Yak Communications, which previously mostly been operating in the dial-around long-distance market, has launched a new service that allows its users to make pre-paid video and/or audio IP calls to others outside the Yak system while still connecting to each other for free.

The service provider has teamed up with Emergent Network Solutions and DaVinci Integration to develop its yakForFree VoIP, a prepaid service that debuted earlier this month. The yakToAnyone service lets users make audio or video calls from a softphone to anywhere in the U.S. or Canada for two cents per minute.

Yak previously had been competing with larger VoIP providers, but has decided to slow its efforts there because of the cost.

“We found it difficult to compete with Vonage because they were paying such a high price to acquire customers,” said David Hurwitz, President of VoIP Initiatives of Yak.

Like the hundreds of other VoIP providers in the PC-to-phone space, the newest Yak service requires users to download client software, though the company’s other services will work with analog telephone adapters. The download process, however, gives the company a good window into its success and lowers the cost per acquisition, Hurwitz said.

“We had 5700 downloads in the first week we went live and about 11% of those upgraded [to the yakToAnyone service],” he said. “As long as a certain percentage of people upgrade, we’re OK. The [cost per acquisition] for us at about 10,000 customers is virtually nothing.”

In fact, Yak’s business model is evolving quickly with little reliance on advertising, which is where many VoIP providers make their money while giving away voice service for free. However, according to Nathan Franzmeier, President of Emergent, which is providing the platform to offer pre-paid services, Yak has a number of potential options.

“They’re kind of the forerunner of what will be done in a standards-based architecture,” he said. “One of the things we’re talking about is setting up a video call center so they could do video on hold. You could play virtually any kind of content including a commercial.”