Fonality: IP PBX service changing with the times.

Founded in 2003, Fonality has carved out a name for itself by providing IP telephony to the small- and mid-sized business market. The company says it has carried over 1 billion VoIP calls to date.

Now there are big changes under way in this Culver City, Calif. enterprise. The company is rapidly shifting its services from premise-based to cloud-based solutions. At the same time, Fonality is taking an enthusiastic run toward the larger enterprise market.

“These are thing we have always looked at, and they are things we are going to want to pay more attention to as we keep growing rapidly,” said Aron Aicard, senior director of product management.

The growth has indeed been rapid, with sales in Q4 of 2009 up 162 percent from the same period the year before. The company acquired 28 percent more customers in that quarter than in the same quarter in 2008. Moreover, this relatively young enterprise is cash-flow positive, with 162 percent annual growth and no debt, said Corey Brundage, VP of worldwide marketing.

The company claims almost 10,000 customers on all its products, both cloud- and premise-based.

This solid platform gives the company room to expand, starting with an evolution into the cloud.

As Fonality eases itself and its customers into cloud-based telephony, it has pursued a phased approach. It still offers its hybrid solution, one that pairs on-premise equipment with functionality managed largely in the cloud. At the same time it is becoming increasingly common for customers to opt for a cloud-only solution.

“Five or six years ago hybrid systems were awesome,” Aicard said. “Now the networks have changed, the perception in the market has changed, the reliability of hosted systems has changed.” In response, the company launched its fully hosted service—UNBOUND—a year ago, and Brundage reports strong uptake.

In tandem with the move to a hosted offering, the company also is looking to embrace a larger class of clientele. It is adding new functionality, such as back-office integration, in a bid to court enterprise customers.

To woo the bigger buyers, Fonality is retooling its marketing. On the Web site, for example, the page describing core product PBXtra will soon be unveiled with big revisions, Brundage said. The changes will give it more of a big-business feel.

Right now the PBXtra material is largely price and promotion driven – something SMBs like to see. But company research shows enterprise visitors are less likely to covert through the site than are small-business clients. That means it is time to speak a new language. “We have things that are targeted to the enterprise, but the company’s materials don’t always look that way,” Brundage said. He added that shifting emphasis already is making its mark. “We are in the process of talking to some very large accounts in various areas of the globe.”

The company is supporting the change with aggressive moves on the human resources side. In particular, Fonality recently brought in Dean Mansfield as CEO. A former president of worldwide sales for NetSuite, he helped drive that company toward its successful 2007 IPO. Mansfield has been actively instituting new processes aimed at driving further growth, Aicard said, including an effort to hone customer service metrics, and new approaches to decreasing cloud churn.

One thing that won’t be changing is the company’s strategy of selling direct, rather than taking the more common route of approaching the end user through reseller channels.

Today the company does make use of some channel relationships with a range of players including Dell computers, which actively promotes Fonality for customers inquiring about phone systems. But the vast majority of its sales come directly in the front door.

“Channel makes you sloppy as a vendor, because you know your integrator is out there to fill the gaps and smooth it out for the customer,” Aicard said. “I call that channel bloat. It’s unnecessary inflation. If your product and service model is really refined, direct selling is the way to go. They say it in retail all the time: Cut out the middle man.”

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