The company was really on the ropes and down to its last few dollars, says one source. But sales, particularly at Best Buy, are brisk and the company should reach profitability with this new round of financing, he added.

Ooma first launched two years ago as a new type of consumer VoIP product. But a complicated business model (expensive hardware, free service) made it confusing for consumers to compare to competitive offerings from Vonage and others.

But customer reviews were very positive, and the company brought in seasoned sales executive Rich Buchanan, previously at Sling Media. Best Buy started selling the devices and have been very successful in moving them off the shelves.

The company also announced a new handset product called the Telo at CES earlier this year. It is not yet available for purchase.

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Exactly one year ago today, a widespread outage hit Google’s GrandCentral (recently upgraded and relaunched as Google Voice). At the time, we wrote “If you want to be a phone company, and get your users to rely on you to manage all of your incoming calls, this simply cannot happen”. A year later those words ring true as a widespread outage has hit another VoIP provider: Ooma, the device that offers users free phone service for life.

Beginning around five hours ago, Ooma users across the country began to Tweet that their service wasn’t working. Ooma technicians have been regularly posting updates to the site’s official forums, which indicates that an issue stemming from an internet outage is to blame (the company’s CMO has tweeted that “a route out of our datacenter has been severed”). Twitter users are reporting sporadic success using the service in the last few minutes, which appears to have been down entirely earlier this afternoon.

Ooma has had a somewhat checkered history, struggling for years to gain market-share as consumers largely scoffed at its high pricetag (the service may have been free for life, but the $400 price of admission to purchase the unit was simply too steep for most people). But more recently, the company has been on the rebound after lowering its price to $250 per unit and closing a third round of funding last September.

Update: CMO Rich Buchanan has left the following comment below:

Update 2: As of 5:15 PM PST, Ooma reports that its service is back to normal.

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Just one problem. The sticker shock of paying $399 up front for the hardware put a lot of users off. And there weren’t many places you could actually buy the Ooma. It went on sale on their website in August 2007. When a number of key executives left the company (we grabbed Sarah Ross, their former VP Communications), some blogs said they were in big trouble.

Amazon started selling Oomas later in the year, and customer reviews are overwhelmingly positive.

A year later the company is still going. They added marketing executives Rich Buchanan to the team from Sling Media earlier this year – the guy that led the Sling marketing team to sell 100,000 units in its first six months of operations, and 500,000 units as of mid 2008. Buchanan brought Tami Bhaumik with him from Sling as well, who is now Ooma’s VP Marketing.

Ooma is also now being sold in 26 southern California Best Buy retail stores, with a nationwide rollout scheduled later this month.

The company has also tweaked their business model. They still offer the free service for a reduced price of $250, with optional additional features in a premier service add on for $13/month. The premier features include a second line, three-way calling, message screening and custom rings.

I’ve been a happy Ooma customer for a year now. I also use Vonage, and Ooma’s call quality is better and there are fewer problems in general. If I didn’t have one I’d buy one now.

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Today they will announce a second fund, Founders Fund II. It’s much larger – $220 million. And unlike the first fund, the money comes mostly from outside investors. The new fund will allow Founders Fund to make 15-20 new investments, including pro-rata investments in follow on rounds.

A couple of investments have been made out of the new fund, they say, but have not yet been disclosed.

Founders Fund partners have deep connections in Silicon Valley, which help with deal flow (Peter Thiel, founder and former CEO of Paypal, Ken Howery, founder and former CFO of PayPal, Luke Nosek, founder and former Vice President of PayPal and Sean Parker, founder and former CEO or President of Napster, Plaxo and Facebook). But they also approach deals differently than most other funds.

Sean Parker said today in a phone interview that a glut in venture capital, combined with reduced capital needs of most startups, has led to a shift in balance of power between entrepreneurs and VCs. Founders Fund recognizes that shift and has evolved does deals a little differently because of it. For example, they invented and promote the issuance of a special class of stock, called Series FF, which allows entrepreneurs to take money off the table much earlier in their company’s lifecycle. They also allow significantly more liberal voting rights to founder board members than many other funds. See this article in the SF Chronicle earlier this year for more on how they do business.

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Now the most ridiculous claim yet. Richard Figueroa, who claims to have the rights to this image of Ashton Kutcher, is demanding that we pay him $150,000 immediately or else he’ll sue us for $1.5 million.

