Fonality Scores $12M for Open Source PBX

When the times get tough the tough choose cheaper, open-source phone systems. Such seems to be the theme of Fonality CFO Dan Rosenthal’s chat with me about the company’s latest $12 million venture funding led by Draper Fisher Jurvetson Growth Fund with participation from existing investor Intel Capital. And you know, I don’t think he’s wrong. The company is “sometimes profitable,” according to Rosenthal, and has grown rapidly in the last few quarters. Supporting that growth is one of the reasons for the third round of funding.

The Ciscos and Avayas of the world won’t keel over because Fonality’s selling more phone systems and software (while hoping to beef up its retail distribution network at stores such as Best Buy and through Dell), but Fonality has a really good chance to play big, because its open source roots mean its phone systems for smaller offices costs tens of thousands less than similar system over a multi-year time period. For a 70-person office its PBX costs about $23,100 up front compared to more than $30,600 in annual leasing fees for a comparable system from Cisco.

The economic downturn might actually help Fonality find more customers, especially since most entrepreneurs (who would be in the market for cheaper phone systems) tell me recessions are the best time to start a business.

Open Source, Closed Minds: Can an OS company be part of the OS community?

Editor’s Note: with the recent launch of GigaOm’s, Ostatic, which promotes Open Source by matching users to the right OS tools and resources, we offer this essay on the virtues and vices of OS dogma, by Found|READ contributor Chris Lyman. Chris is founder and CEO of VoIP startup, Fonality, which uses OS. A list of Chris’ earlier F|R pieces is below. Also check out his blog, the Janitor/CEO.

This Open Source world for me has been a mixed bath. I have always felt that making money and ethics were not mutually exclusive. In my early 20s I had the “Microsoft is bad and Bill Gates must die” mentality. But, my Orwellian rant faded over time and I began to have a more balanced perspective on the world, and the technology which fuels it. Perhaps this is the pragmatism which piggybacks aging. Perhaps this is a byproduct of having to pay rent. Either way, I slowly came to see a world where proprietary and 100% free software had their place. I found solace in betwixt – the world of “Open Source”.

Most people don’t actually know the roots of “Open Source”. This term was consciously crafted in a hotel room in the 90s by a huddled council of six wise men. They removed the term “free” — an intentional “fork” from the absolute free path of the Free Software Foundation (FSF) — not to make it less free, but rather, to bake in some of the fundamental tenants of capitalism, and to steer clear of the moral bent of the FSF. Call them pragmatic, call them sell-outs. They foresaw a model that could both defend the free and allow for profit. Read More about Open Source, Closed Minds: Can an OS company be part of the OS community?

Beware of Employees Tossing ‘Roses Where You Walk’

Editor’s Note: Chris Lyman is the founder and CEO of the enterprise VoIP service provider, Fonality, in Los Angeles. He’s also one of our favorite bloggers, penning candid and humorous essays on the many challenges he faces at his Janitor’s Blog. See Startup Math: 1 + 1 = 1/2, The Power of “I Don’t Know”, How the ‘CEO-Janitor’ Cleaned Up With DellToday we get another, this time on the dangers of employees trying too hard to please the boss, published originally as Roses Where I Walk.

A fellow blogging friend of mine gave me a hard time tonight about not blogging more. He wrote “I would prefer more than one nugget every five weeks.” So, I decided to put digital ink to ethereal paper and talk about a subject that has been on my mind of late.

This entry is issued as a warning to other employees, managers, CEOs, and janitors alike. I call this corporate disease: “Roses Where I Walk”.

See, I have noticed an insidious little pattern that arises as your company grows. As a CEO, sitting at the top of my firm’s food chain, it affects me every day. But, I imagine that in larger (thousand+ person) companies, it probably creeps all the way down to the VP and Director level. This dastardly practice is born with no ill intention – nay, narry a dash of malice nor a whim of Machiavellian bent. Quite the opposite in fact – this rose is born from the desire to please “the boss”. Read More about Beware of Employees Tossing ‘Roses Where You Walk’

Dell Thinks Small Biz is Big Biz for VoIP

Dell begins bundling Fonality’s open-source software with its enterprise servers today, its latest gambit to compete in the already-crowded VoIP market — this time targeting companies with 125 employees or fewer.

This is fertile ground: Analyst Alan Weckel of research firm Dell ‘Oro Group estimates annual PBX revenues, including those from VoIP phone systems, will exceed $7.5 billion by 2011. Much of this growth could come from small- to medium-sized businesses. Weckel told The Wall Street Journal in August that he thinks 35 million small businesses will adopt IP phone service before 2010 (about 11 million currently use it), a number that’s likely to ramp up if the economic situation worsens.

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How the ‘CEO-Janitor’ Cleaned Up With Dell

air_combat.jpg Chris Lyman, the founder of the VoIP startup, Fonality, blogs under the moniker Janitor— which he prefers to his other title: CEO. Chris has shared some of his management ideas with us here, too including Startup Math: 1 + 1 = 1/2 and The Power of “I Don’t Know.” We also recommend you take a look at his recent treatise on open source.
Today Chris has some big news: his four-year-old company just landed a deal to partner with Dell to hawk its open source VoIP boxes to the PC giant’s 6 million small- and medium-sized businesses. In four years his own 40 salespeople had netted 5,000 customers. Not bad, but not Dell. In an interview for GigaOM, Chris called the deal “a company defining event.” Something every founder dreams of, in fact.
Chris has written a long post about what he learned on the march to closing with Dell:

This would be a big day for any startup anywhere — struggling to establish its credibility in an aggressive tech world full of behemoths… I can clearly remember almost four years ago – to the day – when [the] four of us working at Fonality back then were sitting around a room and hypothesizing about our plan to revolutionize telephony. (Isn’t that what all founders do when they are staring at the back of a napkin?).

How many of you are nodding right now? Chris’s piece is filled lessons, but here are the key takeaways. Read More about How the ‘CEO-Janitor’ Cleaned Up With Dell

Is That Voice in Your App?

[qi:086] Things have been tough as of late for plain vanilla VoIP service providers, but that doesn’t necessarily mean that voice over IP is over as a technology. As my good friend Andy Abramson points out, the focus in the future is going to be on adding voice to apps.
This was one of the trends I talked about when the now-defunct Business 2.0 launched its Next Net series in 2006. The idea behind the series was that as broadband became all-pervasive, everything from the web to mobile to video to voice became part of the next evolution of the Internet. (It has been a guiding principle of my coverage here on GigaOM.)
Fonality was one of the companies we picked for the list, because even at the time, Chris Lyman, Fonality’s CEO, was talking about adding voice to apps. He made a key move today, acquiring Insightful, one of SugarCRM’s largest resellers. The new offering from Fonality, called FonalityCRM, integrates the CRM suite with PBX and offers click-to-call dialing, agent screen pops and several other features.
Read More about Is That Voice in Your App?