? Macromedia, in contrast, has great customer support and very good developer relations. Let's hope some of that stays.

Conventional wisdom says that Adobe needs this acquisition to bulk-up for the inevitable conflict to come with Microsoft. Conventional wisdom is occasionally wrong, however. I'm not saying that the acquisition makes no sense. Quite the contrary, I support it. But the lack of competition from Microsoft in Adobe's traditional graphics markets comes down primarily to Bill Gates realizing that Microsoft simply hasn't been in a position to compete with Adobe on a technology-for-technology basis. Gates tried to undercut Adobe's PostScript with Microsoft's TrueType fonts back in the late 1980s and was taken to the woodshed by Adobe. The professional graphics market wasn't willing to give Microsoft the three tries it generally needs to get something right.

What's changed is not the companies (brain-for-brain Adobe is still smarter in its niche), but the market. Microsoft's endless quest for new revenue lines has settled on PDF as a target for its new Metro product, not just for graphics professionals, but for all of us.

The other thing that has changed is the mobile market, especially mobile phones -- the PCs of tomorrow. Macromedia is making progress in the phone market and Adobe, for the most part, isn't, hence the acquisition.

So it is a good deal all around, especially if Adobe can learn from Macromedia how to have fun.

But let's get back to Flash for a moment, because I really do believe it is the key to this deal. What's key about Flash is not just that it is installed on nearly every computer in the world, and that its influence is extending now into mobile phones. What's key is that we all upgrade to the latest version of Flash as a matter of course, making it the ideal Trojan horse program of all time.

Let's say Adobe/Macromedia had some little bit of code - a VoIP client, for example -- they wanted to bring to market. Just make it part of the next version of Flash. Over the course of a few months and practically without effort, that little program would be installed and ready to go in hundreds of millions of computers. Then all Adobe would have to do is to announce it and the service could be up and running practically overnight. That's the kind of market clout that not even Microsoft has. And that's what makes Macromedia a bargain for Adobe even at $3.4 billion.

That Adobe VoIP client doesn't exist, by the way. Or if it does, I am unaware of it. I just made that part up. That said, doing such a VoIP client and distributing it as I have described would be a good idea for Adobe. VoIP and Skype, especially, are hot right now. Even Microsoft is introducing a Skype competitor, so why not Adobe?

And speaking of Skype, the dominant computer-to-computer phone application, I received last week an announcement for a product that purports to link Skype to any mobile phone system. This is really interesting, though more as an idea than a product.

This was one of those press releases that gets in its own way. It took me several readings to figure out how the product actually works. It's called the Mobile Skype Cable and comes from a Norwegian company called IPDrum (or will come when it ships in August). The cable connects a mobile phone to your computer. The illustrations all show one phone and one computer, but the power of the system can only be realized if you have at least two phones.

One phone stays at your PC as the interconnect with Skype. I'm hoping the cable also charges the phone, but that, again, isn't made clear. In the simplest case you could probably pick up the phone and use it as a dedicated handset to speak over the Skype network. But the true power of the Mobile Skype Cable comes from having multiple phones and some kind of family billing plan.

I'm a Verizon mobile user and so is Mrs. Cringely. Our Verizon plan allows unlimited calls between our two phones. Now imagine one of those phones (or a third, they cost $9.99 per month each here in Charleston) is attached to a PC back at our house. By calling that phone and using the IPDrum software that ships with the Mobile Skype Cable, I can be linked directly to Skype where I can dial a second call over the computer network. Since the mobile call is free and the Skype call is free, suddenly I can make unlimited mobile calls anywhere in the world. Even more powerful, by linking my Skype and mobile numbers through the IPDrum software, any Skype user anywhere in the world can call me for free.

Okay, it is a little kludgy I admit. You need an extra phone and presumably that's velcro'd to the side of your PC. You have to dial more than once. And it does add $9.99 to your mobile phone bill. But think of what you've accomplished, circumventing nearly every traditional phone company including the mobile carrier that is enabling the call (after all, their per-minute profit center is meaningless here).

And the system isn't limited to Skype users, since Skype will (for a small per-minute charge) connect to most of the world's wired and mobile phones. For those who call very frequently and speak for a long time, having a local number in another country can also be compelling.

The Mobile Skype Cable is just one more way that the Internet and VoIP are undermining the old phone systems. I'm sure we will see similar systems coming from other vendors. It makes one wonder, in fact, what parts of the old phone business will even be around a decade from now? Just as an example -- what's an investor to do?

Well, I have an idea. Of all the bits and pieces of the old phone system that are being marginalized by new technology, one part continues unscathed -- the generation of unique telephone numbers. Whether that number is for a computer phone or your Grandma's old rotary handset she bought back from Western Electric, some entity is responsible for deciding who gets what phone number, and in North America, that entity is a company you've probably never heard of called NeuStar.

NeuStar, which is based in Northern Virginia near Washington, DC, generates telephone numbers and has a monopoly to do so through 2015. This function used to be handled by Bellcore, then Lockheed-Martin until L-M bought the ComSat satellite network and was forced to spin off NeuStar.

NeuStar is the key to telephone number mobility. If you change phone companies in North America but want to keep your old number, NeuStar enables that (and generates most of NeuStar's revenue, at least for now). NeuStar also generates new phone numbers for all traditional land and mobile phone companies and, just lately, for VoIP phone companies, too.

VoIP providers like Vonage and Packet8 have, up until now, bought blocks of unused phone numbers from local phone companies, who had, in turn, bought them from NeuStar. VoIP pioneer Pulver, for example, recently was doling out numbers originally assigned to InMarSat. Then someone at NeuStar wondered why their phone company customers should be making a profit arbitraging phone numbers when NeuStar could sell them directly to the VoIP companies? So that's what they did.

The reason I mention this is because NeuStar is almost unknown, and within a couple of months, will be having its IPO, taking the company public. With the exception of Google, this hasn't been such a great decade yet for IPOs, so when I see what's likely to be a good one, I try to point it out. NeuStar, with a 10-year guaranteed monopoly, is a good one. It's the only VoiP company, in fact, that looks like a sure thing.

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