August 2007

"Open source is a force that can't be stopped. When it picks a market it eats it out from the bottom up."

Chris Lyman, CEO, Fonality

Little is known about companies whose core business is selling telecommunications products that lever open source projects. Open source telecommunications (OST) companies operate in markets that are very different from typical software product markets. The telecommunications market is regulated, vertically integrated, and proprietary designs and special chips are widely used. For a telecommunications product to be useful, it must interact with both access network products and core network products. Due to specifications in Service Agreements Levels, penalties for failures of telecommunications products are very high.

This article shares information that is not widely known, including a list of OST companies and the open source projects on which they depend, the size and diversity of venture capital investment in OST companies, the nature of the commercial product-open source software and company-project relationships, ways in which OST companies make money, benefits and risks of OST companies, and competition between OST companies. Analysis of this information provides insights into the ways in which companies can build business models around open source software. These findings will be of interest to entrepreneurs, top management teams of incumbent companies that sell telecommunications products, and those who care about Ontario's ability to compete globally.

Key findings and conclusions are:

  • Twelve OST companies were identified and organized into three categories: IP telephony, network monitoring, and router equipment
  • OST companies are starting to show signs that they are capable of disrupting the telecommunications market
  • No OST company has its headquarters in Canada, a country that in the past led in the field of telecommunications
  • A large proportion of OST companies have raised venture capital (75%) and filed for patents in the system architecture domain (33%)
  • OST companies generate revenue in six different ways
  • OST companies derive significant benefits from open source projects
  • OST companies compete against vendors of proprietary product and each other

Open Source Telecommunications Companies

Table 1 shows twelve OST companies known to exist. Ten of these companies are located in the United States, one is located in Australia, and one is located in the United Kingdom. Nine have raised venture capital (75%) and four have filed patents (33%). The patents filed by OST companies tend to be in the system architecture domain.

Table 1: Open Source Telecommunications Companies





VC investment


OSS project





Huntsville, Alabama




IP PBX and

2PC cards



Los Angeles, California




IP PBX and



Groundwork OpenSource

San Francisco, California





IT and network monitoring



San Francisco, California



Hyperic HQ

Systems management


OpenNMS Group

Pittsboro, North Carolina




Enterprise-Wide Network Management




Burlington, Massachusetts







Leeds, United Kingdom








Columbia, Maryland




Intrusion detection and determination


Tenable Network Security

Columbia, Maryland




Vulnerability discovery and compromise detection




Adelaide, South Australia




PC cards




San Mateo, California







Annapolis, Maryland



Zenoss Core

Systems management


OST companies can be organized into three categories. IP telephony, network monitoring, and router equipment. IP telephony companies develop and market products that deliver VoIP functionality to customers and include Digium, Fonality, Pingtel, and VoiceTronix. Network monitoring companies provide products that either monitor a customer's network and report abnormal situations or provide a firewall to protect a customer's network. Network monitoring companies include Groundwork Open Source, Hyperic, OpenNMS Group, Smoothwall Ltd, SourceFire, Tenable, and Zenoss.

Router companies develop and market devices or software that determine the next network point to which a packet should be forwarded toward its destination. Routers are connected to at least two networks and decides which way to send each information packet based on its current understanding of the state of the networks to which it is connected. Vyatta is a router company.

Venture Capital Investment in OST Companies

The proportion of OST companies that have successfully attracted venture capital funding is high. Nine of the twelve companies shown in Table 1 are supported by venture capital.

The diversity of venture capital providers that invest in OST companies is also high. The following seven types of venture capital providers have invested in OST companies:

  1. Corporate venture capital: Intel Capital invested in Fonality, SAP Venture in Groundwork Open Source, SAIC Venture Capital in Pingtel, and Comcast Interactive Capital in Vyatta
  2. Investors experienced in open source investments: Matrix Partners invested in Digium as well as JBoss, an open source company with no telecommunications products
  3. Early stage investors: Vesbridge Partners invested in Pingtel
  4. Late stage investors: Meritech Capital Partners invested in SourceFire
  5. Institutional investors: Cross Creek Capital invested in SourceFire
  6. Leading venture capital firms: Sequoia Capital invested in SourceFire
  7. Venture capital branches of government departments: Maryland Department of Business and Economic Development's venture capital fund invested in Tenable Network Security

Commercial Product-Open Source Software Relationships

OST companies' commercial products and the open source software upon which they depend relate to one another in at least three different ways:

  1. Updates to the commercial product are first released to paying customers and subsequently released to the open source project. SourceFire releases security updates to Snort, the open source project upon which it depends, five days after releasing it to paying customers. Tenable releases its update to the open source project seven days after it releases it to paying customers. Smoothwall Ltd. progressively releases commercially developed features back into the open source project. Fonality releases patches and updates to its open source version every six months.
  2. The commercial product has more features than the open source software on which it depends. Tenable releases only certain features of its commercial product. Pingtel supports toll-quality features in its commercial offering but not on the open source version. Groundwork Open Source released its Groundwork Monitor Open Source as an entry level product, and offers commercial versions of its high-end products, Groundwork Monitor Professional and Groundwork Monitor Small Business.
  3. The commercial product and the open source software have the same functionality, however, the commercial product has been tested rigorously (e.g., Digium's Business Edition).

Company-Open Source Project Relationship

An OST company and an open source project can relate to each other in one of two ways.

