Mass High Tech February 23, 2004

 

Out into the open
By Jeff Miller

In the fall, Woburn-based Pingtel Corp. decided it needed to find a way to disrupt the enterprise voice- over-IP marketplace if it hoped to unseat industry leaders Avaya Corp. and Cisco Systems.

Last week, it revealed its plan. Pingtel has gone open source.

“What we intend to do is pioneer a new business model for IP voice communications,” said William Rich, Pingtel’s chief executive. “Red Hat and Suse provide support around an open source code base. That’s what we want to provide.”

Originally founded in 1999 to make so-called soft phones for use with VoIP, the company shifted gears in early 2001.

“The intent was to supply (soft phones) through providers like Verizon and MCI, which would supply the IP PBX to businesses,” said Jay Batson, Pingtel’s founder and chairman. “But it became clear that the carriers weren’t moving fast enough, so we started work on bringing the entire solution to market.”

In April, Pingtel launched SIPXCHANGE, a software IP PBX built around session initiation protocol (SIP) that allowed a business to set up a VoIP network and could be installed on a clean desktop computer.

In November, however, Pingtel decided it needed to go open source to kick-start market adoption.

“We think this will drive a new ecosystem,” Rich said. “Toss a bomb into the middle of the market now that the fundamental software that glues everything together is free.”

In the open source business model, a software company releases its source code to the public, allowing users to fix bugs, advance the software and improve performance. Anyone can download and use the software free.

But free software doesn’t mean there’s no money to be made. Though the software is freely available, an open source business sells its expertise with the product. For an annual fee, customers receive service, support and updated versions of the software that are guaranteed to work as the customer expects.

Red Hat Inc., for example, a North Carolina-based open source Linux company on which Pingtel is basing its business model, has made a profit for the last four quarters and, in its most recent quarter, posted $33 million in revenue.

Open source software is not a fad. Linux has found its way into the data centers of the vast majority of large companies, the open source Apache application is the most widely used Web server software, and on the database front, open source MySQL is a rising threat to Oracle.

“This is in general where the market is headed,” said Stephen Elliot, a senior analyst at IDC. “Users I’ve talked to, both carrier and enterprise, are looking for more flexibility from their (VoIP) platforms in terms of integration and, secondarily, just lower cost of ownership.”

On March 24, Pingtel will set up a separate, nonprofit organization that’s divorced from Pingtel to manage the open source development of SIPXCHANGE as well as other VoIP open source projects.

Pingtel will take a snapshot of the organization’s code base three or four times a year to test it for reliability, scale and performance on a wide variety of Linux versions and processors.

Customers would pay an annual $999 fee per processor for a year’s worth of these product updates, access to a technical resource center and product support. Pingtel will still sell soft phones, but it’s no longer their core business. After all, it expects many customers to simply hook a USB-headset into their computers and use a software-based virtual phone.

“Support is our true value-add,” Rich said.

With this new model, Pingtel hopes to take share away from big proprietary players like Avaya and Cisco.

Avaya and Cisco are virtually tied as IP PBX market leaders for the first three quarters of 2003, according to InfoTech Research Group, a Canadian IT research company. Avaya had 20.7 percent of the market, while Cisco had 20.3 percent. Pingtel does not report its figures to InfoTech.

Pingtel’s all-software approach views VoIP not as a chassis and line-card solution but rather as just another application on the data network.

“Linux is already in the operating system of the data center, and Apache is the killer app at the web tier,” said Martin Steinmann, senior vice president of marketing for Pingtel. “We think (VoIP) is the killer app to get open source into the application tier.”

Looking at voice as “just another app,” however, may be a premature assessment, said Elliot at IDC.

“Voice is much more than just another app,” Elliot said. “IT from an organizational standpoint isn’t ready for a VoIP debacle.”

Users have extremely high expectations for voice performance and availability, Elliot said, and meeting these expectations puts a lot of pressure on a converged network.

Plus, some analysts aren’t at all convinced that the open source model will work in the IP PBX world.

“I think it’s a romantic, idealistic view of where the industry could go 10 years from now,” said Zeus Kerravala, vice president of enterprise infrastructure at the Yankee Group. “The concept would be good for a technology that’s more mature, but right now the IP PBX platforms have a lot of development to do.

“For Pingtel being a sub-1 percent player in a market dominated by heavyweights,” he added, “it’s not a bad strategy. But the people who buy phone systems today won’t gravitate toward this solution. It’s too big a stretch.”

Pingtel, however, claims that it has spoken to many large customers who are eager to try it out.

“A substantial number of large companies are all coming in with RFPs to use 500 to 1,000 softphones for a corporate test,” Batson said.

If the open source model catches fire, Pingtel CEO Rich expects to raise another round of funding soon to build out sales, marketing and support. The 17-employee company has raised $25 million to date.

“We made this change with the encouragement and support of VC investors,” Rich said. “So raising another round is likely.