Google pays $30M for Gizmo5; Did the search giant just blow up the phone biz?

Search giant Google (GOOG), which looks increasingly like a phone company, paid $30 million for Gizmo5, the Web-based calling startup, DailyFinance has confirmed with people familiar with the matter. The deal is done and the startup's staff has begun work integrating into the Google Voice team in Mountain View, Calif.

Skype was also in negotiations to buy Gizmo5 before the VoIP (voice over Internet protocol) giant's founders reached a settlement to re-take an ownership stake in the company. TechCrunch first reported the news earlier this week. The deal is a crucial step for the search titan because Google Voice now gains the technology to connect inbound and outbound calls to standard land-lines and cell phones, something it had lacked.
The Gizmo5 acquisition makes a world of sense for Google because it adds a major piece to Google's mobile network puzzle. That's because Gizmo5's open standards-based web calling system allows incoming or outbound calls to real phones. In other words, this deal gets Google one step closer to realizing its goal of forging a parallel communications network independent of the incumbent cable and phone companies.

Gizmo5 also offers a client for mobile-phone users, meaning that, in theory, if you had Google Voice with Gizmo5 and a Wi-Fi connection, say, at an airport this holiday season, you could utterly dispense with your traditional mobile phone service.

I'll repeat that: this development gets Google one step closer to providing a product that could allow you to ditch a conventional phone service -- forever.

"It's a potent recipe," wrote Wired.com's Ryan Singel. "Take Gizmo5's open standards-based online calling system. Add to it the new ability to route calls on Google's massive network of cheap fiber. Toss in Google Voice's free phone number, which will ring your mobile phone, your home phone and your Gizmo5 client on your laptop."

Google intends to merge Gizmo5 with its nascent Google Voice service -- currently the subject of a bitter war of words between Google and mobile phone giant AT&T (T). Apple (AAPL) has refused to allow a Google Voice application on its iPhone, available exclusively on AT&T. Meantime, AT&T has complained to the Federal Communications Commssion about Google Voice blocking certain calls to high-priced rural numbers frequently used for "free" sex chat and conference call lines.

"Gizmo5's engineers will be joining the Google Voice team to continue improving the Google Voice and Gizmo5 experience," Google wrote on the company blog. "Current Gizmo5 users will still be able to use the service, though we will be suspending new sign-ups for the time being, and existing users will no longer be able to sign up for a call-in number."

Gizmo5 was founded in April 2003 by Michael Robertson, the Internet entrepreneur best-known as the founder of MP3.com, and has raised $6 million to date.

Prior to the Gizmo purchase, Google Voice has lacked true VoIP capability. That changes now, pushing Google into direct competition with Skype, which just emerged from limbo with the settlement of a bitter legal dispute between the company's founders, eBay which owns Skype, and a consortium of private investors trying to buy Skype for $2 billion. Skype had viewed Gizmo5 as a possible alternative should the settlement fall through.

Google's purchase of Gizmo5 for $30 million -- a song, really -- should put the entire phone industry on notice, from the incumbent telecom and cable companies, to entrenched VoIP players like Skype. Head's up: Google's coming at you.

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