Beyond Geeks: How Digium Plans to Grow Asterisk* April 2007

If you think Asterisk is for geeks, you have another think coming. So, say executives at Digium Inc. The open-source IP PBX software company is retooling its offer to “cross the chasm” from early adopters to mainstream small and midsize business users. That also means Digium is expanding its partner program to appeal to less technical indirect sales organizations that its executives believe are key to broadening Asterisk’s reach.

“This is more about Digium kind of growing up,” says Gary Chen, a senior analyst covering SME IT infrastructure for Yankee Group’s Enterprise Research Group. “It’s a sign of the maturation of the open-source project.”

Indeed, the Asterisk initiative was launched in 1999 by Mark Spencer, then a college student, and has since cultivated a prolific community of contributors and launched a number of third-party developers into the IP PBX business – Fonality and Switchvox come to mind. Aside from stewardship of the open-source project, Digium sells tested and supported versions of Asterisk as well as a number of analog and digital telephony cards for integrators to use in building an Asterisk-based IP PBX.

“Asterisk as an open-source project was attractive to tech guys – the ones that want to tinker with things and so they would put the stuff together themselves. The channel was that way, too. It was supertechnical guys who could take this code and turn it into a production implementation,” says Chen. “I think now what you are seeing is they want to address a broader market. In order to do that [they understand] not all of the channel are these technical people… . A lot of them are just resellers; they just want to sell product and they want that product to be as fast and easy to implement as possible.”

Reaching a broader set of users and a less technical channel requires a different approach. So, Digium announced in March the availability of the Asterisk Appliance and its first formal Authorized Reseller Program.

“We are trying to get beyond the people who are familiar with Linux and Asterisk and really leverage the platform we have created in open-source Asterisk to make it easier for a different set of resellers that are used to selling a prepackage box to be able to take advantage of that open-source technology,” says Spencer.

To help with the company’s transformation, Spencer has brought in new management. In February, Danny Windham replaced Spencer as CEO of Digium. The former president and COO of ADTRAN and a longtime Digium board member will lead the company through this maturation stage. Spencer becomes chairman and CTO. Windham’s experience working at the channelfocused ADTRAN fits well with Digium’s stated growth path. But Windham will not be handling the task singlehandedly. When he came aboard, Windham brought with him ADTRAN’s vice president of channel sales, Steve Harvey, who will serve as vice president of worldwide sales for Digium.

“I think the appliance completely and totally opens Digium up to be able to sell through that classic interconnect phone VAR organization,” says Harvey. “Whereas in the past when we took the pure Linux/ Asterisk products to those markets, they didn’t have the skill sets to mess with it. So, I think it opens up a huge potential market for Digium.”

The Asterisk Appliance includes a complete Asterisk server, support for VoIP and analog phones, five Ethernet ports (one WAN, four LAN) and built-in router. It also has full-featured PBX, IVR, voice mail, conferencing and ACD software, and includes the AsteriskGUI, which offers a graphical interface for manipulation of configuration files. The unit supports small businesses and branch offices with two to 50 users and starts at $995.

“It really is focused on the SMB marketplace as an all-in-one, simple-to-install solution,” says Harvey of the Asterisk Appliance.

Harvey says the turnkey nature of the product is likely to appeal to a new group of distribution partners, including interconnects and telephony agents as well as service providers – CLECs and ITSPs – that are not inclined to take on the integration work of traditional server-based Asterisk systems.

Analyst Chen says the strategy is sound. “If you are going to get into the SMB market, you certainly need this kind of product and you need that kind of channel focus,” he says. “They are approaching it the right way. It remains to be seen how fast they can build it out. It’s a totally different audience. They are not going to be selling it to the tech superstars they were selling it to before.”

While the device will facilitate the recruitment of less technically inclined sales partners, Harvey fully expects that the existing Digium partner community will be selling the Asterisk Appliance as well. For them, it will be customer-driven based on the needs and willingness to pay. “For the integrator, it opens up an additional market for them they didn’t have before,” he explains, pointing to the cost-conscious small business user.

However, Harvey acknowledges that Digium has its work cut out in terms of building a new program that can support new interconnect and service provider partners. Since Digium already supports its server-based partners, Harvey does not expect tech support will need to grow until there are significant numbers of new partners. He does expect that a field-based channel sales force will need to be deployed as the channel grows.

