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Heads Up: A Different Approach to Unified Communications


Fonality Scores With Varied Offerings, “Awesome” Display Interface

By Jeff Ferry, Founder and Editor of Daily CloudDaily_Cloud_Logo_646x220.jpegIn 2013, Dan Paul, the IT Director at Sierra Office Systems, decided to convert Sierra’s four California locations to a hosted VOIP telephony solution. He spent several months carefully researching the alternatives. He looked into all the important factors, including call quality, reliability, phone handsets, mobile capabilities, and of course cost. He had just made his choice, for a privately-owned smallish hosted VOIP provider, when a colleague suggested he check out Fonality. He met with a Fonality salesman who did a demonstration of Fonality’s flagship feature, Heads Up Display, universally known as HUD. HUD is an on-screen display that provides each user with information on all the other users within their organization and let’s them communicate through that interface.

“I was floored,” Paul told the Daily Cloud. “It totally wowed me. HUD is a graphical depiction of all your extensions and it allows you to drag and drop to transfer calls or create conferences, and other actions. I checked it out with other references and everywhere I went I got the same message: Fonality is awesome, we love HUD.” In May 2013, Paul deployed Fonality systems for 90 lines at the Sacramento HQ and the company’s three other locations. He and his employees are very happy with the Fonality system. In addition to the new features, and the excellent sound quality of the Polycom phones on everybody’s desk, Sierra has cut its phone bill by 50%, saving around $2,000 every month—and enjoying more reliable connections than it had with the old analog phone system.

“This is one of the best decisions I’ve made in my 15 years at this company,” says Paul. “I am the only IT guy at this company. I have 13 servers sitting behind me, and I did not want to add another one.”

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Fonality is a little different from many of the startups we encounter at the Daily Cloud. Where some startups refuse to talk about their financial results, cloaking their alleged performance in overexcited clichés about “disruption” and meaningless percentage growth figures, we found Fonality Chief Marketing Officer Jeff Valentine to be direct, honest, and matter-of-fact. Fonality’s approach to unified communications is like that: intelligent, resourceful, and different from the pack.

For a start, Fonality does not just sell one model of UC. Many vendors see the nirvana of UC as the fully hosted model, hosted from their own data centers, and that may ultimately be where the industry ends up. Today, Fonality offer more options, including three models: a “private cloud” version, which is hosted at a Fonality data center on private, dedicated cloud resources, a full UCaaS hosted model, and thirdly, a hybrid model, in which the customer actually keeps his traditional phone service, but bolts on the Fonality messaging, HUD, and other IP-based features. “The hybrid model is so unique, people sometimes have a hard time getting their head around it,” says Valentine. “But we have 220,000 users in 99 countries on the hybrid model. Our UC strategy is more about augmenting the telephone instead of replacing it.”

Fonality also has 85,000 users on its public and private cloud offerings. Tony Valez, a reseller in Anchorage, Alaska, sells primarily the on-premise system, because, he says, the Internet is not reliable enough for most businesses to put their voice system in a remote data center. “Fonality is not the least expensive system, but in the long term, a customer’s total cost of ownership will be less than other systems,” says Valez. He says that customers who just want a few voice extensions don’t need a sophisticated system like Fonality, with its HUD feature. But for many businesses, Fonality is a great fit. “HUD is important for productivity. I can see who is in the queue, and who is making calls and who is not making calls.” He compares Fonality to Cisco, which also offers a sophisticated premise-based UC system, but typically at more than double the cost of Fonality. “Fonality has been good to me. My clients love it.”

Thomas Sarentino, whose Metrotech Systems resells Fonality systems, both hosted and premise-based, in the New York-New Jersey metropolitan area, told us a similar story. “HUD is a huge convenience. First it was a desktop app, then web-based, and now there’s HUD Mobile, it’s getting better all the time,” Sarentino says. “I only see Fonality getting bigger.”

Cash Flow Positive

Fonality was founded as a venture-backed startup a decade ago. Under previous management, it pursued the hosted UC model, and grew quickly. But it suffered from a high churn rate, and the company got tarred with a reputation for unreliability and uneven customer service. It burned a lot of cash, ran out of money and in 2012 the venture investors replaced management with a new team led by David Scult, a Microsoft veteran who joined Microsoft when it acquired Groove Software for $120 million, where Scult was COO. He was general manager of Microsoft’s Office 365 before joining Fonality. Under Scult’s leadership, Fonality refocused on packing more features into its system, selling at a slightly higher price than some other UC systems, and improving the reputation for quality. Today Fonality has an ARPU (average revenue per user) of $38, higher than that of some of the best-known publicly quoted UC vendors. “Today we’re profitable, our churn is lower than our competitors, 88% of our revenue is recurring subscription, and we’re growing at 20% a year,” says Valentine.

Fonality goes to market through three roughly equal models: direct inside sales, channel sales, and incremental sales to the installed base of 30,000 customers. Valentine says Fonality spends more than $100,000 a month on Google’s pay-per-click program and it’s worth every penny. However, he expects most of the upcoming growth to come from channel sales. “We’re growing fantastically with new partners in the channel. That’s where the market is taking us.”

Not only is it profitable, but it will be cash-flow positive this year. Although it doesn’t need to, Valentine says the company is debating raising more venture funding. The funding would be used to propel growth and take advantage of what he sees as the large UC market opportunity. It’s widely believed that today, after several years of hesitation and unfulfilled promises, the UC market is at last set to take off. “There’s a new generation of C-level leadership out there that is more open to the cloud,” Valentine says. “There’s a huge amount of opportunity and we don’t want to miss out.”

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