Ooma Raises $16 Million More: Company’s Device Is Probably Doomed But I Want One

Ooma, a Palo Alto-based VoIP company with venture backing from Draper Fisher Jurvetson, Founders Fund, and WorldView Technology Partners, has just raised another $16 million, according to a regulatory filing. The “C” round pushes the four-year-old’s total funding to $43 million.

Ooma sells a $250 device that essentially allows Internet calls to be funneled through regular phones, and it has received a lot of negative press in the blogosphere — in part because of expectations set during its flashy launch last year. (It was sort of unavoidable, since hunky celeb Ashton Kutcher is an Ooma investor and its creative director.)

The company has since dropped its price (the device originally sold for an ambitious $399) and created tiered service levels.  The basic service is free, and includes call waiting, the ability to organize voicemail and some other straight-forward perks. Meanwhile, for $13 a month, “premium” customers get a second line, enhanced call waiting and three-way calling.

Yet even with Ooma’s newest round of funding,  I don’t quite see how this company makes it.

It’s too bad. Ooma’s device is so smooth and sexy, Barry White might have paid it tribute if he were still alive (Rest in peace, Velvet Voice). After some well-documented hiccups, the company also seems to be doing a great job of addressing one of consumers’ biggest fears when it comes to VoIP phone services — how to install them. As of this writing, 38 Amazon customers have awarded the service five stars for its sheer simplicity, including during set-up (many reviewers also credit Ooma with excellent customer service).

Most importantly, like Vonage and other residential VoIP companies, Ooma is addressing a real need: Many people live in areas where cell reception is unreliable.

But the fact remains that Ooma is competing in a lousy market. All these VoiP companies are fighting a losing battle, as long-distance service providers and mobile service providers race each other to the bottom, lowering rates while providing new and enhanced services.

Internet telephony will never be as good as POTS. And Ooma’s service is only as good as its customers’ cable Internet providers (which, btw, are spending a fortune on pitching their own bundled services).

Worse for Ooma, it isn’t making money off subscription revenue, other than from its premier customers — a group I’d guess is small, given that the company hasn’t disclosed its usage numbers. Without recurring revenue, the company will need to sell more and more boxes and spend more on more on marketing. It’s a recipe for disaster.

Finally, even with the price cut, $250 for Ooma’s box seems like a too-expensive luxury right now. This is particularly true considering that customers don’t know if Ooma will be around in another couple of years.

I just don’t see a big win here, or how Ooma remains independent. But that doesn’t change the fact that I would like one.

Ooma CEO Andrew Frame has not yet replied to a request for comment.