Digium UpdateDigium Update

Fred Knight and I had the opportunity to travel down to Huntsville, AL, last week to visit with the folks at Digium, the company founded by Mark Spencer, creator of the Asterisk open source PBX. What we found was a company that appears to be making the familiar tech industry passage from a young startup focused on breaking new ground, to VC-funded company on the IPO track, focused on execution and building its market.

Fred Knight and I had the opportunity to travel down to Huntsville, AL, last week to visit with the folks at Digium, the company founded by Mark Spencer, creator of the Asterisk open source PBX. What we found was a company that appears to be making the familiar tech industry passage from a young startup focused on breaking new ground, to VC-funded company on the IPO track, focused on execution and building its market.Digium has always had lots of buzz, largely thanks to Mark Spencer's high profile, enthusiasm and energy in advocating for open source in the communications world. In classic startup form, the company has brought in a team of industry veterans to push Digium to the next level. Many of these leaders, including CEO Danny Windham and worldwide sales VP Steve Harvey, moved over from Adtran, whose HQ is just across Huntsville's industrial park from Digium. Another exec, product marketing VP Bill Miller, is a veteran of Fujitsu, 3Com and other venerable networking and telecom companies.

What I wasn't really aware of was how solid a footing Digium has built: It's on its 26th consecutive quarter of profitable growth, driven primarily by analog and digital gateway boards, which account for 70% of the company's revenue. In fact, up until August 2006, all of its revenues were tied to boards, according to Bill Miller, who admitted, "The challenge has been for us to monetize Asterisk."

Things picked up in a big way last year. The company launched its first Asterisk appliance; concluded three OEM deals (3Com plus two companies not publicly named); and acquired Switchvox, a San Diego-based firm that had built a 400-station-capable PBX on Asterisk. According to Bill Miller, the Switchvox acquisition and product is what will boost Digium out of the low-end SMB market into larger deployments. Digium also launched 24X7 worldwide subscription support services last year.

The company touts its growing customer base, recently announcing that its 4 millionth port of Asterisk was shipped to Wisconsin-based Ashley Furniture, which claims to be the #1 selling brand of home furniture in North America. Among its other installations is a 1,200-seat contact center for Aheeva (a call center/CTI software vendor) which has 4 sites, 28 T1s, 650 lines and 10 Asterisk servers, handling a peak of 160K calls in one day, 55K calls on average. Digium is working on scaling its Business Edition Software's capabilities, and in the next (4.0) release will start to build some of the clustering capabilities needed to support growing deployment sizes, Miller said.

Cost is still the major appeal of Asterisk, according to Bill Miller, who said ROI for Digium's AA50 Asterisk appliance or its Business Edition software package can be "months." SMBs, he said, "don't care about Asterisk"--that is, they're not open source advocates--they just want an appliance that works.

The other big advantage is flexibility. Customers can work with their VARs (Digium sells only through the channel) to customize the software in ways that would be much more expensive and time-consuming with legacy vendors' products, Miller said.

Digium/Asterisk may not be a PBX for the large enterprise today, and if Unified Communications had never come along, it might have continued to show up as nothing more than a science project on the part of a few motivated hobbyists within enterprise IT/telecom shops. But UC is beginning to cause enterprises to think differently (to coin a phrase) about phone systems. I recently spoke with Blake Baxter of Dimension Data, who said that in some client enterprises, UC is "pulling" IP telephony instead of vice versa. This tracks with the general perception that enterprises might want to first find the communications applications that will add value, then build IP telephony out where it enables these apps. In a context like that, call control can become something of a wild card. And so could Digium/Asterisk.

The venture capital firm Matrix Partners invested $13 million in Digium in 2006, and Adtran also holds a 13% stake in Digium. Now isn't exactly the time for any startup to be bandying about specific plans for an IPO, but that's clearly where Digium will be positioned in the medium term--which might just coincide with the time when the market rebounds.