Open source software development harnesses the power of community to develop solutions and iterate improvements based on collective experiences. But as open source projects evolve, they sometimes outgrow their ability to scale. In order to solve some enterprise-scale problems, open core solutions — which use open source as a foundation — provide a way to monetize viable commercial products.
Our portfolio SignalWire provides a case study in this area. The company’s enterprise products are based largely on FreeSWITCH, an open source telecom stack used by about 5,000 businesses worldwide. FreeSWITCH enables companies to create their own telecom solutions using a free suite of voice, chat, and video applications.
But SignalWire’s enterprise-level platform — which features a scalable elastic cloud infrastructure and APIs that support bi-directional data transmission — provides customized tools for building more advanced communication infrastructure.
Potential in the rapidly growing IaaS sector
Samsung Next invested in SignalWire in part because of its potential to grow as part of the red hot infrastructure-as-a-service (IAAS) sector, which was valued at $39 billion in 2019 and projected to reach $202 billion by 2027. SignalWire aspires to be the world’s largest cloud-native telecommunications platform, bridging legacy telecom with modern mobile and app-based communication services.
The company is on the leading edge of a trend in the telecom industry in which legacy hardware solutions are being replaced by software-based and virtualized telephony and communication services. Moreover, SignalWire has the potential to power a decentralized telecom vision and become the backbone for cloud-based person-to-person and machine-to-machine communications.
One of the key differentiating factors for SignalWire is its founding team, led by CEO Anthony Minessale II. Anthony is also the creator and primary contributor to the FreeSWITCH open source project, the foundation upon which SignalWire’s technology is built. The FreeSWITCH open source code is currently being used by a wide range of fast-growing telecom companies, such as Twilio, RingCentral, and Dialpad.
Because Anthony and his team are the architects of FreeSWITCH, they are experts in building high-performance telecommunications software platforms with functionality for voice, text, and video content. In fact, SignalWire’s team has been working on FreeSWITCH for more than a decade, and they are well positioned to capitalize on its capabilities and market potential.
Beyond DIY tools
Developing advanced telecommunication services for enterprises requires battle-tested solutions that are predictable and dependable. Open source components work well for companies with skilled developers who are on call 24/7. But in the realm of telecom, where uptime is essential and complexity is high, businesses that do not consider communications a core competency might prefer to implement hardened, market-ready software applications to reduce their dev-ops footprints.
“Maintaining FreeSWITCH is difficult,” says Minessale. “Code flows on multiple timelines, and choosing a stable version to run in production and QA testing a new build is hard even for us, so end users who lack the expertise to manage all of that have an even harder time.”
Anthony launched SignalWire in 2017 to harness the inherent chaos of an open source solution with millions of code paths. Leveraging the open source code, SignalWire built a suite of telecom-as-a-service products that businesses could deploy without the need for an army of in-house IT technicians and low-level coders. “It's like the Nintendo cheat codes for advanced telecom,” he says.
SignalWire takes much of the user-facing complexity out of FreeSWITCH and adds an intuitive application layer on top, which makes the platform accessible for users of all skill levels. Removing much of the complexity of FreeSWITCH makes it a more viable commercial solution for telecom end users.
Companies like Mongo DB, Elastic, and Confluent, have all built billion-dollar companies on an open source foundation. The common denominator is that all three companies used the power of open source to fuel proprietary iterations.
“FreeSWITCH is a low-level engine similar to Apache,” says Anthony. “Rather than trying to make a product out of it, we chose to make it a component in our product. The SignalWire products are not just a one-to-one replica of FreeSWITCH. There is a lot of complexity under the hood and we have built several layers of additional engineering on top of that complexity to make SignalWire possible.”
“When you’re a venture-backed company like we are, you’ve got the resources to help you grow. Now, we have to put our heads down to try and figure out how we can commercially scale.” — Anthony Minessale II, CEO, SignalWire
The monetization path
The move from open source to commercial products gives companies like SignalWire the ability to differentiate products that end users — like Amazon, Netflix, Vonage, and Zoom — want to buy.
SignalWire products provide a software-based solution for companies that want to deploy telecom solutions, from call centers to VoIP phone systems. The main value proposition for SignalWire’s customers is that they don’t have to invest in racks of servers and other hardware to support their telecommunications needs. They also don’t need a high level of in-house technical expertise.
Scaling revenue growth
In order to become the next open core success story, SignalWire will have to rapidly scale its customer base. One of the ways the company hopes to supercharge sales is through innovation.
Relay, the company’s newest product, allows developers to embed voice, messaging, and video capabilities into applications using advanced real-time APIs. Users can, for example, develop customized scripts that let them manipulate calls in a multitude of ways. A simple script might screen your calls for you, create a virtual Santa Claus, or enable the creation of a voice bot to order food for you. Integration with other SaaS tools, such as Zapier or Salesforce, can trigger other actions or facilitate direct engagement with the caller.
SignalWire’s metered revenue model is a familiar one in the telecom space. But now, Anthony says, “instead of paying to keep a server in a rack every month, and paying another guy to maintain it, you only have to pay for usage, when your scripts are running.”
The company’s usage-based pricing model — guaranteed to be the lowest available on carrier services, such as voice and messaging — features minimal markup. Carrier services are accessed using APIs and SignalWire’s per-minute and per-SMS charges promise to cause major market disruption. That’s because SignalWire offers an economic alternative to API providers accustomed to charging much higher margins on the same services.
Price disruption isn’t the only reason for SignalWire’s growth. The COVID-19 pandemic has increased demand for remote work connectivity, and a rapid shift toward the adoption of IP-based communication technology has been a boon for SignalWire. “No matter how much money we might have spent marketing,” Anthony says, “it cannot be matched by this pandemic, which suddenly forced everyone into a new paradigm.”
Now, SignalWire is focused on the future, and on developing a new generation of communications tools for today’s digital landscape. This includes ways to embed a high-quality voice and video network into common endpoints, like browsers and mobile devices, in order to meet the requirements for live events and remote office solutions.
SignalWire’s revenue grew rapidly in 2020, thanks largely to pandemic-driven demand. The company is also flush with cash, having received $11.5 million in Series A funding from a group of venture capital investors that includes Samsung Next.
Looking ahead, Anthony says, “When you’re a venture-backed company like we are, you’ve got the resources to help you grow. Now, we have to put our heads down to try and figure out how we can commercially scale.”