CallWave Inc. (CALL-NASDAQ)
Interview with:
Jason Spievak, CFO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
VoIP software based applications for call bridging to any phone and real-time call screening of phone calls on either wireless (cell phones) or traditional landline (home or office phone).


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CallWave provides a solution for just a few dollars a month that bridges together existing landline, cell phone and internet connections, helping users get more value out of those networks and strengthening those relationships for the existing carriers

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Communications Services

CallWave Inc.

136 West Canon Perdido Street, Suite A
Santa Barbara, CA 93101
Phone: 805-690-4000

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Jason Spievak
Chief Financial Officer

Interview conducted by:
Lynn Fosse, Senior Editor
March 10, 2005

Jason S. Spievak is the Chief Financial Officer and board member at CallWave. Before joining CallWave, Spievak was a Vice President in the technology mergers and acquisitions group in Broadview International's Silicon Valley office. At Broadview, he specialized in e-commerce software and services, network infrastructure and web serviced transactions, and was the execution lead on more than $1.25 billion of merger transactions. Before joining Broadview, Spievak was a software product manager for Netopia (NASDAQ: NTPA), a developer of Internet-based communication software and was a product manager for Nextel Communications (NASDAQ: NXTL) wireless data division. Spievak is also a member of the board of directors of Communication Services, Inc., in Phoenix, AZ; he serves on the advisory boards of two California technology companies and an investment banking advisory group; and he is a frequent guest lecturer at graduate business school programs. Spievak earned his MBA in Finance from the JL Kellogg Graduate School of Management at Northwestern University, where he remains an active member of the admissions committee, and his BA from the University of California, Santa Barbara.

Company Profile:
CallWave's proprietary software provides subscribers with an easy way to get more out of their existing cell phone, Internet connection, and regular phone. By requiring no extra hardware or any installation effort, subscribers receive benefits like call bridging to any phone and real-time call screening -- helping them get their important calls while avoiding unwanted calls.

CallWave has pioneered a customer driven, capital efficient business model using Voice over Internet Protocol (VoIP) technology. By designing services tailored for the mass-market user, CallWave has made it easy for customers to benefit from new technologies, including VoIP. CallWave's direct and ongoing interaction with its 800,000+ customers ensures that its patent-pending call handling solutions match the needs of the mass market.

While conventional phone applications are hardwired into the network infrastructure and typically take years to deploy, CallWave uses the Internet to separate telephone applications from the underlying network infrastructure. As a result, CallWave's software-based applications lead to fast deployment, low capital expenditures, and low operating expenses.

CEOCFOinterviews: Mr. Spievak, what attracted you to CallWave and how did your vision play out?
Mr. Spievak: "I have been with CallWave for about three-and-a-half years and my wife and I moved here from the San Francisco Bay Area. I had been in investment banking technology M&A in Broadview International's Silicon Valley office, prior to coming down to Santa Barbara. Our first intent was to move with our family to a location that was much more hospitable for raising small children than downtown San Francisco. My wife and I had both gone to UCSB (University of California, Santa Barbara) and felt a draw to come back here. I began poking around before we left the bay area and I was frankly very surprised to see that there was a vibrant technology community here in Santa Barbara back in 2000-2001. I called the CEO of CallWave and we began a dialogue. I was very impressed by the efforts the company was about to undertake; the transition from an ad supported Internet software business model to a subscription services revenue based model. I saw the potential in the service to be able to attract and retain paying subscribers, unlike most internet business models, which were struggling and failing at the time, to transition away from ad revenue. I came down to spend some time with the management team, met the CEO, the president, the chairman and the senior executive team. I got a very good sense that this group of folks had a focus on an opportunity and had a great likelihood of success. At the time the company was running on very little cash and was being forced to make the transition early to positive cash flow. I joined the company in June of 2001. We achieved positive cash flows in November of 2001 and GAAP profitability in February of 2002."

CEOCFOinterviews: What does CallWave do?
Mr. Spievak: "CallWave today is a voice application software provider. Through the evolution of a VoIP technology layer, our platform now enables us to provide very rich, high value-added software based applications for your phone calls; either wireless or traditional landline. What that means is that regardless of where a call comes into you, whether it is on your home phone, office line or cell phone, the VoIP technology enables CallWave to help you screen and transfer those calls in real time. You are saving yourself time and money. An example of that is if someone calls your office line, like you just called mine, the caller ID pops up and perhaps that is enough to tell you that you want to answer that call, in most cases it is not. You want to wait a few minutes until the person starts to leave their message in real time and their voice is streaming through your broadband PC speakers. That is exactly what you and I just did. I did not see your caller ID but as soon as you began to leave your message, I heard that it was you; I clicked the take-the-call button on my CallWave software and then selected to have the call ring back to my office phone. I could have screened your call on my cell phone as well, listening to you leave me a message in real time and then I could choose to interrupt your message and pick up the call and talk to you at any time."

CEOCFOinterviews: What are some other features?
Mr. Spievak: "In addition to the call screening, we also enable a feature called Mobile Call Transfer, which is something we just launched about six weeks ago. What that enables you to do is when a call comes into your cell phone, and you happen to be near a perfectly good landline in your home or office, before even answering that call or while you are talking, you can simply press the button on your cell phone and have that call ring over to a nearby landline. That gives you a higher quality, lower cost connection for the duration of that call."

