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Summary:

When the times get tough the tough choose cheaper, open-source phone systems. Such seems to be the theme of Fonality CFO Dan Rosenthal’s chat with me about the company’s latest $12 million venture funding led by Draper Fisher Jurvetson Growth Fund with participation from existing investor […]

When the times get tough the tough choose cheaper, open-source phone systems. Such seems to be the theme of Fonality CFO Dan Rosenthal’s chat with me about the company’s latest $12 million venture funding led by Draper Fisher Jurvetson Growth Fund with participation from existing investor Intel Capital. And you know, I don’t think he’s wrong. The company is “sometimes profitable,” according to Rosenthal, and has grown rapidly in the last few quarters. Supporting that growth is one of the reasons for the third round of funding.

The Ciscos and Avayas of the world won’t keel over because Fonality’s selling more phone systems and software (while hoping to beef up its retail distribution network at stores such as Best Buy and through Dell), but Fonality has a really good chance to play big, because its open source roots mean its phone systems for smaller offices costs tens of thousands less than similar system over a multi-year time period. For a 70-person office its PBX costs about $23,100 up front compared to more than $30,600 in annual leasing fees for a comparable system from Cisco.

The economic downturn might actually help Fonality find more customers, especially since most entrepreneurs (who would be in the market for cheaper phone systems) tell me recessions are the best time to start a business.

  1. Fonality is not all that it lets on… We purchased a system for our law firm and could never get it working. We spent hours on the phone with technical support, and despite their claims that it’s simple to configure, it wasn’t. We brought in outside tech support to configure our servers, at an additional cost.

    Bottom line– for small firms without an in house IT person– good luck! The system still needs an IT person to support it, fonality support wasn’t what it claimed to be (Fonality runs a hybrid/hosted service, which requires a continuous internet connection to deliver the service (i.e. if your connection goes down, they can’t access the server). Fonality sales reps are good at promises, but ultimately fail to deliver.

    PS– If you attempt to return a system watch out for a couple of zingers– Fonality charges a 15% restocking fee (which ran us over $1,500), and refused to accept a number of our telephones back on the return, even though one of the phones was DOA when it arrived at our office.

    PPS– Fonality was sued in federal court in New York by Rates Technology (“Rates”) in February, 2008 with a claimed patent infringement against it by Rates. The claim states that Fonality has violated patent rights held by Rates related to the least cost routing service Fonality builds into the PBX. Rates seeks an injunction against Fonality with respect to the infringement. Could this mean another blackberry style showdown? Only time will tell…..

    Jeffrey D. Katz

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  2. [...] to GigaOm’s Stacy Higginbothom, Fonality has secured another another round of financing, led by Draper Fisher Jurvetson Growth [...]

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  3. You know what they say..: “You buy stocks when the blood is in the street”.
    That is definitaely the time to start a business.

    As to the PBX, well we are always looking for something that is better is service and cheaper in cost.

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