First, an OST company can be the care giver of the open source project. In this type of relationship, the company may be the opportunistic result of an unexpected or unplanned success of an open source project. The company was either created or re-focused to provide commercial offers anchored around the open source software. This type of relationship includes the instances in which a company released its proprietary code to an open source project and becomes an open source company. Examples of this type of company-project relationship include Digium with Asterisk, SourceFire with Snort, Pingtel with sipX, and Smoothwall Ltd. with Smoothwall.

Second, an OST company could develop around an open source project that the company did not initiate or previously maintain. Examples of this type of company-project relationship include Vyatta with XORP, Fonality with Asterisk, and Groundwork Open Source with Nagios.

Ways OST Companies Make Money

OST companies generate revenue in one or more of the following six ways:

  1. The company sells hardware that is complementary to the open source software. Digium sells the TC400B, B410P, TE412P, TE120P, and TDM2400P cards; VoiceTronix sells OpenPCI-4L, OpenLine4, OpenSwitch12, and OpenPri.
  2. The company sells an appliance that integrates a PC with open source software. Vyatta markets their Open Flexible Router (OFR) appliance, Pingtel the SIPxchange ECS 50, Smoothwall Ltd. the SmoothGuard 1000-UTM and Fonality the PBXtra Standard and PBXtra Professional.
  3. The company sells add-ons to the open source software. Sourcefire provides the Sourcefire Intrusion Agent for Snort, Tenable Network Security the Nessus Vulnerability Scanner, and Groundwork Open Source provides Groundwork Monitor Small Business and Groundwork Monitor Professional.
  4. The company charges subscriptions for software maintenance and support. This is the model used by Pingtel's Jump Start Program, Technical Assistance Center (TAC) Support, and Specialized TAC Support. Fonality charges $65 per user per year for 1-4 phones and $38 per user per year for 500+ phones. Vyatta offers the OFR Enterprise Subscription and the OFR Professional Subscription. Digium has the 5x8xNBD Maintenance Plan and the 7x24xNBD Maintenance Plan. Tenable Network Security offers Nessus Direct Feed.
  5. The company charges for customization and consulting for open source software. Pingtel provides application support and consulting, Digium provides a configuration package, customer development and consulting, and Vyatta provides a remote consulting service.
  6. The company charges for commercial licenses. Asterisk is available from Digium under a commercial license.

Benefits OST Companies Derive from Open Source Projects

Open source projects are known to provide important benefits to OST companies. OST companies reported that they derived the following six benefits from using open source to make money:

  1. Open source enables OST companies to enter global markets quickly: Pingtel
  2. Open source enables small companies to enter niche markets dominated by large companies: SourceFire, Vyatta, Groundwork Open Source
  3. Open source decreases time to market: Fonality and Vyatta released commercial products in less than one year after they were founded
  4. Open source attracts a very large user base that includes potential customers: Snort and Smoothwall had 3 million and 1 million downloads of their open source software respectively
  5. Open source pulls sales for commercial hardware products: VoiceTronix's hardware supports Asterisk, an open source software with private branch exchange functionality
  6. Open source lowers the price of commercial products that are derived from it: Fonality's product sells for half the price of a similar Cisco proprietary product

Risks to Which OST Companies are Exposed

OST companies that initiate open source projects are exposed to the following four risks:

  1. A competitor can use the open source code developed by the company to increase its market share. Digium initiated Asterisk while Fonality has the world's largest Asterisk-based commercial deployment.
  2. A competitor can fork the open source project initiated by the company and launch a competing community. OpenPBX was forked from Asterisk and TrixBox was based on Asterisk. TrixBox became the world's largest Asterisk-based community, and was then acquired by Fonality.
  3. A competitor can package open source software into an appliance without revealing that the code was developed by the open source project the company initiated. Many security product companies generate revenue by inserting Nessus into an appliance, writing a Web interface for it, and branding it as their own solution.
  4. Some customers (existing or potential) may have policies in place that prevent them from buying products that have open source. Tenable's customers could not buy the company's products while the code was open source.


It is well known that open source companies compete against proprietary vendors. It may be less known that open source telecommunications companies, projects and communities also aggressively compete with each other.

Consider, for example, the competition between sipX and Asterisk, both open source IP-PBXs. The sipX approach to development is top-down and standards-based, with support from the standards committees. The Asterisk approach is strictly bottom-up, based on users? preferences rather than standards committee recommendations.


The information in Table 1 provides evidence that OST companies (i) are addressing the needs of two access markets (VoIP and network monitoring), and (ii) have started to move into the core network with the introduction of a wide area router.

OST companies are starting to show signs that they are capable of disrupting the telecommunications market. While OST companies have not shaken up the existing status quo yet, evidence does exist that suggests that open source IP telephony is a low market disruptive innovation and that open source network monitoring is a new-market disruptive innovation.

With open source companies in general, and OST companies in particular, managing the relationship between assets that the company does not own and assets it does own is very important. OSTs need to manage more relationships than their proprietary rivals; for example, the relationship between the company's priorities and the open source project's priorities.

OST companies provide new opportunities to create wealth to entrepreneurs and income for employees.

Building a company around an open source project is a new way for tech-savvy entrepreneurs to start a business venture. They can either start an open source project or use an existing one.

Recommended Reading

  1. Christensen, C.M., The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Boston: Harvard Business School Press, 1997).
  2. Christensen, C.M., and Raynor, M.E., The Innovator's Solution: Creating and Sustaining Successful Growth (Boston: Harvard Business School Press, 2003).
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