Dial D for Disruption

In a research park outside the low-key bustle of downtown Huntsville, Ala. Mark Spencer finishes his barbecue and resumes wreaking havoc on the multibillion-dollar phone equipment business.

Spencer is the inventor of Asterisk, a free software program that establishes phone calls over the Internet and handles voicemail, caller ID, teleconferencing and a host of novel features for the phone. With Asterisk loaded onto a computer, a decent-size company can rip out its traditional phone switch, even some of its newfangled Internet telephone gear, and say good-bye to 80% of its telecom equipment costs. Not good news for Cisco (nasdaq: CSCO - news - people ), Nortel or Avaya (nyse: AV - news - people ).

"We have to figure out ways to get into everything: Carriers, businesses, equipment companies," says Spencer. "For better or worse, I don't tend to think small."

Spencer, who is all of 29 years old, is poised to disrupt the $7 billion market for office telecom switches (often called PBXs) much the way the Linux open-source computer operating system crushed the price of business computing and brought woe to established leaders such as Microsoft (nasdaq: MSFT - news - people ) and Sun Microsystems (nasdaq: SUNW - news - people ).

Since Spencer released Asterisk to the world in 1999 as a phone operating system, it has been downloaded 500,000 times, and it continues to be downloaded 1,000 times per day. Some 350 contributors have taken it from a rocky voice system to one with clear calling and more than 100 features.

Electric utility Southern Co. is using Asterisk in a pilot program to translate voicemail into text messages for 30 managers' BlackBerrys.

The town of Manchester, Conn. is about to begin using Asterisk to run an application tied to the 911 service that will cost less than $1 million, half the price it would have paid had it used traditional phone equipment, and at 10% of the operating costs. Outsourcing company Sutherland Global Services has tested Asterisk in 400-person call centers, finding it cuts telephone costs by two-thirds.

In Rensselaer, Ind. computer science professor Brian Capouch has built a commercial-class phone system that already touches 20 communities and covers more than 1,000 square miles with just $100 in personal computer equipment and $125 to customize each location.

For a little more he built an Asterisk system of motion detectors and Web cameras that send video to his office laptop and can call any phone when something happens at his house. One of his students created a business sending other kids automated wake-up calls. Other Asterisk hacks include a way to pay your parking meter by phone.

"You couldn't set out to build a system like this. No one company could do it all. When you open source, people just keep improving things," says Spencer.

Asterisk could lead to the creation of thousands of businesses, as people begin thinking about the phone the same way they saw the personal computer in 1980, as a platform on which to build. Spencer had this in mind when he named his software after the symbol used in Unix computer programming to signify "everything."

Digium, the company Spencer created in 1999, now has 50 employees and more than $10 million in revenue from selling hardware loaded with a tested business edition of the otherwise free Asterisk, much the way Red Hat (nasdaq: RHAT - news - people ) charges for a widely used standard for Linux. Digium makes a profit, though Spencer won't say how much.

Overhead is low. Spencer pays less than $15 a square foot for space (per year) and does up his own quarters in geek chic: reworked computer guts, testing screens, a fridge filled with caffeinated sodas and a sculpture he made of a robot holding a rotary phone. He shares his office with a 23-year-old programmer who was still a teen when they met. Spencer once had to write a note to his principal years ago when a job conflicted with the school day.

Spencer's parents are professors at Auburn University (his American father teaches education, his Egyptian mother French). In eighth grade he wrote a grading program for his teacher and sold it for $5. While still in high school, Spencer hung around Auburn's electrical engineering department, designing integrated circuit structures for fun. "I'd go over to his house [to discuss semiconductors] and he'd be finishing writing a symphony on his synthesizer," says Thaddeus Roppel, an Auburn professor and early mentor. "He kept up with his high school homework, too."

While on a full scholarship at Auburn, Spencer started Digium as a Linux consultant. He sold one-seventh of the firm for $500,000 to Adtran, a Huntsville telecom equipment maker where he had interned two years before. He wanted a really cool phone switch to handle sales orders, but when he learned that it would cost $10,000, he began writing Asterisk. "I'd never touched a traditional pbx," Spencer says.

But he knew a ton about open-source software, whose source code is given away in order to attract improvements. He had earlier built an instant-messaging client called Gaim, which has become popular among the open-source crowd. Spencer based Asterisk on Apache (nyse: APA - news - people ), the freebie software that powers many a Web server. Aided by a couple of Internet telephone veterans, he put the telephone switch at the center of the operating system and made it possible to connect it to almost any Internet phone system (except Skype).

Asterisk was still a hobby until the spring of 2001, when the tech crash killed Digium's Linux business. Spencer saw there was interest in Net phones and shifted gears. By the end of the year Digium was selling computer cards with custom boards and Asterisk software.

Spencer is picking up a few big allies. Intel (nasdaq: INTC - news - people ) now makes Asterisk-compatible cards for computers and has tested large deployments. "Open source is one of the hottest topics in telecom today," says Intel marketing director Timothy Moynihan.

Yet IBM, which styles itself a champion of all things open, will only say it has a "positive but very informal" relationship with Asterisk and Digium. That distance may owe something to the fact that IBM resells Cisco's Internet telephone gear to big firms like Ford (nyse: F - news - people ) and Dow Chemical (nyse: DOW - news - people ).

In an internal study last summer Cisco identified 100 corporate customers making big use of Asterisk. Open-source Internet phones, the document said, will force Cisco to excel in "reliability, productivity, enhancements, features, vendor reputation, service [and] support." Cost was unlikely to be Cisco's selling point.

"I used to go on industry panels, and the guys from Cisco would be nice and baby me, never saying anything bad about Asterisk," Spencer says. "Lately they've stopped seeing me as a charity. It's their business."

Says Cullen Jennings, a senior Cisco engineer: "The bulk of PBXs that people deploy five years from now will not be open source, but that is just a guess." Either way, he figures that if Asterisk destroys Cisco's valuable PBX business, Cisco can sell services and related networking gear based on it, the same way ibm embraced Linux-based computing.

Spencer hopes he doesn't have to choose between spreading the Asterisk gospel or getting rich on Digium. "The existing telephony business, for some companies, is going to get collapsed way down," he says. "What will be the new services? The new industries? Like a lot of things, you do this because it's interesting, and you don't really know where it's going to go."

[Via Forbes]