Fonality Sets Sights on SMB Telephony Market
By Brian Kovalesky
3/1/07 – February was a busy month for Culver City-based Fonality, with the completion of a $7 million round of funding led by Intel Capital, and the release of a new version of its business-class phone system product, PBXtra.
Founded in 2003, Fonality targets the small and medium size business (SMB) market with a lower-cost alternative to traditional private branch exchange, or PBX, business phone systems. It now claims to serve more than 1,600 business customers with 40,000 individual users worldwide.
Fonality CEO Chris Lyman makes it clear that the SMB market is Fonality’s prime target.
“The low end of the market is enormous and has been completely ignored by large, established companies,” said Lyman. “Their products are too complex for smaller companies, and the prices are ridiculous. We’re in step with companies with two-to-500 employees who want affordable products with all the features required to support their modern workplace.”
The Small Business Administration says there are somewhere around 25 million SMBs, with 500 or fewer employees, in the U.S., and analyst firm IDC forecasts that the market for IP PBXs in the U.S., similar to Fonality’s offering, will hit $8.9 billion by 2009.
Venu Pemmaraju, senior investment manager at Intel Capital, says that one of the key reasons for its investment was Fonality’s architecture and delivery model, “which enables them to service the vast SMB segment in a seamless yet cost-effective manner.”
Another key factor, according to Pemmaraju, was Lyman’s management of the company, which is profitable. “Their month-over-month revenue growth has been phenomenal,” he said.
Fonality’s pricing ranges from $995 for its standard PBX system to $2,995 for its call center system, which supports call center queues, among other premium features. Traditional PBX systems with the same or similar features can run upwards of $10,000 to $15,000.
A number of telephony companies are actively courting the SMB market with lower cost, not the least of which are IP telephony companies like Vonage, Skype and AT&T’s Call Vantage service. But Lyman makes a strong distinction between his company and basic voice-over-IP companies.
“Vonage and Skype are transport companies and their key value proposition is lowering your monthly telephone bills by sending your calls over the Internet,” said Lyman. “Our value proposition rests in lowering the cost of purchasing a business phone system. Yes, our product works with VoIP, but it also works with the legacy POTS network. We are a voice applications company not a voice transport company.”
In terms of competition, Lyman sees it as the traditional PBX vendors like Nortel, Cisco and Avaya. “These companies make most of their money from very large corporations and they don’t have the mindset or technology to do right by smaller companies. In fact, these big vendors pay their sales people and resellers a commission that is equal to the total cost of our system,” he contends.
Lyman also argues that the fact that SMBs can set up Fonality’s PBX in-house saves its customers around $5,000 per sale, compared to going with a traditional PBX system that requires an installer. “Fonality is the first company to sell a sophisticated business phone system directly to the customer. We can do that because we've created a product that can be installed and set-up by a non-technical professional. This saves our customers a tremendous amount of money,” said Lyman.
Fonality’s software is based on an open source protocol—a popular trend in the age of “web 2.0.” Lyman says that utilizing open source technology allows Fonality to providing better features for a lower cost and long term savings. The company’s PBX products utilize Asterisk, open-source software originally created by Mark Spencer of Digium.
“Another advantage of using open source Asterisk is that, because we don't have to fiddle with the protocol-layer, we can spend our time making a great application layer,” said Lyman. This means more features, more stability and more scalability, all for less money.”
Fonality says it plans to use the funding raised in its latest round to further develop its product lines.
