Sotto's All-in-One Wireless Voice

Sotto Wireless, a Seattle-based startup with a pedigree, aims to be all things communications-wise to all small businesses. Sotto is currently market-testing a hosted solution that will offer SMBs a combination of VoIP in the office, including voice over Wi-Fi using dual-mode wireless phones, cellular service and wireless e-mail.

The objective, says CEO and co-founder Rod Nelson, a Microsoft and AT&T Wireless veteran, was to provide an all-in-one service that was easy to buy, easy to use and easy to maintain. That’s what small businesses need, Nelson says, and that’s what the Sotto Wireless service offers. “Voice over Wi-Fi allows us to do a really important part of that,” he adds.

Nelson and partner Bob Johnson, the firm’s chief technology officer, left AT&T about the time Cingular acquired the company. “Being too young to retire, we thought we’d start a new company,” Nelson says. They formed Sotto 16 months ago.

The partners wanted to target the small business sector for a couple of reasons. It’s obviously a huge market universe, but it’s also challenged because most SMBs can’t afford in-house IT/telecom expertise. And small businesses are poorly served by big providers, something Nelson and Johnson knew from their years at AT&T.

The solution they developed involves little or no original technology. Hardware and some software components at the user end and in the back office are provided by familiar vendors. Sotto hasn’t announced Wi-Fi equipment and dual-mode phone partners yet, but the VoIP phones will come from Linksys. The dual-mode smartphone that trial participants are using is the Nokia E61, a variant of the current Nokia E62.

Users will be able to buy the entire system from Sotto. It may or may not include the dual-mode smartphones, which will work on an office WLAN (implemented by Sotto installation partners), on a cellular network – either a partner’s network or a Sotto-branded network with Sotto functioning as a mobile virtual network operator (MVNO) – and at public hotspots. The phones will also allow users to receive e-mail wirelessly.

There will be no hand-off of voice calls between cellular and Wi-Fi networks, at least not at first. Sotto wanted to keep the system simple – the partners felt that was the number one user requirement – and get it into the market quickly. “The future roadmap will include things like hand-off,” Nelson says. “But for now, no one is asking for it anyway.”

The secret sauce is the software Sotto developed to help partners sell the service, and to help users manage their system and service on the Web. “That’s what makes us different – those online application suites,” Nelson says. Actually, just offering this particular combination of services is unique, he later insists. “We can’t find a service that can be ordered today and scheduled for installation that is quite directly comparable.”

While the Sotto solution is only available as a hosted service, some clients may want to keep existing internal phone systems. “There are hooks [in our system] so they can tie in their dialing plan to help make it more seamless,” Nelson says. “So in some cases, our solution will be a complement to existing infrastructure.”

In October of 2006, Sotto announced an initial small trial in Charlotte, North Carolina, which it had launched earlier. It announced a second trial in Seattle in December. Together, they involve barely a handful of companies. The objective was to test acceptance of and effectiveness of the solution.

Sotto naturally claims this has now been proven. In the initial press release about the Charlotte trial, the company quotes one participant claiming significant productivity increases as a result of using the service.

Nelson says, “The experience we’ve had in market is that after the customer has been using the service for a while, they’re not talking about saving money so much. It’s about making more money.”

They can save money, though, he says, by “right-sizing” their cellular spend and by removing redundancy between office and cellular handsets. The other big part of the Sotto value proposition is that the company will take better care of customers than the big cellular carriers that are focused mainly on the mass consumer and enterprise markets.

Sotto expected to start selling the service commercially in Charlotte and Seattle “very early” in 2007. In the meantime, much was still to be decided – including pricing. The service will be offered on a mix-and-match basis, with component services apparently priced separately. Nelson says Sotto aims to be “competitive” with wireline VoIP and cellular service and Wi-Fi equipment and installation pricing.

He is a little vague about roll-out plans, other than to say that “the goal is to be nationwide in 18 to 24 months.” Part of this uncertainty may be a funding issue. “The faster you acquire customers, the more funding is required,” Nelson acknowledges. “And as an ASP [application service provider], we certainly want to add as many customers as quickly as we can.”

The company received first-round financing to the tune of $8 million from venture capital firms Ignition Partners and Vantage Point Venture Partners, and hopes to close a second round in the “first part” of 2007. “Once we get [the roll-out] going, I don’t believe [funding] will be a barrier,” Nelson says.

The other possible hold-up will be acquiring implementation partners in the markets the company targets. Nelson doesn’t say which additional markets the company will open in first, but on the basis of the trial sites, it appears to be going after mid-size centers initially. Sotto is looking for VARs to sell and implement the service. Both telecom- and data-centric VARs should be interested, Nelson says, because both are facing eroding margins and are anxious to get into the other’s market to shore up their businesses.

Sotto expects in most cases it will be installing or re-installing a Wi-Fi network to carry VoIP calls in the customer’s office. It has developed methodologies and best practices for economically installing Wi-Fi networks, which it will pass on to implementation partners. This will not involve doing traditional site surveys, and will not require wireless specialists, Nelson says.

One curiosity in the Sotto business model is the relationship with cellular carriers. Why would they want to partner with a firm that could cannibalize their customer bases and reduce high-margin cellular minutes by offering customers low- or no-cost VoWi-Fi calling in the office and at hotspots?

Nelson claims that because Sotto will consolidate its small business customers’ cellular spending with the cellco partner – where, currently, individual employees may be buying from different carriers – the partner will see a net increase in minutes. “For the 10 to 20% of lines they previously had [in a small business], yes, minutes would go down,” Nelson says. “But they’ll be getting minutes from lines they didn’t have before.”

There are a few question marks around the Sotto business model. How successful will it be in attracting the partners it needs to execute, for example? But the basic strategy – targeting the vast small business sector with a service that makes cutting-edge communications easy and economical for them – seems spot on.