8x8 2007 Annual Report Download - page 5

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• They may experience difficulty in providing new or differentiated services or functions, such as video
communications, that the network was not originally designed to accommodate.
Until recently, traditional telephone companies have avoided the use of packet switched networks for transmitting voice calls
due to the potential for poor sound quality attributable to latency issues (delays) and lost packets which can prevent real-time
transmission. Recent improvements in packet switching technology, compression and broadband access technologies, as well
as improved hardware and provisioning techniques, have significantly improved the quality and usability of packet-switched
voice calls.
Historically, packet-switched networks were built mainly for carrying non real-time data, although they are now fully capable
of transmitting real time data. The advantages of such networks are their efficiency, flexibility and scalability. Bandwidth is
only consumed when needed. Networks can be built in a variety of configurations to suit the number of users, client/server
application requirements and desired availability of bandwidth, and many terminals can share the same connection to the
network. As a result, significantly more traffic can be transmitted over a packet-switched network, such as a home network or
the Internet, than a circuit-switched telephony network. Packet switching technology allows service providers to converge
their traditionally separate voice and data networks and more efficiently utilize their networks by carrying voice, video,
facsimile and data traffic over the same network. The improved efficiency of packet switching technology creates network cost
savings that can be passed on to the consumer in the form of lower telephony rates.
The growth of the Internet in recent years has proven the scalability of these underlying packet-switched networks. As
broadband connectivity, including cable modem and digital subscriber line, or DSL, has become more available and less
expensive, it is now possible for service providers like us to offer voice and video services that run over these IP networks to
businesses and residential consumers. Providing such services has the potential to both substantially lower the cost of telephone
service and equipment costs to these customers and to increase the breadth of features available to our subscribers. Services
like full-motion, two-way video are now supported by the bandwidth spectrum commonly available to broadband customers,
whether business or residential.
Our Strategy
Our objective is to provide reliable, scalable, and profitable worldwide Internet communication services with unmatched
quality by delivering innovative technologies and services. We foster an environment that empowers our employees to provide
the best service to our customers and partners in every way that they interact with us. We intend to bring the best possible
voice and video products and services, at an affordable price, to businesses and residential consumers and enhance the ways in
which these customers communicate with each other, and with the world.
Specific strategies to accomplish this objective include:
• Focus on our Packet8 Virtual Office product line. Towards the end of fiscal 2006, we began to shift the focus of
our sales and marketing efforts to growing the Packet8 Virtual Office services and applications. Packet8 Virtual
Office generates higher margins for us than our residential consumer service offerings. The businesses that
subscribe to the service pay for the premise equipment and generate higher monthly service revenues. In
addition, they are more likely to subscribe to our additional services and are less likely to leave the service.
• Capitalize on our technological expertise to introduce new products and features. Over the past 10 years, we
have developed or acquired several core technologies that form the backbone of our video and VoIP service and
which we intend to use to develop product enhancements and future products. We developed the endpoint
technologies used to provide video and voice service at the customer premises, and control the embedded
software that runs these endpoint devices. As a result, we are able to update the software functionality of our
customers’ endpoints without third party assistance. We were the first VoIP service provider to ship two-way
video-enabled hardware, and our Packet8 Virtual Office services are one of the most feature-rich hosted VoIP
business service in the industry.
• Offer the best possible service and support to our customers with a world class customer support organization.
We have established a call center and customer support group at our headquarters in Santa Clara, California and
have outsourced call center operations in Iowa City, Iowa and Santa Maria, California. We also have invested in
significant upgrades to our existing back office infrastructure to enhance the support we can provide to new and
existing subscribers, as well as our distribution partners. Our strengths include customer service from onshore,
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