There's a land grab happening as companies race to capture their share of the more than 35 million small businesses market that will adopt Internet phone calling over the next three years. At the epicenter is Fonality, a Los Angeles company that in its three short years in business, has managed to land itself in the crosshairs of both the world's fastest growing open source community and a bevy of deep-pocketed telecom giants.

After lucrative exits from his first two ventures, 32-year old CEO Chris Lyman started Fonality to challenge a fumbling Vonage. He re-assembled his best team, secured office space and solicited bids for new phone system. Apoplectic over the prices being charged by Avaya, Nortel and Cisco for rigid old key systems, he rewrote his business plan and set about to build a better mouse trap.

Lyman downloaded a piece of open source phone software called Asterisk and began to add to it what would eventually become the 2.1 million lines of code that bring the system to life. He rethought every aspect of the system and created a phone system for the modern workplace. It supports roaming and home-based workers, allows people to use soft phones built into their PCs and runs a slick, company-wide dashboard that eliminates wasted time. The whole system easily switches back and forth between money-saving VoIP and the lines that the birds sit on, depending on who is calling and voice quality. In a move that could put "the phone guy" out of business, the whole system can be bought, installed and managed just by a non-technical office manager or business owner.

In his first two years Lyman and his team sold 1,000 phone systems and were on track to double that number within next six months. Intel Capital gave him $7 million in the form of venture funding and within eleven months he doubled his customer count and landed a Dell deal that market watchers consider the gorilla of opportunities for companies like Fonality.

Lyman is 32 with a penchant for anything extreme. He's jumped from planes, been dropped from helicopters onto glaciers, is a US and Canadian licensed SCCA-pro stock car driver and trick rides his sports bike on the congested freeways of his hometown, Los Angeles. He's been listed as one of the top influencers in VoIP for the past two years and Fonality has been named as the #1 Rising Star in Los Angeles by Deloitte.

Dorota Kosiel, Research Analyst, Information & Communication Technology Practice, Frost & Sullivan, Europe conducted a one-on-one interview with Chris Lyman, Fonality CEO.

Chris Lyman

Chris Lyman (CHL): Sure, Fonality provides the first ever phone system that can be installed and used by "non-phone people". Basically we have broken the paradigm of complex, expensive and proprietary telecom. We have created a phone system solution that runs on low-cost Dell PC but delivers all the enterprise functionalities similar to that of a very high-end system from Cisco or Avaya. We used open-source and commoditized PC hardware to change the cost dynamics of telephony, and created a really easy-to-use system to change the ease-of-use dynamics of phone software. As a result you have got a very high-end quality phone system that can be directly installed by the average business owner.

CHL: Yes, I actually think that open source is a good fit for telephony. Telephony at its core is very complex. Every country and even every region within every country, has their own telecom standards so there is almost an endless amount of integration work to do to get the global telecoms to "talk" to each other. For that reason open source is a really good tool because programmers in the local region can adapt open source telephony to work in that region - so open source will naturally spread to all corners of the globe. As a proof of success of open source, we have 2.6 million downloads of our free open source PBX.

CHL: Over the next 5 years you are going to see VoIP move into the middle market. VoIP has been very strong at the consumer end with Skype and Vonage and it has been good up at the high enterprise end where people can afford very good circuits. It has been soft in the middle market and that is because the bandwidth has not been good enough in that space. As fibers start to roll out to businesses, however, you are going to see VoIP completely replace the PSTN over the next say 5 or 10 years. When that happens, you are going to see much better business connectivity for things like digital audio and video applications. You are also going to see some convergence between the deskphone and the mobile phone, so people will start to have just one device – a handset that operates on dual mode so when you are in the office it runs under Wi-Fi and when you leave the office it runs as cell phone. You are going to see a lot of fixed-mobile convergence.

Fonality has a phone system that is agnostic to VoIP or PODs, so as the market matures and starts to go VoIP, the phone system that our customers are buying today is ready for VoIP tomorrow. At the same time we are always thinking how we can connect the office phone system that we sell to our customers' cell phones. We are always thinking of new and creative ways to connect these. I think we are going to be pivotal in this intersection between two things: VoIP and analogue telephony service, and the deskphone and the mobile phone.

CHL: One of the things we did recently is that we unbundled the hardware from our software so we created a software-only version of our phone system that can be downloaded and used anywhere in the world, burnt to a CD, stuck into a brand new or old computer and turned into a phone system. As soon as we went software-only it opened us up to the 20 billion dollar global telecom market instead of the 7 billion dollar US market, effectively tripling the size of our addressable market. We have also become the world's number one open source community with our telephony project called trixbox. By having a great free open source solution and also having the paid software-only solution we are able to travel anywhere where there is an Internet connection and sell our products.

CHL: Customers do not really care if it is open or closed-source. They want it simple and affordable. As the matter of fact they would prefer it to be non-proprietary so it naturally integrates. Honestly, if you can make it easy and affordable you have won the "purse string" of you customers.

The biggest competitive threat? Microsoft. Microsoft is just coming into our space. You are fool if you are not afraid of them. Microsoft bets on a lot of horses so they are going to have to stay focused for 5 years to win in this space, but they are in the same space and we should take note. The truth is Fonality is not as afraid of Microsoft as I think Cisco or Avaya should be. We are still gaining market share whereas I think Microsoft will be taking market share from some larger, more established market players.

CHL: I would say that employees' natural reaction would be to try to please you, and if you make it very clear time and time again that you are not affected by this, they would slowly learn that you do not play politics in the office. Once they learn that, they stop trying because they know it does not work and then they spend time improving the business instead of pleasing the CEO.

CHL: Probably closing the deal with Dell a couple of months ago is my biggest accomplishment. Dell now resells our phone systems. They chose us over Cisco, Avaya, Microsoft, and everybody else. That is a very big win for a start up. Where do I go from here? I will keep working on growing Fonality and making it a global player in the space. And after that I am sure there will be more start ups.