Hi Michael, My name is Richard Figueroa and I am contacting you on behalf of the image you are using of Ashton Kutcher that Beth Boldt had taken. Beth is upset that your company has been using his image to generate traffic and revenue to your company without her permission.We are asking that you pay Beth $150,000,00 for the image that you have been using to generate business. If you choose not to settle this bill now we will ask for $1,500,000 in damages in loss of income form the image you have been borrowing for creating traffic to your website with here picture.if you google Beth Boldt you will get an idea of who she is in the modeling and entertainment industry.We would like to settle this quietly without the media getting involved however if you choose not to agree on these terms we will file a lawsuit against your company for copyright violation and we all know how that’s going to turn out since she’s the photographer of the image you are using.
So here is her invoice: Please make check out to Beth Boldt in the amount of ($150,000,00) send it to
[deleted contact information]
And after payment is made you may not use the image of Ashton anymore unless you want to negotiate a contract.

Thank you
Richard Figueroa
BethBoldt

Here’s the problem: we never used that image of Ashton Kutcher on any of our websites. The one image we did use (in this post) was supplied by Ooma (Kutcher is the creative director for Ooma), and Ooma says they own that image.

The problem turns out to be that if you do a search on Google (or “the Google” as Figueroa calls it), the image in question appears at the top of the results and is linked to TechCrunch. Why? Well we did some digging and it turns out that someone linked to the image in a comment to one of our posts.

I explained all of this to Figueroa on the phone but he insisted that Google bought us and that we need to remove the image from Google immediately. Sadly, Google has not acquired us, and I have no easy method for removing images from Google’s servers.

Normally I’d just let something like this drop since this guy doesn’t understand anything about copyright law or the Internet, but he has also been calling and emailing our advertisers and threatening to sue them, too (listen to the voicemail below). They are understandably concerned, and Heather and I now have to spend time today calming everyone down.

Don’t be this guy.

The voicemail below is to one of our advertisers. Listen to a second one, sent to Ooma, here.

Update: Starting at comment #79 below it looks like Richard weighs in with a number of comments. In comment no. 113 he tried to post my phone number and get people to call me and complain but I just deleted it.

Update 2: Richard has been calling me this evening saying people are crank calling him and that he will take “legal activation” against everyone who calls him. I’ve removed the phone number above. Please stop calling him because he just calls me afterwards.

Update 3: So the link to TechCrunch on Google’s search results is gone and the picture now links to Yahoo Answers. Richard still isn’t happy and is demanding I link that search result to him. I’m just speechless.

Update 4: Richard apologizes.

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New consumer VOIP service Ooma officially launched yesterday and began selling units on their website. See additional coverage from Dean Takahashi and Adweek.

They also released their first (drug induced?) viral video to promote the service, which I have embedded above. The video was conceptualized by Ashton Kutcher, the company’s creative director (hear our interview with Kutcher and CEO Andrew Frame here). Kutcher’s production company, Katalyst Films, produced it.

The company says the video is loaded with symbolism, and the meaning will become clearer over time as more videos are released in the series. Whatever it is, it’s entertaining.

Get one of the last ten free Oomas

The company gave TechCrunch readers fifty free Ooma systems in July. Today they say they’ll give us more to distribute to readers now – the last ten free Oomas. To win, leave a comment below and tell me WTF you think the video means, because I have no idea. The most creative answers win.

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The company also says that they have “substantially completed” the workaround deployment for two of the patents at issue in the company-threatening patent litigation with Verizon. And development of the workaround for the third patent at issue is completed says Chairman Jeffrey Citron. A Federal court will have to agree before the company is in the clear.

Revenues for the quarter were a record $206 million, a 43% increase from the same period last year. Net losses were $34 million, down from $74 million in Q2 2006. The company still has $344 million in cash, although $66 million of that is reserved for collateral in the patent litigation.

Some bad news, though – customer churn increased to 2.5%/month. The company says they are extending the grace period for non-payment to encourage retention…but they may be retaining the deadbeats.

I am a long time Vonage customer but will soon be switching to Ooma (which, by the way, became available for purchase this morning) and getting rid of that $25/month Vonage fee. Vonage is a lot cheaper than a normal phone line, but free is hard to compete with. Perhaps some of the new hardware Vonage is testing with some customers will help them.

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New VOIP startup Ooma, which is proving a free phone service to U.S. residents who purchase the basic hardware, started taking pre-orders about five minutes ago (6 AM PST). Orders are being taken by phone only, with delivery guaranteed before September 10. The phone number to call is 866-452-6662.

The basic unit, called a “hub,” is $399. Additional “scouts” which you can plug into the various phone jacks in our house cost $40 each. Sales tax is being collected on top of that for California deliveries. Once you’ve purchased the hardware, all calls to U.S. numbers are free. International calls are at Skype-like prices.

