So, as you may have noticed, I don’t usually write in my blog about Fonality-specific business or products, nor do I take many comments about such. Rather, I like to focus on issues which I feel are broadly interesting to business owners, managers, and people who see crossovers between “life” and “business”. But, today, I’m going a bit off topic. I am going to write about something historic that has happened for “my” company, Fonality. I also feel this news is quite interesting to small-to-medium businesses (SMB) everywhere. OK, maybe that was a bit self-serving, but I do think it’s true. ;)

Yes, this is a *big* day for us. Actually, this would be a big day for any startup anywhere — struggling to establish its credibility in an aggressive tech world full of behemoths. This is a day we had expressly envisioned since day one at Fonality. In fact, I can clearly remember almost four years ago — to the day — when we (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?). See, our aim back then was to build the world’s easiest-to-use and most affordable business phone system. We wanted this to be the first phone system that acted like a big business phone system, but was priced for small businesses. We even went out and trademarked: “Big Business Phone System. Small Business Price.” It cost us a couple hundred bucks and I remember not being happy about that.

So, we knew that to take a $17B industry and build a product that was *much* cheaper and *much* easier to use, while still *high* in features was no easy hat trick. But, we also knew that *even if we did build it* our next greatest challenge would be: reach. We asked:

“How will the whole world ever find out about our awesome new product?”

The answer was (in a joking way back then): we should do a deal with Dell. They have unbelievable reach and since our stuff has always run on a Dell PC, the fit seemed natural. Absolutely unattainable, yet natural. ;)

Well, that day has arrived! Today, after a year of careful vetting, Dell (NASDAQ: DELL) has selected Fonality as a go-to-market partner for offering VoIP phone systems to its small-to-mid-sized customer base. Dell spent 2007 scouring the market for telephony partners to serve its customer base. They were looking for two different types: an enterprise-focused solution for their larger customers and a low-cost / high performance solution for their SMB customers — one that could be self-managed. Dell has selected Fonality for the latter.

We all know that Dell is a huge company ($57B revs last year) and we all know they have massive reach. But, how to quantify that reach? Here are some numbers I was able to scare up (with the help of IDC): IDC claims that Dell has more than 28% market share in the SMB space in the US, with some 25M US businesses. This means that Dell could be delivering Fonality’s award-winning PBX and unified communications software applications (on Dell hardware) to around 7,000,000 existing small-to-medium business customers. That’s my rough math, but you get the picture — it’s a big picture!

So, why did Dell select Fonality? Well, I can tell you that it did not happen by accident — nor were we the expected choice. Some might ask: was Fonality selected because it is built on FONcore — the world’s most popular open source telephony project (we get over 1 million downloads per year)? Actually, no. Open Source is a means-to-an-end (lower cost and standardization) but certainly not the specific reason we were selected. In reality, Dell began with a list of three basic requirements (tenets that I have always felt are staples to their business):

1. must be high in value
2. must be super easy to use
3. must run on a Dell PC

Sounds easy, right? Nope. Any one of these items cuts the phone system playing field in half — all three of them together, narrowed the field in record time. Why?

1. Telecom has always been ridiculously high priced.
   Fonality’s offerings come in way less than industry average (up 40-80% savings over “traditional” systems).
2. Telecom has always been ridiculously hard to use
   Fonality’s patent-pending “hybrid-hosted” architecture reduces truck rolls; our easy-to-use management software reduces support calls and training time; our remote monitoring takes care of you behind the scenes.
3. Telecom has always been proprietary
   Fonality’s open standards products were built to run on Dell’s standards-based platform from day one.

In my opinion, the most unique thing that Fonality presented over the competition was item #2. Our hybrid-hosted architecture was specifically designed to take the “hard” out of telecom. In fact, we don’t think anybody else in the industry is even doing hybrid-hosted (our filed patents may be part of that reason). This architecture of ours is a clever halfway-point between the old world of premise phone systems and the new world of hosted phone systems. Why would we straddle the fence? Simple. Each model has both strengths and weaknesses. We wanted to get the “good” out of them, whilst mitigating the “bad”.

What do I mean by the “good” and the “bad”?

So, we liked the old premise model because it has great quality and reliability (this is because it uses the PSTN/POTS/things-birds-sit-on). However, we disliked it because it doesn’t fit as well with a world that is increasingly going mobile. People are working from home, and from the road, using laptops, cell phones, and mail clients. They aren’t glued to a cube the way they were 20 years ago. And, to get any flexibility out of the old model, you need high-paid IT staff to manage complex VPN networks and firewalls. And, it still ends up being surprisingly inflexible. On top of all of this, you have to pay the “phone guy” to drive on site to do even simple changes to the system (such as adding an extension). Oh, he’s gonna run you north of $100 per hour. So:

Old model — great quality, lousy flexibility

Now, we liked the new model of hosted telephony because it provides great mobility to the customer, letting them work from home, from the road, pick up voicemail in their inbox, etc. The new model also allows for VoIP, which further saves the end-customer money. However, here’s the gotcha with hosted: it uses 100% VoIP, which may mean that your call sometimes ends up sounding like a Skype call. So:

New model — great flexibility, potentially lousy quality

So, we sat down and intentionally built a model that straddled both worlds. How does it work? We send the customer premise equipment (now a Dell PC), so they can connect it to their old phone network (of course it does VoIP as well). But, we also built four global data centers to help our customers work from home, from the road on a cell phone, or even on their laptop using a softphone. This means if a customer takes a phone (hard or soft) outside the office, it instantly registers back to their phone system. The data centers also handle moves/adds/changes to the phone system. This means that our customers can manage their phone system from a web browser anywhere in the world. Our data centers also keep track of changes so that a customer can have disaster recovery options. They don’t even need an IT staff to help them with their firewall or router. All of this was big for Dell.

So, yes, this is a big validation moment for hybrid-hosted. It has been a tough four years trying to explain our reasoning for this model — first to investors and then journalists and even our customers. They would all ask: why would you choose an approach that was exactly between the old-and-the-new? Our answer was always simple (well, to us, it was): the old has lasted us > 50 years, it is not going away over night. Quality on the old phone network will not be surpassed by VoIP for at least 10 years. And, we all know that 10 years is plenty-enough time for a few billion-dollar telecom companies to go bankrupt and plenty-enough time for a few billion-dollar telecom companies to be birthed.

Who knows where this will take us, but it certainly is a great validation of our technology. Also, it just goes to show you that those crazy sessions in the early, heady days of your startup can sometimes become your reality if you continue to persevere!