CEOCFOinterviews: That is a good service!
Mr. Spievak: "It is a good service for a few bucks a month. For example, if you called me on my cell phone you may reach me in my car. We could talk and as soon as I got to my desk, instead of saying, ‘hey, can you call me back on a landline’; I would simply touch a button on my cell phone, and the call would instantly ring over to my nearby phone on my desk. I would pick it up and keep talking, and you would only notice this if I told you I had done it.”

CEOCFOinterviews: You have 800,000-plus customers; who are they?
Mr. Spievak: "We have a little over 800,000 customers, at last reported quarter, we had over 823,000 paying subscribers. They are by-and-large, consumers and SOHO’s. These are very traditional SOHO’s; small office, home office, one-person businesses. An example of that would be a tradesperson, realtor or plumber who has a home office, works out in the field and is worried about missing calls. When they are out in the field, a call comes into his home office line but if they are not there to answer it, it will immediately route over to their cell phone where they can screen that call. They can listen to the caller leaving a message and decide whether to pick it up or let it go to voice mail and take care of it later. Our typical customers today are Columbus Ohio soccer moms and Topeka, Kansas plumbers – it’s really the mainstream consumer market."

CEOCFOinterviews: How do you reach your potential customer?
Mr. Spievak: "We reach our potential customers through five channels. We acquire our customers almost entirely directly. We don’t maintain a sales force and so by reaching out directly to the consumer and SOHO market, getting our message directly to the end-user and decision-maker, is a much more cost-effective means of acquiring those customers.  It’s much more effective than putting together a direct sales force and going out and selling services to the IT managers of large enterprises for example. It has allowed us to maintain 20-plus percent operating margins the last several quarters. Our most exciting means of acquiring customers is by word-of-mouth. When somebody calls a CallWave subscriber, when you are leaving someone a message and they pick-up right then and there, and you are leaving a message on their cell phone, the first thing they ask is what the heck was that? And our subscribers say, “That’s my CallWave!” As a result, one in five of our paying subscribers come to us free by word-of-mouth. We also acquire customers through our partnerships with larger access service providers like Earthlink, who market our services under their brand. We run an affiliate network of thousands of mom-and-pop websites that promote our services in exchange for a registration bounty. We also buy search terms on Internet search engines like Google, and the others. Lastly, we purchase traditional media on CPA and also sometimes on CPM basis, to bring traffic to our site through large advertising networks such as Yahoo, and others."

CEOCFOinterviews: Is it just one package, and are there additional services that you might be planning to offer?
Mr. Spievak: "We have three different levels of service primarily. We have what we call CallWave Alert, which is our entry-level service. It is just $1.50 a month believe it or not. There are well over a hundred thousand people in this country that pay us a dollar and fifty cents a month to get this alert service. It lets you know who just called you. We enrich the caller-ID with caller name and city and state. We also send a message to your cell phone. For that realtor that is out in the field, that is cost-conscious, for a dollar and fifty cents a month, he or she can know who just called them and make some decisions about when and how to call them back. The next level of service is the Messenger level, which at $3.95 a month, enables you to listen to their messages in real time, on your PC, office phone or cell phone. You will be able to hear their message in real time and make some decisions on how to contact them. Our most popular service today, in terms of new subscribers signing up, is the Connect-level service. What that is, for $7.95 a month, not only do you get to hear who is calling in real time on any phone you choose, but you can pick up that call at any time during the message. You can interrupt the message as the caller is leaving it and you can transfer those calls to any nearby landline or cell phone. The flagship product is Connect at $7.95.  For you and me it is affordable. The challenge is for the mainstream market in the U.S., which has seen the voice and data bill at home double in the past five years, from about $50 a month to well over $100 a month today. That is for the household that has a landline, long-distance plan, internet service, either dial-up or broadband and a cell phone or two in the house. They have seen significant increase in that bill for the average household out there in Middle America, with income in the $40 thousand range; ten bucks a month, is dinner-table conversation. We provide a solution for just a few dollars a month, that bridges together existing landline cell phone and internet connection, helping them get more value out of those relationships and strengthening those relationships for the existing carriers. As a result, we have contractual provision relationships and billing relationships with all the major telephone companies. They are placing our brand on their bill, a half million times a month."

CEOCFOinterviews: Are there similar services out there?Mr. Spievak: "We have no direct competition today, but there are several folks out there that are looking to leverage VoIP technology to create a new business model. There are companies out there like Vonage (Vonage Holding Company), which hold the perspective that VoIP means a cheaper phone line. VoIP can help with that; it adds some features and takes some away. The challenge of that business model is that those companies are directly in the face of the telephone carriers. They face a significant battle in challenging those carriers for their core landline business. They are going in, trying to take that $40.00 that you would spend on Verizon, and trying to get you to spend it on Vonage instead. There are other companies out there like MegaPhone Company, for whom VoIP technology means a cheaper long-distance minute and VoIP does that too, but it is essentially just a long-distance arbitrage opportunity. There again, those companies are seeking to do battle with the established long-distance service providers and take away their core revenue stream. In CallWave’s case, we have a carrier-friendly model, where we are not looking to displace any of the existing revenue out there for any of the carriers. Instead, we add incremental value for just a few dollars a month that makes you more satisfied with those existing relationships and more likely to stay with your underlying carriers longer. Carriers are generating incremental high-margin revenue from their relationship with CallWave and also getting customer retention benefits from our subscribers."