I don’t expect to see millions of people calling to buy an Ooma today. But for the early adopter crowd, this may be something they want to try out. I’ve been testing it for a few weeks and the call quality is good.

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It sounds like they’re taking a page out of Ooma’s playbook. Ooma offers users a much more compelling VOIP device as part of their service; it includes a speaker, voicemail controls and other features. Ooma is also free once the hardware is purchased.

The Vonage gateway also includes other features – see the email sent to us below. If you’d like to test it, they are offering a month of free service during the test, plus a credit of $30 on your Vonage account. You must return the device at the end of the month, however. Sign up here.

Text of email:

Dear Michael Arrington,

Vonage is pleased to unveil a new line of “Vonage” branded Voice Gateways. These products have been designed and engineered to be user-friendly. They incorporate a liquid crystal display (LCD) to guide you through setup and help resolve technical issues. The LCD also displays Caller ID information, and other helpful status messages. Interactive Voice Response (IVR) messages are also still utilized to help resolve issues. The first product showcased is the Vonage VDV21. See the feature list below.

VDV 21 Features

Industrial design uniquely developed for Vonage – a cool and sleek, yet simplistic and approachable design that will inspire consumers to proudly display their Vonage router rather than hide it under their desk
Two lines of VoIP (2 RJ-11 FXS Ports)
Voice-over-data prioritization – talk on the phone while using the Internet with no reduction in voice quality
T.38 Fax Support
Ringer Equivalency Number (REN) of 5 – in laymen’s terms, can support 3 or 4 telephony devices in each port
GR-909 Line Testing – will self-diagnose if your telephone/home wiring has problems
Built in Single Port Router (RJ-45 LAN Ethernet 10/100 Port) – will support a user’s PC (or home network connection)
User friendly, built-in Liquid Crystal Display (LCD) with
Caller ID and call timer
Call Logs (Missed/Received/Dialed) – up to 50 entries each
Voicemail waiting indication
Brightness control – individual settings for normal conditions as well as when there is voicemail waiting
Built-in upstream bandwidth tester
Network status information (LAN/WAN) such as IP Address, Subnet Mask, etc.
Error messages plus suggestions on what to do to fix the problem – for example, it can detect when your Internet connection is down, one of your cables accidentally becomes loose or disconnected, or if you’re a DSL user and you need to set up PPPoE
Secure web-based User Interface for Configuration
Improved User Interface, with built-in FAQs and Contextual Help to assist non-technical users with setting up their router (setting up a network, PPPoE, parental controls, etc.)

As a valued Vonage customer, we are inviting you to apply to participate in the beta test trial of our new VDV21. Beta trial participants help us to thoroughly evaluate new products prior to formal product introduction. For a 30 day beta period, you will be asked to use the VDV21 and Vonage Premium Unlimited Plan service at no charge. Note: charges will still apply for 411 calls and international calls not included in the Premium Unlimited Plan. In return for your participation in the beta program, you will receive a credit of $29.99 on your primary Vonage account. You may use the credit as you please – toward your phone bill or to try out a Vonage add-on feature such as a virtual number. Your existing Vonage service will continue as normal during the beta trial. We ask that you please apply on or before Monday, August 6th. Space is limited. Please read below for detailed information pertaining to the beta trial.

You may connect the VDV21 to an existing router if you have one, or directly to your broadband modem. The VDV21 offers one LAN port, so you may connect a computer to it. The VDV21 offers two Vonage phone ports; however, only one will be active for the beta trial.

As a participant in the beta trial, you will be asked to:

Activate your beta device on to a separate beta account with its own unique phone number. This number will only be active for the duration of the beta period. It will be independent of your current Vonage service. A valid credit card will be required for activation. Your credit card will only be charged for 411 calls and international calls (if charges apply).
Provide weekly feedback via an on-line survey regarding your experiences with activation, installation, and usage of the VDV21.
Upon successful completion of the beta program, we will credit your main Vonage account $29.99. The conditions for this credit include:

Successfully activating and using the VDV21 Single Port Router.
Completing the weekly 5 minute on-line feedback survey.
Returning the VDV21 in satisfactory condition. A pre-paid return shipping label will be provided.

To apply to participate, please click on the link below. This link will take you to an application on forums.vonage.com.

VDV21 Beta Trial Application

Thank you for your interest and continued support of Vonage.

