Cheap PC gadget for Internet calls selling well

It's unclear what effect the MagicJack is having on competitors.

YMax Chief Executive Don Burns said many customers buy a MagicJack as a complement to a cell phone, compensating for poor cell coverage at home. When the computer is off, the service can be set to forward incoming calls to a cell phone.

Burns and inventor Dan Borislow founded the company, financing it largely themselves. They're telecom industry veterans--Borislow pioneered selling long-distance service to AOL subscribers in the 90s and Burns was the CEO of Telco Communications Group, which provided discount long-distance calls.

Burns says YMax's structure helps keeps cost low and call quality high. In the future, the company plans to sell advertising that shows up on the PC screen while calls are being placed. It would use its knowledge of the customer's location to display relevant ads.

Even so, Beckert is skeptical of the business model. Like YMax, Vonage has recruited customers by TV advertising for years. But Vonage has consistently lost money.

"I'm still not sure how you make money at $20 a year," Beckert.

MagicJack's next moves are to get on the shopping channel QVC and possibly expand sales beyond the Web and call centers.

"We have big-box retailers jumping at this," Donlon said.

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