CEOCFOinterviews: You are in a good spot!
Mr. Spievak: "We feel we are in a good spot to continue to develop a very profitable and growing business model with the support of and the cooperation of larger carrier partners out there. By carriers, we mean not just the phone companies but wireless providers, and the internet service providers as well."

CEOCFOinterviews: What is ahead for CallWave?
Mr. Spievak: "Continued growth is ahead for CallWave. We have twelve consecutive quarters of revenue growth and GAAP profitability under our belt. We just completed the IPO here about four months ago. Our perspective, with the launch of CallWave for mobile service, just six weeks ago, is that we are very much of a start-up. We happen to be a start-up with a hundred very capable employees, a very dedicated marketing and development team, twelve consecutive quarters of profitability under our belts, $60 million of cash in the bank, and a great operating plan. We feel like a start-up entering the mobile space and we are very enthusiastic about it. Just as importantly, we have the support of a very strong, experienced board-of-directors, including Jeff Henley, the chairman of Oracle Corporation (NASDAQ: ORCL); CallWave is the only board he serves on other than Oracle. Our Co-Founder and Chairman, Peter Sperling is also the co-founder of the University of Phoenix, which has been the best performing IPO of the last decade. We have great perspective from a handful of people who have significant hands-on experience in turning small companies into large ones in a sustainable fashion. Perhaps, as importantly, the combination of our board members and management team, have driven a very conservative financial policy here. We have been expensing stock options since the inception of the company in 1998. We expense all marketing costs as incurred; we don’t capitalize any marketing costs. We have always expensed R&D as incurred as well."

CEOCFOinterviews: What else should potential investors know about CallWave and why should they be interested?
Mr. Spievak: "Potential investors should know that we are going through today what is perhaps the most significant transition in the company’s history. We arguably have market leadership in the landline enhancement software business. It is less than 2% of the market share in the U.S. alone. The wireless market, which we just entered last month, is significantly larger and represents a global opportunity for CallWave as well. Certainly, no opportunity this large comes without risk. We are going to be learning as we grow in this market and it will require us to find new partners to go beyond the landline service providers and seek and maintain sustainable partnerships with wireless service providers over time. We believe the opportunity before us is larger than it has ever been."

CEOCFOinterviews: Are there particular geographic areas where you would like to move into?
Mr. Spievak: "Today, CallWave has paying subscribers in all fifty states in the U.S. There is no technical or business model barrier to expanding beyond the U.S. borders and implementing these services internationally. We are looking at those opportunities as we grow. CallWave’s relative leverage in partnering for expansion has increased as a result of the IPO. We were cash flow positive, and stable and growing before, but the purpose of the IPO was to deliver the stability and disclosure of a public company so that much larger companies can be comfortable in partnering with us in a deeply integrated fashion, knowing that we are going to be around five years from now."

CEOCFOinterviews: In closing, could you touch on how software is affecting the telecom industry and if you feel that CallWave is in position to take advantage of those trends?
Mr. Spievak: "We believe there is a macro level trend in technology that companies come in and target just the high-margin, low-cost, typically software based elements of the supply chain. A couple of examples of that, if you look back at the mid-eighties, there were some questions as to whether the companies like Novell and IBM (NYSE: IBM) would win the battle for the computer desktop. They were selling you an integrated hardware/software solution – “buy our hardware and we will give you the software on top of it.” In hindsight, it is obvious that companies like Microsoft Corporation (NASDAQ: MSFT) and Oracle would come around and address just that high-margin, low-cost, customer-touching, software based piece of the computing supply chain. In the mid-nineties, we were all getting our internet content from the same people who gave us our access, namely the Prodigy Communications and America Onlines of the world. They said, “we will give you access and all of the content you need.” Again, in hindsight, it should have been obvious that companies like Yahoo (NASDAQ: YHOO) and eBay would come along with a software based, high-margin, high-value model and say now that you have your access, here is the best content. They didn’t have to sweat the cost of those assets to bring you online, they were able to develop a very high-margin business model. I think we will look back in the mid 2000’s and realize that trend was obvious in telecom as well. Software applications were beginning to separate from the hardware intensive, transport networks in the telecom industry. CallWave is certainly in the best position to take advantage of that trend."


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"CallWave today is a voice application software provider. Through the evolution of a VoIP technology layer, our platform now enables us to provide very rich, high value-added software based applications for your phone calls; either wireless or traditional landline. What that means is that regardless of where a call comes into you, whether it is on your home phone, office line or cell phone, the VoIP technology enables CallWave to help you screen and transfer those calls in real time. You are saving yourself time and money." - Jason Spievak


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