If you are not interested in this offer you may discard this email or click on the link below to opt out.

https://www.surveymonkey.com/optout.aspx?sm=FErIppHsI_2fjsBUoLzUifKg_3d_3d

VONAGE • 23 Main Street • Holmdel, NJ 07733
Privacy Policy: http://www.vonage.com/help.php?lid=footer_privacy&article=399
Served by Survey Monkey • 815 NW 13th Ave., Suite D • Portland, OR 97209

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You read the story and you heard the podcast. Now you can try out Ooma yourself, way before they go on sale to the public in September.

We have fifty to give away. This isn’t like most account giveaways – each of these packages will be sold for $399 retail in September and gives you free VOIP phone service on your normal phones for life (the life of you or the company, whichever ends first). You get it for free, and you get it right now.

Here’s another cool thing about these – each one includes three free “white rabbit” tokens that you can give away to others so they can try out Ooma, too. They have a limited number of these, but they’ll continue to give three to everyone until they start to run out.

Here’s what you have to do. Just write a short comment below telling us why you want it. Or tell us about your favorite Ashton Kutcher movie or tv show (since he’s the Creative Director of the company). Or both. You don’t have to be truthful or nice, but you do have to be creative and entertaining. All you have to do is be one of the fifty most entertaining comments and you’re in. You have until end of day California time on Friday to write. Make sure you use your real email address in the comment or we won’t know how to contact you.

Ooma will only ship these in the U.S. for now, so you must be living here. And there’s one more rule – We’ll be adding Ooma to InviteShare later tonight and allowing people to sign up to get one. If you are selected you have to agree to give at least one of the systems to the person on the top of the InviteShare list. That way we can possibly get some more of these to TechCrunch readers.

Update: Ok Ooma is now up on InviteShare, so feel free to add your name to the list of people who want an invite. The list order is determined based on the time you enter your name as well as how many invitations to other services you give out, so move up the list by participating. If you are one of the fifty people who get a direct invite from this post, please remove your name from the list – and remember to give at least one of the invitations you receive to someone on the list.

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Vonage provides unlimited calling in the U.S. and Canada for a flat $25/month. Ooma, however, is using an innovative peer-to-peer architecture to significantly reduce their cost overhead. Because of that cost reduction, they’re charging for hardware only. Calls in the U.S. are free, and will be forever.

That doesn’t mean there’s no cost to the consumer, though. You still have to get your hands on the hardware, which starts at $399, and have a broadband Internet connection. That buys you a base hub. You plug broadband ethernet into one end, and a normal phone into the other, and you’re all set.

If you buy additional units, called Scouts, you can wire your entire house with Ooma. That is another distinct advantage over Vonage, which only allows a single phone to be plugged into the device. Spread the Ooma Scouts around the house, plugging one end into a normal phone jack and connecting it with a normal phone. It’s then part of the Ooma system and all calls will be free.

Instead of using normal exchanges to terminate calls like Vonage does, Ooma routes calls through the phone lines of other users if it can. That saves them the termination fee on the call and eliminates their largest marginal cost. That does mean that if you have a normal phone line (its not required to use Ooma) it will be used by other Ooma users, but it isn’t something you’d ever notice because your inbound and outbound calls are routed around it. And in the event you call 911, any phone call using your line is immediately broken and you are put right through. If there are no Ooma user within twelve miles of where your call is being terminated, Ooma uses the normal phone system. From the caller’s perspective, its all invisible.

The Ooma hardware is both beautiful and functional. Answering machine functionality is built in to the Hub and Scout devices via physical buttons. Every Ooma account also includes two lines, and either can be accessed from either phone. A speaker phone is also built in.

Ooma isn’t just making money on the hardware. They’ll be adding additional for-pay features over time. One of the most interesting is ringtones, allowing people to have customized tones for incoming calls. That’s generally considered a cell-phone only feature. I can imagine other cell-phone type services being added over time as well, and possible Ooma branded handsets.

If you choose to keep your normal phone line, I’d recommend changing your calling plan to the most basic, least cost choice. It’s basically a 911 backup in the event of an emergency.

Ooma has a very deep management team and board of directors, and has raised $27 million over two rounds of financing.

I had the opportunity to interview founder and CEO Andrew Frame and Creative Director Ashton Kutcher (yeah, the actor) a couple of days ago. Kutcher is actively engaged in the business – part of his work will consist of creating a viral video series to promote the product. The podcast is up at TalkCrunch. In addition to Ooma, Ashton and I go on a brief detour and talk about the iPhone (he likes it, mostly) and his upcoming movie with Cameron Diaz.

The product is in private beta currently and we’ll be giving away a few Oooma’s tomorrow. They go on sale in September.

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