Dialogic Corporation

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Dialogic Corporation

300 Littleton Road
Parsippany, New Jersey 07054
U.S.A.
(201) 334-8450
Fax: (201) 334-1257
Web site: www.dialogic.com

Public Company
Incorporated: 1983
Employees: 650
Sales: $168.6 million (1995)
Stock Exchanges: NASDAQ
SICs: 3672 Printed Circuit Boards; 7372 Prepackaged Software

Dialogic Corporation, which has been credited with creating the computer telephony industry, is a world leader in computer telephony (CT) components. More than one-third of all computer-assisted telephone transmissions—including voice, fax, data, voice recognition, text-to-speech synthesis, and call management—are answered by computer networks incorporating Dialogic products. The company’s 250 products cover the entire range of computer telephony applications, and are approved for use in some 50 countries. Since pioneering CT in the early 1980s, Dialogic has shipped more than two million ports, that is, connections to telephone lines, as well as helping to establish the Signal Computing System Architecture (SCSA) software standard for CT applications.

Dialogic does not provide end-user systems, but rather building blocks for the CT industry. Sales are made through a customer base including value-added resellers (VARs), original equipment manufacturers (OEMs), telephone and wireless communications providers, and software applications developers. The company’s more than 3,000 customers include small system integrators, major telecommunications companies, Post Telephone and Telegraph (PTT) companies, and computer companies, including Deutsche Telekom, Northern Telecom, Fujitsu, IBM, Motorola, NEC, and Hewlett Packard. The company’s two main product lines are its two- and four-port voice processing hardware, used for unified messaging, voice mail, and interactive voice response applications, and its DIALOG/HD high-density 16- to 60-port voice and network interface hardware, used in high-volume telecommunications networks.

Dialogic is led by cofounder and chairman Nicholas Zwick and by president and CEO Howard G. Bubb. Sales of the company’s products neared $170 million in 1995, spurred in part by several mergers and acquisitions, including Gammalink in 1994; Spectron Microsystems and the Computer Integrated Technology (CIT) group of Digital Equipment Corporation in 1995; and Dianatel in 1996. Dialogic, headquartered in Parsippany, New Jersey, has operations in 13 countries in North and South America, Europe, and Asia.

The Call of the Future in 1983

The company was founded 1983 by three engineers, Nicholas Zwick and James Shinn, both of whom had worked for Advanced Micro Devices, and Kenneth Burkhardt, formerly with Unisys. At the time, the telecommunications and computer industries operated separately. The telecommunications industry relied on closed private branch exchange (PBX) systems to control both private and public telephone networks. The computer industry was based primarily on equally closed mainframe systems. The rise of the personal computer and client/server markets in the 1980s, however, opened new opportunities.

Zwick, Shinn, and Burkhardt were among the first to recognize the inevitable merging of the telecommunications and computer industries, and Dialogic was founded to provide building block solutions for linking voice processing to computers. “They knew that the same trends that revolutionized computing would fuel the creation of a whole new industry,” as Howard Bubb told Investor’s Business Daily.

Rather than focus on providing end-user products, Dialogic created hardware and software components that would then be used by a variety of manufacturers and resellers to build end-user systems. The company also provided strong technical support services to its VAR, OEM, and systems integrator customers. In this way, Dialogic avoided direct competition with telecommunications and computer industry providers—indeed, the company’s founding charter contained a clause forbidding it from competing with its customers. In turn, the company’s customers helped raise Dialogic’s products to the industry standard. By the end of the decade, Dialogic’s products controlled between 60 and 70 percent of the new market. Its products were supported by more software and hardware vendors than all of its competitors combined. Discussing Dialogic’s success with Teleconnect, Zwick said: “First, we stuck to our product and market focus. Our long-term goal was to be a building block supplier. We simply would not abandon this goal for mere short-term opportunities.”

CTI held the promise of revolutionizing business and consumer communications. The integration of telephone technology with computer technology offered a dazzling array of possibilities for sharing voice and data communications among networks, desktop computers, the Internet, and the telephone. CTI, among other potential applications, would allow international voice calls and full-duplex (two-way) conference calling without long-distance charges. Local-area networks (LANs) could be used to route voice-mail messages over the Internet in the same way as e-mail messages. Facsimile machines and voice-mail were two early innovations provided by CTI; in the future, CTI promised expanded voice synthesis applications, such as allowing fax messages to be converted to speech, or voice messages to be converted to fax messages. Early implementation of CTI allowed the creation of call centers: when a customer placed a call to a bank, credit card agent, telephone provider, or other system, the call would bring up the customer’s account information on the operator’s computer screen. Fulfilling the promise of CTI, however, required several important factors: advances in the basic technology, the “opening” of systems to allow third-party add-ons to basic components, and the establishing of hardware and software standards.

Fulfilling the Promise in the 1990s

During the 1980s, Dialogic’s main customer relationships came through its Toolkit Developer’s Program. A developer was responsible for designing an application generator for its hardware components. The application generator was software that gave third-party developers a head start on developing the end-user software and hardware systems based on Dialogic components, allowing developers to create applications more quickly and easily. These developers—called Solutions Developers by Dialogic—were usually distinguished by an expertise in a specific industry, such as banking, health care, cable television, or insurance. As Shinn told Teleconnect, “There doesn’t seem to be an industry that can’t come up with an innovative application using our tools.” Dialogic would provide not only technical support, but sales and marketing support as well. This system, however, remained relatively closed to developers other than those specifically chosen by Dialogic.