The Digium Authorized Reseller Program offers three tiers depending on anticipated sales levels. These include Authorized Reseller (up to $120,000 annually), Premier Authorized Reseller (up to $500,000 annually) and Elite Authorized Reseller (more than $500,000 annually). Once a reseller joins the program, they can purchase the Digium Reseller Starter Kit, which includes a demo kit, sales collateral and access to reseller tools. With entrance into the program the reseller also has six months to complete the Digium Asterisk Boot Camp to become a Digium Certified Asterisk Professional. A ramp-up grace period is about nine months to one year. Margins (not manufacturer discounts) of 20 percent or more on the gear should be achievable, says Harvey, noting that all related professional and managed services fees are gravy.

Harvey says the nascent program is likely to be amended midyear after Digium, as a company, and Harvey, as the channel manager, have a chance to evaluate its early progress. As of the end of March, seven new partners had signed up for the program and another 30 applications were pending. Harvey’s goals are to have around 40 partners in the Elite tier, double that in the Premier tier and double that again in the initial level.

One likely change to come is in the degree of training, which now requires partners to become educated on the full product line, not simply the appliance. Harvey says it is likely that there will be a tailored training for the appliance and advanced training for partners that want to move up the value chain to larger deployments that require the server-based products.

Speaking of server-based products, the introduction of the appliance could put Digium in competition with some of its existing partners that package the Digium software and cards and sell them into the SMB marketplace. Chen says he expects Digium’s developer partners aren’t pleased to have another competitor in the market, but since it’s so fragmented, he doubts there will be much conflict. “The market is so wide, there is plenty of room for everyone,” he says, adding besides, these companies have a jump on Digium in building out their channels. “They [Digium] are starting from zero, basically. They have to build up the name, the marketing, the brand. They are going to have to differentiate themselves amongst the competitors – even the ones using Asterisk.”

“The appliance doesn’t directly compete with what we offer, but it does show that Digium is interested in competing with their partners as opposed to working with them. However, at this point, their actions haven’t hurt our relationship,” says Josh Stephens, president and CEO of Switchvox, which markets the Switchvox SOHO and SMB IP PBX products based on Linux, Asterisk and other open-source software.

Stephens says he has been approached about installing Switchvox on the Asterisk Appliance, but he doesn’t see the value of doing it because the cost of the appliance is greater than a PC. In addition, he says it limits the number of concurrent calls (up to 20), the complexity of the applications and the ability for the customer to grow. Digium made the appliance developer kit available last fall.

Fonality is another partner that markets an Asteriskbased system called PBXtra. Last fall, it acquired an appliance called trixbox (formerly Asterisk@Home), which should go head-to-head with the Asterisk Appliance. However, Chris Vuillaume, vice president of business development and channels at Fonality, says the boxes target different markets. “I know Digium states that its appliance is for a 50-person office, but you only have to take one quick look at the hardware to figure out this isn’t the case,” he says, claiming the unit has low processing power and only 1GB of storage. “The appliance just won’t be able to process enough calls, and it won’t have enough storage for a 20-plus person telephony deployment. … So we see this appliance as a key system replacement to compete with the likes of LinksysOne and D-Link.”

In contrast, he says the trixbox appliance is aimed at five-to-500 users and comes with a P4 processor, two 80GB hard disks, 512MB of RAM and support for up to 48 ports for $999.

What is Open Source?

In general, open source describes any program whose source code is made available for use or modification by users or developers. Open-source software usually is developed as a public collaboration. The result is a fast and transparent development cycle wherein market-driven features are added, third-party integrations are enabled and bugs are quickly excised by members of the developer community. Popular open-source software includes Apache, PHP, Mozilla Firebird, Linux and Asterisk.

What is Asterisk?

Asterisk is an open-source IP PBX program released under the GNU General Public License (GPL). Using the GNU GPL requires all the improved versions released to the public be free software. However, an organization can make a modified version and use it internally without ever releasing it outside the organization. (For more information on GPL, visit www.gnu.org.) Digium marries open-source and commercial software development through a dual-license model. While Asterisk’s development cycle is open source, released versions of the code are feature-frozen and formally regression-tested to create Asterisk Business Edition, from which the open-source version benefits because the refined code is returned to the development community.