October 21, 1999 5:00 AM PDT

Can General Magic reinvent itself as a Net play?

In what has come to seem like a yearly ritual, General Magic is trying to reinvent itself on the Internet. But some think the time finally may be ripe for the struggling software firm.

General Magic, launched by former Apple Computer employees as a handheld computer software firm, has seen dismal returns on its rebirths and reorganizations. Last year the stock traded as high as 15; today it closed at 1.38.

Four months ago, however, the company unveiled a Web service that company executives and some analysts say has the makings of a Net success story. Dubbed MyTalk, the service lets people access their email and voice mail by telephone. The free, advertising-supported service also lets users make two-minute domestic calls for free after listening to audio advertisements.

"MyTalk has been remarkably successful," General Magic chief executive Steve Markman said in an interview. "Well over 100,000 people have signed up for it in the four months since we launched, and Excite is licensing the technology for its voice mail service."

Markman said the number of people using Excite Voice Mail is "very large" but declined to give specifics.

With the MyTalk service, the company is carefully following Internet success story guidelines, building an audience on a free service and capitalizing on that audience as it goes along. In addition to the audio ad fees, General Magic plans to add transaction-based revenues in the near future.

For example, an audio ad for a stock trading house could give the user the option to trade a stock on the same call. MyTalk would take a cut of the transaction fee.

But in building that audience and assigning value to it, General Magic has stumbled a few times already. Like many businesses launching free services, General Magic has had trouble meeting initial demand. The company concedes that users have encountered busy signals trying to access MyTalk, a problem it blames on its long distance provider.

"We have had a lot of difficulty there, and very early on the rush to sign up was so intense and we had to switch to a new operating system for the subscriber sign-on database," Markman said. "The problem is largely resolved, but we're working on other, more robust solutions."

Another problem facing MyTalk is how to attract advertisers to a new and unproven format. Complicating the matter, MyTalk's six- to ten-second ad length requires companies to create new ad material, as audio spots created for radio run twice or four times that length.

So far, the service's sole audio advertisers are MGM Studios and NextCard. Other advertisers run traditional banner ads on the Web site.

A second branch of General Magic's product line, the customer solutions group, offers voice-interface and speech-recognition technology to telecommunications firms and other businesses. Based on the company's Portico product launched last summer, the paid-for service lets mobile professionals access their various in-boxes and utilities by phone through an elaborately designed voice interface.

The company's hope was that telcos would snap up the product for their customers, but so far demand has been weak.

"Telcos have been slower to adopt than we had originally anticipated," said Kevin Wray, director of General Magic's Web strategy and programs.

BellSouth will launch its voice-interface offering later this week, Markman said. Intuit will unveil a similar product "soon," although Markman would not specify a date.

General Magic is also working on the technology with Qwest Communications, Wray said.

Analysts yea, Wall Street nay
Analysts paint a rosy future for voice-based and unified messaging systems but scratch their heads in regard to the company's sluggish performance so far.

"The sector they're in is going to be so great, and they have a great service," said Andy Schroepfer, vice president of senior equity research at U.S. Bancorp Piper Jaffray. "Their concept is phenomenal, and the potential for that service is huge. But they have not made it execute to date. I'm confused why they haven't been able to make it work."

The push to unify various messaging systems has attracted a wide range of companies, some offering voice-based interfaces. These include Authentix, eFax, jFax, Wildfire, and Webley.

Whatever the promise of this market or of General Magic in it, Wall Street has shown no mercy on the stock.

"The company has been a restart a couple of times," noted Schroepfer. "They have been promising things to the Street for a while that I think they're going to deliver on, but we've been waiting for a while, and how long do you wait before you give your money to someone else?"

Wall Street hasn't been much kinder to the competition. eFax closed today at 8.88, unchanged from its previous close and down from a 52-week high of 33. jFax closed near its all-time low today at 4.9, down 0.03 for the day and off its high of 10.31.

Investors that have decided to put money into General Magic in the last two years have included Microsoft and Excite.

Markman defended General Magic's performance in general and MyTalk's in particular, calling the market "nascent" and his firm "the acknowledged leader" in it.

"With MyTalk, we're getting people exposed to how good voice interfaces can be," Markman said. "It's a new market, it's developing, and it will grow."

In a recent phase of its restructuring efforts, General Magic in September laid off about 50 employees--mostly admininstrative and support personnel--out of a staff of 185. The company now employs about 150 people.

General Magic will report its third-quarter earnings November 10.

 

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