By the beginning of the 1990s, Dialogic faced new competition. The industry that the company had pioneered spawned a host of new companies developing competing technology. At the same time, Dialogic feared that its dominant position in the market might cause customers to turn to the competition. As Bubb told Electronic News, “People don’t want to be held hostage to us.” In response, Dialogic moved to open its architecture, announcing the company’s Open Platform Environment (OPEN) in 1991. This move was mirrored in the computer market as well: IBM opened its personal computer architecture in the 1980s, creating a flood of machines based on IBM technology that came to dominate the personal computer market; in contrast, rival Apple maintained a closed architecture until the mid-1990s, dooming the company to dwindling market share. With OPEN, Dialogic hoped not only to build on its relationships with its developers, but also to encourage far-reaching applications for its products, solidifying the company’s base in the coming—and inevitable—standards wars. “Solutions Developers see our Open Platform Environment as assuring them of choice and of second sourcing,” Shinn told Teleconnect. “The open Platform Environment lets Solutions Developers differentiate their voice processing systems by adding bits and pieces of new technology arising as a result of the now-open architecture.” By opening its architecture to competing companies, Dialogic also hoped to expand the market itself, increasing Dialogic’s revenues despite the competition.

In further support of OPEN, Dialogic also established a new developer relationship, called Technology Developers. These developers were companies that made specialty products that Dialogic itself didn’t produce, but which could be based on Dialogic components. Early Technology Developers included Gammalink, based in Sunnyvale, California, and Brooktrout Technology, based in Wellesley Hills, Massachusetts, both makers of facsimile boards, and several voice recognition product makers, such as Voice Control Systems of Dallas, Texas, and Berkeley Speech Technologies of Berkeley, California. Opening Dialogic’s architecture was seen as a bold move. “It’s like having a monkey on our back,” Shinn told Teleconnect, “Either we keep up with what we’ve announced. Or we lose our dominant position and become a ‘me-too’ player.”

Company Perspectives:

Dialogic was founded in 1983 on a simple vision: to bridge the once separate telecommunications and computer networks by building standards-based components for voice and fax processing.

The implementation of OPEN helped boost Dialogic’s revenues from $50.8 million in 1991 to nearly $65.5 million in 1992. The company’s income also proved strong, rising from $5.2 million in 1991 to $6.5 million the following year. By then, however, Dialogic found itself in a standards battle between Dialogic’s pulse-code expansion bus (PEB) and the multi-vendor integration protocol (MVIP) touted by chief competitors Natural MicroSystems and Rhetorex. Both systems sought to create the protocol and physical connection standards for the communications backplane—a ribbon connector allowing voice processing boards to work with various computer bus systems. (A bus refers to the wiring system used to carry data to and from a computer processor, while also defining protocols for attaching peripheral components such as memory, hard drives, and others to the processor.) Setting up standards was seen as a necessity for the industry: applications developers were reluctant to invest in creating new telephony software programs without industry-wide standards, and without software to drive them, sales of hardware would remain limited. Despite some claims that MVIP offered a superior standard, Dialogic’s large installed base gave the company an advantage.

Dialogic moved to build on that advantage in 1993, with the announcement of the formation of a new standards group, Signal Computing System Architecture (SCSA). Joining Dialogic to create the SCSA standard were some 70 other computer telephony companies, a group that would grow to more than 250 over the next two years. The SCSA group drafted its hardware standard by the end of 1993, and completed software specifications in September 1994. The SCSA standard provided seamless integration of telephony hardware components and software applications across a variety of vendors. Dialogic began shipping SCSA-based components in 1994, and the first end-user SCSA-based products began appearing in 1995.

The company’s revenues continued to grow, reaching $95.6 million in 1993 and passing $127 million in 1994. Dialogic went public in 1994, selling 3.75 million shares. The IPO was made in part to complete the acquisition of Gammalink, which was announced in 1993. Dialogic’s move to acquire Gammalink, which would continue to operate as a separate entity, was made in order to add Gammalink’s facsimile board capacity to Dialogic’s product line, allowing the company to step up the integration of voice-mail and fax capabilities.

At the start of 1995, Dialogic made two more strategic acquisitions. The first was of Digital Equipment Corp.’s CIT group and that company’s computer integrated telephony server technologies. The acquisition, formed as Dialogic’s CT division, brought out its first product, CT-Connect, in 1995. CT Connect allowed the integration of enterprise-wide personal computer networks to PBX systems using a Windows NT-based server. Dialogic’s second acquisition in 1995 was of Spectron MicroSystems, the company that had developed the industry standard SPOX digital signal processing (DSP) operating system used by Motorola, Texas Instruments, Intel, and other industry heavyweights. The acquisition of DSP software was seen as a method for further coordinating standards development, while broadening the company’s product range. At the same time, Dialogic joined with Digital Equipment Corp., Ericsson Business Networks, Hewlett-Packard, and Northern Telecom to form the Enterprise Computer Telephony Forum (ECTF) to further the implementation of industry-wide CT standards.

Acquisitions, Alliances, and a Bright Future

Dialogic closed 1995 with revenues nearing $170 million and a net income of more than $16 million. The following year, the company entered strategic alliances with two more companies, Israel-based VocalTec, Inc., a pioneer in Internet telephone software, and Artisoft, Inc., based in Tucson, Arizona. In June 1996, the company also acquired Dianatel, based in San Jose, California, a maker of digital trunk interface products. Meanwhile, releases of SCSA-based products began to take off in 1996, and analysts began to predict a long-awaited boom in the CTI industry, with estimates that the industry would reach more than $5 billion in sales by 1998. With the computer telephony revolution gaining momentum, Dialogic, which controlled more than half of the non-proprietary segment of the industry, was braced for a sales explosion.