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Digium and the open-source telephony revolution (Hint: It's well under way)

Digium is doing exceptionally well. Here's why.

I've long been an admirer of Digium, the company behind Asterisk, the world's leading open-source telephony platform. Tim O'Reilly has been a longtime proponent of Digium and Asterisk, but I admit that I haven't paid enough attention to the telephony market to understand its importance fully.

I was fortunate to spend some time on the phone with Mark Spencer, founder of Digium and the Asterisk project, and he set me straight on how Digium is doing (Teaser: Exceptionally well), and what it's like to seed a market for one's competition:

Matt: What exactly does Digium sell? Aren't you a hardware company that somehow gets confused for a software company?

Most of what we did historically was to build software and sell hardware around it. Today, we have a large array of telephony cards and we're selling hardware appliances (not just individual components--we're also putting things together). But today we're building software and selling it as a subscription.

It was a natural progression. I always thought of Asterisk as the application. A standalone application. You can analogize it to a web server. Over time, the Web server became a piece of a larger solution. People don't just install a Web server today but rather do so as part of a home router, of Zimbra, or whatever. The router is the solution. The Web server is just a component of it.

Asterisk is becoming a piece of a larger solution. We're selling subscriptions to that solution. We've recently rolled our Business Edition in with our support services, making for a very compelling solution to companies' telephony needs.

Matt: How is Alabama? Have you had a hard time growing in Silicotton Valley?

Huntsville has a very high percentage of Ph.D.s here with Cisco, Adtran, and other Telecom-related companies here, it has not been hard at all to hire highly qualified people. Also, getting people to move here from places like Boston has been surprisingly easy. We just make sure we have would-be recruits bring their spouses with them when they interview. While they interview we take their spouses around to look at real estate.

Matt: I've heard that Asterisk is only for small to medium-sized enterprises. Does the technology scale to large enterprises, too?

There are carriers like BT using Asterisk in their networks and plenty of exceptionally large installations of Asterisk, with more than 1 billion minutes per year in some organizations. You do it with a cluster of Asterisk machines rather than one single, massive machine.

That said, just because we scale to large-enterprise needs doesn't mean that we focus there. We let the market direct our attention. We've had at least 3 million downloads of Asterisk since I started the project in 1999 (and that only counts the software downloaded from us directly). There are an estimated 1 million implementations in production. As people use it and need our additional value, they come to us and we sell it. If it's a big company, great. If it's a small company, great.

Matt: You're in an incredibly interesting position: you develop software and give it away, thereby directly enabling benign (system integrators that don't resell your commercial offerings) and malignant (competing Asterisk-based vendor solutions) competitors. Doesn't it make you mad?

Part of that is the game you play with open source. You just have to make your products the best they can be, sell value around them, and hope you win.

But every day I get an angry sales guy in my office complaining, "Why are we giving this stuff away?" It's his or her livelihood at stake.

The hardest part for me, however, is personal. I've spent years putting my heart and soul into this product, and it's hard to see competitors denigrating our product at the same time that they're building their businesses on Asterisk.

We've been profitable since 2002. We've had consecutive quarter-to-quarter growth since 2002. Despite my frustrations at times, we're doing very well. I don't think about what the end goal is, be it IPO or acquisition. I just worry about building an excellent company. Everything else will take care of itself.

Digium is going to continue to knock the ball out of the park. That's clear. It's also clear to me that Mark and his team deserve every penny they get from this company.